Macroeconomics for Managers
Exam Materials
Course Introduction
Macroeconomics for Managers provides an essential foundation in macroeconomic principles with a focus on their application in managerial decision-making. The course explores key topics such as national income determination, fiscal and monetary policy, inflation, unemployment, exchange rates, and global economic trends. Emphasis is placed on understanding how macroeconomic indicators and government policies impact business environments, enabling managers to interpret economic data, forecast trends, assess risks, and make informed strategic decisions within both domestic and international contexts.
Recommended Textbook
Principles of Macroeconomics 8th Edition by N.
Gregory Mankiw
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158 Chapters
11779 Verified Questions
11779 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) In considering how to allocate its scarce resources among its various members,a household considers
A)each member's abilities.
B)each member's efforts.
C)each member's desires.
D)All of the above are correct.
Answer: D
Q2) Economics is the study of how society manages its
A)limited wants and unlimited resources.
B)unlimited wants and unlimited resources.
C)limited wants and limited resources.
D)unlimited wants and limited resources.
Answer: D
Q3) Fundamentally,economics deals with A)scarcity.
B)money.
C)poverty.
D)banking.
Answer: A
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Page 3
Chapter 1: Ten Principles of Economics: How People Make Decisions
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Sample Questions
Q1) For a college student who wishes to calculate the true costs of going to college,the costs of room and board
A)should be counted in full,regardless of the costs of eating and sleeping elsewhere.
B)should be counted only to the extent that they are more expensive at college than elsewhere.
C)usually exceed the opportunity cost of going to college.
D)plus the cost of tuition,equals the opportunity cost of going to college.
Answer: B
Q2) Suppose that you have received $300 as a birthday gift.You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest.The opportunity cost of spending the money today,in terms of what you could have after one year,is
A)$0.
B)$15.
C)$305.
D)$315.
Answer: D
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4
Chapter 1: Ten Principles of Economics: How People Interact
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Q1) If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price,then we would expect,relative to the market outcome,
A)an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
B)an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
C)a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
D)a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
Answer: B
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) US citizens have better nutrition,better healthcare,and a longer life expectancy than citizens of Ghana.Which of the following conclusions can be drawn from this statement?
A)Average income in the US is higher than the average income in Ghana.
B)The US has a higher standard of living than Ghana.
C)Productivity in the US is higher than productivity in Ghana.
D)All of the above are correct.
Q2) Which of the following would a permanent increase in the growth rate of the money supply change permanently?
A)inflation
B)unemployment
C)both inflation and unemployment
D)neither inflation nor unemployment
Q3) An increase in the overall level of prices in an economy is referred to as A)the income effect.
B)inflation.
C)deflation.
D)the substitution effect.
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Page 6
Chapter 1: Ten Principles of Economics: Part A
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Sample Questions
Q1) In a centrally-planned economy,economic activity is guided by ------.
Q2) Economists use the term ------ to refer to an increase in the overall level of prices in the economy.
Q3) Economists use the term ------ to refer to a situation in which the market on its own fails to produce an efficient allocation of resources.
Q4) Refer to Scenario 1-3.What is the minimum price the company will charge for the 701<sup>th</sup> calculator?
Q5) Refer to Scenario 1-6.A customer is willing to pay $60 for the 601<sup>st</sup> heart rate monitor.Should the company produce and sell it? Explain.
Q6) Explain how trade with other countries is beneficial.
Q7) What are the two short-run effects of increasing the quantity of nation's money?
Q8) The term ------ refers to a small incremental adjustment to an existing plan of action.
Q9) Refer to Scenario 1-4.What is your opportunity cost of going to the movies?
Q10) Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.
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Q11) Give an example of government intervention that is intended to reduce an externality.
Chapter 1: Ten Principles of Economics: Part B
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Q1) The classic tradeoff between "guns and butter" states that when a society spends more on national defense,it has less to spend on consumer goods to raise the standard of living.
A)True
B)False
Q2) The cost of an action is measured in terms of foregone opportunities.
A)True
B)False
Q3) Market failure occurs when no individual has the ability to substantially influence market prices.
A)True
B)False
Q4) The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.
A)True
B)False
Q5) The "invisible hand" influences market behavior through trade.
A)True
B)False
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) The language of economics is
A)needlessly arcane.
B)valuable because it provides a new and useful way of learning about the world.
C)easy to learn within a day.
D)unnecessary to learn for a thorough understanding of economics.
Q2) Studying which of the following is helpful in learning to think like an economist?
A)theory.
B)case studies.
C)examples of economics in the news.
D)all of the above.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Sample Questions
Q1) Which of the following would likely be studied by a macroeconomist rather than a microeconomist?
A)the effect of an increase in the alcohol tax on the market for beer
B)the effect of foreign competition on the domestic auto industry
C)the effect of a price war in the airline industry
D)the effect of an increase in the minimum wage on an economy's overall rate of unemployment
Q2) Refer to Figure 2-2.Carla regularly buys fruits and vegetables at a grocery store.Roberto regularly pays a lawn-care company to mow his lawn.If the flow of fruits and vegetables from the grocery store to Carla is represented by an arrow from Box C to Box B of this circular-flow diagram,then the money paid by Roberto to the lawn-care company is represented by an arrow
A)from Box A to Box D.
B)from Box B to Box C.
C)from Box C to Box B.
D)from Box D to Box A.
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) Positive statements are
A)prescriptive.
B)claims about how the world should be.
C)claims about how the world is.
D)made by economists speaking as policy advisers.
Q2) A normative economic statement such as "The minimum wage should be abolished"
A)would likely be made by an economist acting as a scientist.
B)would require values and data to be evaluated.
C)would require data but not values to be evaluated.
D)could not be evaluated by economists acting as policy advisers.
Q3) Duties of the Council of Economic Advisers include
A)advising the president and writing the annual Economic Report of the President.
B)implementing the president's tax policies.
C)tracking the behavior of the nation's money supply.
D)All of the above are correct.
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Chapter 2: Thinking Like an Economist: Why Economists
Disagree
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Sample Questions
Q1) "If all economists were laid end to end,they would not reach a conclusion." Who made this whimsical observation?
A)Harry Truman
B)George Bernard Shaw
C)John Maynard Keynes
D)Ronald Reagan
Q2) The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in
A)opinions and education.
B)opinions and values.
C)scientific judgments and education.
D)scientific judgments and values.
Q3) Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?
A)similar opinions about the validity of economic theories
B)significant differences in education
C)differences in personal values
D)a reliance on normative statement for research theories
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Q1) According to economist John Maynard Keynes,a great economist must also be a(n)
A)mathematician.
B)historian.
C)philosopher.
D)All of the above are correct.
Q2) John Maynard Keynes referred to economics as an easy subject,
A)at which very few excel.
B)but not as easy as philosophy or the pure sciences.
C)which very few can enjoy.
D)which deals primarily with common sense.
Q3) When a government program is justified not on its merits but on the number of jobs it will create,
A)the program is an efficient use of taxpayer dollars.
B)it should be approved only if the unemployment rate is low.
C)taxes should be raised to fund the program.
D)it is known as the "broken window fallacy."
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Sample Questions
Q1) Refer to Figure 2-18.Which of the following could result in a movement from point B to point Z?
A)a change in the price of a restaurant meal
B)a change in the number of restaurant meals demanded
C)a change in income
D)Both a and b are correct.
Q2) The slope of a line is equal to
A)the change in the value of x divided by the change in the value of y.
B)the change in the value of y divided by the change in the value of x.
C)the horizontal distance divided by the vertical distance.
D)the value of y divided by the value of x.
Q3) The slope of a steep upward-sloping line will be a
A)small positive number.
B)large positive number.
C)small negative number.
D)large negative number.
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14
Chapter 2: Thinking Like an Economist: Part A
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Sample Questions
Q1) When economists disagree about whether a policy is fair,they are expressing a difference in
Q2) Refer to Figure 2-3.What are two elements not included in this figure that could be included in a more complex model?
Q3) Is the following a positive or normative statement? The United States government should mandate that every citizen purchases health insurance.
Q4) Refer to Figure 2-3.What do the ovals represent in the figure?
Q5) Economists at which administrative department help design tax policy?
Q6) When economists disagree about whether the government should tax a household's income or its consumption,they are expressing a difference in
Q7) Refer to Figure 2-15.Consider the production possibilities frontier for an economy that produces only sofas and cars.The opportunity cost of one car is
Q8) Refer to Figure 2-3.What is the name of the model depicted in the figure?
Q9) In the circular flow diagram,when Daphne purchases a new mobile phone,she participates in the markets for
Q10) Refer to Figure 2-14.What is the opportunity cost of moving from point T to point R?
Page 15
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Chapter 2: Thinking Like an Economist: Part B
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Sample Questions
Q1) When a production possibilities frontier is bowed outward,the opportunity cost of the second good in terms of the first good increases as more of the second good is produced.
A)True
B)False
Q2) Refer to Figure 2-17.It is possible for this economy to produce 1000 shoes.
A)True
B)False
Q3) While the scientific method is applicable to studying natural sciences,it is not applicable to studying a nation's economy.
A)True
B)False
Q4) Refer to Figure 2-14.The opportunity cost of moving from point B to point A is zero. A)True
B)False
Q5) Trade-offs are involved in most policy decisions.
A)True B)False
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
Q2) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
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17
Chapter 3: Interdependence and the Gains From Trade: A
Parable for the Modern Economy
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Sample Questions
Q1) Suppose there are only two people in the world.Each person's production possibilities frontier also represents his or her consumption possibilities when
A)neither person faces trade-offs.
B)the frontiers are straight lines.
C)the frontiers are bowed out.
D)they choose not to trade with one another.
Q2) Refer to Figure 3-4.If Bryce must work 4 months to produce each sweater,then his production possibilities frontier is based on how many months of work?
A)4 months
B)8 months
C)12 months
D)16 months
Q3) Refer to Figure 3-10.Both Alice and Betty
A)face a constant trade-off between producing pitchers of lemonade and pizzas.
B)can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
C)would benefit from specializing in lemonade production.
D)would benefit from specializing in pizza production.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-16.Hosne's opportunity cost of one wallet is
A)4/5 purse and Merve's opportunity cost of one wallet is 2/3 purse.
B)4/5 purse and Merve's opportunity cost of one wallet is 3/2 purses.
C)5/4 purses and Merve's opportunity cost of one wallet is 2/3 purse.
D)5/4 purses and Merve's opportunity cost of one wallet is 3/2 purses.
Q2) Refer to Figure 3-16.At which of the following prices would both Hosne and Merve gain from trade with each other?
A)5 wallets for 1.25 purses
B)5 wallets for 2.5 purses
C)5 wallets for 3.75 purses
D)Hosne and Merve could not both gain from trade with each other at any price.
Q3) For two individuals who engage in the same two productive activities,it is impossible for one of the two individuals to
A)have a comparative advantage in both activities.
B)have an absolute advantage in both activities.
C)be more productive per unit of time in both activities.
D)gain from trade with each other.
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Chapter 3: Interdependence and the Gains From Trade: Applications of
Comparative Advantage
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Q1) By definition,exports are
A)limits placed on the quantity of goods brought into a country.
B)goods in which a country has an absolute advantage.
C)people who work in foreign countries.
D)goods produced domestically and sold abroad.
Q2) Suppose the U.S.and Japan both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.If the U.S.exports airplanes to Japan and imports televisions from Japan,
A)both countries,as a whole,will be better off.
B)all individuals in both countries will be better off.
C)both countries,as a whole,will be worse off.
D)all individuals in both countries will be worse off.
Q3) Which of the following would not result from all countries specializing according to the principle of comparative advantage?
A)The size of the economic pie would increase.
B)Worldwide production of goods and services would increase.
C)The well-being of citizens in each country would be enhanced.
D)Each country's production possibilities frontier would shift inward.
Page 20
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Which of the following is not an example of the principle that trade can make everyone better off?
A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.
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21
Chapter 3: Interdependence and the Gains From Trade:
Part A
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Q1) Country A and country B both produce shirts and shorts.Country B has an absolute advantage producing both shirts and shorts.Is there any condition under which the two countries could gain from trade?
Q2) Charlotte can produce pork and beans and can switch between producing them at a constant rate.If it takes her 10 hours to produce a pound of pork and 5 hours to produce a pound of beans,what is her opportunity cost of pork and what is her opportunity cost of beans?
Q3) Refer to Figure 3-26.If Mary and Kate trade foods with each other,who will trade away muffins in exchange for cookies?
Q4) Economists use the term ------ to refer to the ability to produce a good using fewer inputs than another producer.
Q5) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing ice cream? Explain how you derived your answer.
Q6) Refer to Scenario 3-1.Is it possible for Greg and Catherine to gain from trade? Defend your answer.
Q7) The gains from specialization and trade are based on ------ advantage.
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Q8) Refer to Scenario 3-1.Which if any good(s)does Catherine have an absolute advantage producing?
Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.
A)True
B)False
Q2) Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes.Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes.Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.
A)True
B)False
Q3) Opportunity cost measures the trade-off between two goods that each producer faces.
A)True
B)False
Q4) The production possibilities frontier (PPF)depicts the combinations of goods that provides society with the maximum possible benefit.
A)True
B)False
Page 23
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Chapter 4: The Market Forces of Supply and Demand
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Q1) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
Q2) The two words most often used by economists are
A)prices and quantities.
B)resources and allocation.
C)supply and demand.
D)efficiency and equity.
Q3) In a market economy,supply and demand are important because they
A)are direct policy tools used by government agencies to regulate the economy.
B)illustrate when an market is in equilibrium,but they are not helpful when a market is out of equilibrium.
C)can be used to predict the impact on the economy of various events and policies.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and
Demand:Markets and Competition
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Q1) Which of the following is not a characteristic of a perfectly competitive market?
A)Different sellers sell identical products.
B)There are many sellers.
C)Sellers must accept the price the market determines.
D)All of the above are characteristics of a perfectly competitive market.
Q2) If a seller in a competitive market chooses to charge more than the going price,then
A)the sellers' profits must increase.
B)the owners of the raw materials used in production would raise the prices for the raw materials.
C)other sellers would also raise their prices.
D)buyers will make purchases from other sellers.
Q3) In a perfectly competitive market,at the market price,buyers
A)cannot buy all they want,and sellers cannot sell all they want.
B)cannot buy all they want,but sellers can sell all they want.
C)can buy all they want,but sellers cannot sell all they want.
D)can buy all they want,and sellers can sell all they want.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) Holding all other things constant,a higher price for ski lift tickets would
A)increase the number of skiers.
B)increase the price of skis.
C)decrease the number of skis sold.
D)decrease the demand for other winter recreational activities.
Q2) When it comes to people's tastes,economists generally believe that
A)tastes are based on forces that are well within the realm of economics.
B)tastes are based on historical and psychological forces that are beyond the realm of economics.
C)tastes can only be studied through well-constructed,real-life models.
D)because tastes do not directly affect demand,there is little need to explain people's tastes.
Q3) Suppose that Amanda receives a pay increase.We would expect
A)to observe Amanda moving down and to the right along her given demand curve.
B)Amanda's demand for inferior goods to decrease.
C)Amanda's demand for each of two goods that are complements to increase.
D)Amanda's demand for normal goods to decrease.
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Page 26
Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) A market supply curve shows
A)the total quantity supplied at all possible prices.
B)the average quantity supplied by producers at all possible prices.
C)how quantity supplied changes when consumer income changes.
D)suppliers' responses,in terms of the amounts they will supply,to the demands of buyers.
Q2) Refer to Figure 4-15.Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for beer?
A)a decrease in the price of beer
B)an expectation by firms that the price of beer will increase in the very near future
C)a decrease in the price of hops
D)an improvement in technology that allows firms to use less labor in the production of beer
Q3) The law of supply states that,other things equal,an increase in
A)price causes quantity supplied to increase.
B)price causes quantity supplied to decrease.
C)quantity supplied causes price to increase.
D)quantity supplied causes price to decrease.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) Exceptionally favorable growing conditions in the vineyards of Napa Valley would cause a(n)
A)increase in the demand for wine,increasing price.
B)increase in the supply of wine,decreasing price.
C)decrease in the demand for wine,decreasing price.
D)decrease in the supply of wine,increasing price.
Q2) Refer to Figure 4-26.Which of the following movements would illustrate the effect in the market for wedding cakes resulting from a decrease in the number of pastry chefs?
A)Point A to Point B
B)Point C to Point B
C)Point C to Point D
D)Point A to Point D
Q3) The unique point at which the supply and demand curves intersect is called
A)market harmony.
B)coincidence.
C)equivalence.
D)equilibrium.
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Chapter 4: The Market Forces of Supply and
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Q1) Adam Smith suggested that an invisible had guides market economies.In this analogy,what is the baton that the invisible hand uses to conduct the economic orchestra?
A)the government
B)prices
C)subsidies
D)the Federal Reserve
Q2) Suppose the United States had a short-term shortage of farmers.Which mechanisms would adjust to remove the shortage?
A)The government would provide tax incentives to encourage people to become farmers.
B)The government would subsidize the production of food.
C)The prices of food and the wages of farmers would adjust.
D)There are no mechanisms to remove the shortage.
Q3) The signals that guide the allocation of resources in a market economy are A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of a substitute for this good becomes more expensive.
Q2) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of this good increases.
Q3) If the price of steel,an input into the production of automobiles,rises,and at the same time the price of gasoline rises,what will happen to the equilibrium price and quantity of automobiles?
Q4) Refer to Figure 4-31.What are the values of the equilibrium price and quantity?
Q5) Refer to Figure 4-29.If the price increases from $5 to $6,how does the quantity demanded change?
Q6) Refer to Scenario 4-1.What is the equilibrium price in this market?
Q7) Since individual buyers and individual sellers in a competitive market have no influence on the market price,what do we call the buyers and sellers in a competitive market?
Q8) Refer to Figure 4-31.At a price of $6,is there a shortage or surplus,and how large is the shortage/surplus?
Q9) Refer to Scenario 4-1.What is the equilibrium quantity in this market?
Q10) A group of buyers and sellers of a particular good or service is called a Page 30
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) A market's equilibrium is the point at which the supply and demand curves intersect.
A)True
B)False
Q2) If a person expects the price of pumpkins to increase next month,then that person's current demand for pumpkins will increase.
A)True
B)False
Q3) The demand curve is the upward-sloping line relating price and quantity demanded.
A)True
B)False
Q4) If the demand for movies increases at the same time as the movie industry adopts labor-saving technology for producing movies,the equilibrium price for movies will increase,but the effect on the equilibrium quantity of movies is ambiguous.
A)True
B)False
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Page 32
Chapter 5: Elasticity and Its Applications
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Q1) Which of the following statements about the consumers' responses to rising gasoline prices is correct?
A)About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B)About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C)About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D)Because gasoline is a necessity,consumers do not decrease their quantity demanded in either the short run or the long run.
Q2) In general,elasticity is a measure of
A)the extent to which advances in technology are adopted by producers.
B)the extent to which a market is competitive.
C)how firms' profits respond to changes in market prices.
D)how much buyers and sellers respond to changes in market conditions.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Sample Questions
Q1) Suppose that when the price of ginger ale is $2 per bottle,firms can sell 4 million bottles.When the price of ginger ale is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?
A)The demand for ginger ale is income inelastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
B)The demand for ginger ale is income elastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
C)The demand for ginger ale is price inelastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
D)The demand for ginger ale is price elastic,so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.
Q2) Which of the following is likely to have the most price inelastic demand?
A)athletic shoes
B)running shoes
C)Nike running shoes
D)Nike Shox running shoes
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Sample Questions
Q1) A key determinant of the price elasticity of supply is the A)time horizon.
B)income of consumers.
C)price elasticity of demand.
D)importance of the good in a consumer's budget.
Q2) Refer to Scenario 5-3.The price elasticity of supply for bread could be A)-1.
B)0.
C)0.5.
D)1.5.
Q3) A bakery would be willing to supply 500 bagels per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 bagels.Using the midpoint method,the price elasticity of supply for bagels is about A)0.62.
B)0.77.
C)1.24.
D)1.63.
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Chapter
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Q1) Which of the following statements about agriculture in the U.S.is correct?
A)From the 1950s to today,agricultural output has approximately doubled.
B)Because technological improvements increase the supply of a product for which demand is inelastic,an individual farmer would be better off not adopting the new technology.
C)Increasing the supply of agricultural products typically benefits consumers but harms farmers.
D)Technological improvements typically increase both supply and revenue for individual farmers.
Q2) Refer to Scenario 5-3.The equilibrium quantity will
A)increase in both the aged cheddar cheese and bread markets.
B)increase in the aged cheddar cheese market and decrease in the bread market.
C)decrease in the aged cheddar cheese market and increase in the bread market.
D)decrease in both the aged cheddar cheese and bread markets.
Q3) Refer to Scenario 5-4.The equilibrium price will
A)increase in both the milk and beef markets.
B)increase in the milk market and decrease in the beef market.
C)decrease in the milk market and increase in the beef market.
D)decrease in both the milk and beef markets.
Page 36
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Chapter 5: Elasticity and Its Applications: Part A
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Q1) Suppose that good X has few close substitutes and that good Y has many close substitutes.Which good would you expect to have more price elastic demand?
Q2) Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat.Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?
Q3) Suppose the price elasticity of demand for a product is 1.3.If a supplier wants to increase revenue,what change should it make to price,if any?
Q4) Refer to Scenario 5-2.Using the midpoint method,if the price of good X is $10 and the price of good Y increases from $8 to $10,the cross price elasticity of demand is about
Q5) What is the price elasticity of demand at any point on a perfectly elastic demand curve?
Q6) Refer to Scenario 5-6.Using the midpoint method,what is the cross price elasticity of demand for landline and mobile service?
Q7) Suppose a market has the demand function Q<sup>d</sup>=20-0.5P.At what price will total revenue be maximized?
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Page 37
Chapter 5: Elasticity and Its Applications: Part B
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Sample Questions
Q1) The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.
A)True
B)False
Q2) Elasticity measures how responsive quantity is to changes in price.
A)True
B)False
Q3) Drug interdiction,which reduces the supply of drugs,may decrease drug-related crime because the demand for drugs is inelastic.
A)True
B)False
Q4) The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.
A)True
B)False
Q5) The demand for soap is more elastic than the demand for Dove soap.
A)True
B)False
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Chapter 6: Supply Demand and Government Policies
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Q1) Which of the following is not an example of a public policy?
A)rent-control laws
B)minimum-wage laws
C)taxes
D)equilibrium laws
Q2) Price controls
A)always produce a fair outcome.
B)always produce an efficient outcome.
C)can generate inequities of their own.
D)All of the above are correct.
Q3) Rent-control laws dictate
A)the exact rent that landlords must charge tenants.
B)a maximum rent that landlords may charge tenants.
C)a minimum rent that landlords may charge tenants.
D)both a minimum rent and a maximum rent that landlords may charge tenants.
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Q1) In the short run,rent control causes the quantity supplied
A)and quantity demanded to fall.
B)to fall and quantity demanded to rise.
C)to rise and quantity demanded to fall.
D)and quantity demanded to rise.
Q2) Refer to Figure 6-5.If the solid horizontal line on the graph represents a price ceiling,then the price ceiling is
A)binding and creates a surplus of 60 units of the good.
B)binding and creates a surplus of 20 units of the good.
C)not binding but creates a surplus of 40 units of the good.
D)not binding,and there will be no surplus or shortage of the good.
Q3) A binding price floor will reduce a firm's total revenue
A)always.
B)when demand is elastic.
C)when demand is inelastic.
D)never.
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Chapter 6: Supply Demand and Government Policies: Taxes
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Q1) A tax imposed on the buyers of a good will lower the A)price paid by buyers and lower the equilibrium quantity.
B)price paid by buyers and raise the equilibrium quantity.
C)effective price received by sellers and lower the equilibrium quantity.
D)effective price received by sellers and raise the equilibrium quantity.
Q2) A tax imposed on the buyers of a good will raise the A)price paid by buyers and lower the equilibrium quantity.
B)price paid by buyers and raise the equilibrium quantity.
C)effective price received by sellers and lower the equilibrium quantity.
D)effective price received by sellers and raise the equilibrium quantity.
Q3) A $5 tax levied on the buyers of pants will cause the
A)supply curve for pants to shift down by $5.
B)supply curve for pants to shift up by $5.
C)demand curve for pants to shift down by $5.
D)demand curve for pants to shift up by $5.
Q4) Refer to Figure 6-25.The price that buyers pay after the tax is imposed is
A)$5.
B)$6.
C)$7.
D)$8.
41
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Chapter 6: Supply Demand and Government Policies: Part
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Q1) When a price floor is binding,is the price floor set above or below the market equilibrium price?
Q2) When a price ceiling is binding,is the price ceiling set above or below the market equilibrium price?
Q3) Refer to Scenario 6-2.Suppose the government sets a price floor at $13 for this product.Is this price floor binding,and what will be the size of the shortage/surplus in this market?
Q4) Refer to Scenario 6-2.What are the equilibrium price and equilibrium quantity in the market for this product?
Q5) Refer to Figure 6-33.Suppose a $3 per-unit tax is imposed on the sellers of this good.How much is the burden of this tax on the sellers in this market?
Q6) If the supply curve is more price elastic than the demand curve,will the buyers or the sellers bear a greater burden of a tax? Draw a diagram to illustrate your answer.
Q7) Refer to Figure 6-33.Suppose a $3 per-unit tax is imposed on the sellers of this good.How much is the burden of this tax on the buyers in this market?
Q8) Will a binding price floor result in a shortage or a surplus in the market?
Q9) Does a binding price ceiling result in a shortage or a surplus in the market?
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Chapter 6: Supply Demand and Government Policies: Part
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Q1) Most economists are in favor of price controls as a way of allocating resources in the economy.
A)True B)False
Q2) A tax of $1 on buyers shifts the demand curve downward by exactly $1.
A)True
B)False
Q3) A price ceiling set above the equilibrium price is not binding. A)True
B)False
Q4) Studies by economists have found that a 10 percent increase in the minimum wage decreases teenage employment 10 percent.
A)True B)False
Q5) A price floor set below the equilibrium price causes a surplus in the market. A)True B)False
B)False Page 43
Q6) A tax on sellers shifts the supply curve but not the demand curve. A)True
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Chapter 7: Consumers Producers and the Efficiency of Markets
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Sample Questions
Q1) The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
A)maximizes costs of the seller.
B)maximizes tax revenue for the government.
C)maximizes the combined welfare of buyers and sellers.
D)minimizes the expenditure of buyers.
Q2) The study of how the allocation of resources affects economic well-being is called
A)consumer economics.
B)macroeconomics.
C)willingness-to-pay economics.
D)welfare economics.
Q3) An example of positive analysis is studying
A)how market forces produce equilibrium.
B)whether equilibrium outcomes are fair.
C)whether equilibrium outcomes are socially desirable.
D)if income distributions are fair.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Sample Questions
Q1) Denise values a stainless steel dishwasher for her new house at $500,but she succeeds in buying one for $350.Denise's consumer surplus is
A)$150.
B)$350.
C)$500.
D)$850.
Q2) Which of the following is not true when the price of a good or service falls?
A)Buyers who were already buying the good or service are better off.
B)Some new buyers,who are now willing to buy,enter the market.
C)The total consumer surplus in the market increases.
D)The total value of purchases before and after the price change is the same.
Q3) Refer to Figure 7-3.When the price rises from P1 to P2,which of the following statements is not true?
A)The buyers who still buy the good are worse off because they now pay more.
B)Some buyers leave the market because they are not willing to buy the good at the higher price.
C)Buyers place a higher value on the good after the price increase.
D)Consumer surplus in the market falls.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Q1) Refer to Figure 7-10.Which area represents producer surplus when the price is P2?
A)BCG
B)ACH
C)ABGD
D)AHGB
Q2) Refer to Figure 7-10.Which area represents the increase in producer surplus when the price rises from P1 to P2?
A)BCG
B)ACH
C)ABGD
D)AHGB
Q3) Refer to Figure 7-10.Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market?
A)BCG
B)ACH
C)DGH
D)AHGB
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Q1) Refer to Figure 7-24.If 10 units of the good are produced and sold,then
A)the marginal cost to sellers exceeds the marginal value to buyers.
B)producer surplus is maximized.
C)total surplus is minimized.
D)the marginal value to buyers exceeds the marginal cost to sellers.
Q2) If the current allocation of resources in the market for wallpaper is efficient,then it must be the case that
A)producer surplus equals consumer surplus in the market for wallpaper.
B)the market for wallpaper is in equilibrium.
C)on the last unit of wallpaper that was produced and sold,the value to buyers exceeded the cost to sellers.
D)All of the above are correct.
Q3) Refer to Figure 7-27.Sellers whose costs are less than the equilibrium price are represented by which line segment?
A)AC.
B)CK.
C)BC.
D)CH.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) Market power and externalities are examples of A)laissez-faire economics.
B)public policy.
C)market failure.
D)welfare economics.
Q2) Inefficiency can be caused in a market by the presence of A)market power.
B)externalities.
C)imperfectly competitive markets.
D)All of the above are correct.
Q3) Externalities are
A)side effects passed on to a party other than the buyers and sellers in the market.
B)side effects of government intervention in markets.
C)external forces that cause the price of a good to be higher than it otherwise would be.
D)external forces that help establish equilibrium price.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Sample Questions
Q1) Refer to Figure 7-32.If the government imposed a price ceiling at $20 in this market,how much are consumer surplus,producer surplus,and total surplus?
Q2) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?
Q3) Refer to Figure 7-33.How much is total consumer surplus in this market at the equilibrium price?
Q4) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much consumer surplus do consumers entering the market after the price drop receive?
Q5) Refer to Scenario 7-1.If the market equilibrium price falls from $10 to $5,how much additional consumer surplus do consumers initially in the market at the $10 price receive?
Q6) Refer to Figure 7-33.Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price.How much is total consumer surplus in this market at the new equilibrium price?
Q7) Refer to Scenario 7-2.How much is total producer surplus at the equilibrium price in this market?
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Q1) If the United States legally allowed for a market in transplant organs,it is estimated that one kidney would sell for at least $100,000.
A)True
B)False
Q2) The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.
A)True
B)False
Q3) Even though participants in the economy are motivated by self-interest,the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.
A)True
B)False
Q4) Producer surplus measures the benefit to sellers from receiving a price above their costs.
A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Q1) To fully understand how taxes affect economic well-being,we must compare the
A)consumer surplus to the producer surplus.
B)price paid by buyers to the price received by sellers.
C)reduced welfare of buyers and sellers to the revenue raised by the government.
D)consumer surplus to the deadweight loss.
Q2) In 1776,the American Revolution was sparked by anger over
A)the extravagant lifestyle of British royalty.
B)the crimes of British soldiers stationed in the American colonies.
C)British taxes imposed on the American colonies.
D)the failure of the British to protect American colonists from attack by hostile Native Americans.
Q3) Who once said that taxes are the price we pay for a civilized society?
A)Aristotle
B)George Washington
C)Oliver Wendell Holmes,Jr.
D)Ronald Reagan
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is A)$12.
B)between $8 and $12.
C)between $5 and $8.
D)$5.
Q2) Refer to Figure 8-9.The total surplus with the tax is A)$2,000.
B)$3,000.
C)$15,000.
D)$20,000.
Q3) Taxes cause deadweight losses because taxes
A)reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
B)prevent buyers and sellers from realizing some of the gains from trade.
C)cause marginal buyers and marginal sellers to leave the market,causing the quantity sold to fall.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: The Determinants of the Deadweight Loss
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Q1) The amount of deadweight loss that results from a tax of a given size is determined by
A)whether the tax is levied on buyers or sellers.
B)the number of buyers in the market relative to the number of sellers.
C)the price elasticities of demand and supply.
D)the ratio of the tax per unit to the effective price received by sellers.
Q2) The size of a tax and the deadweight loss that results from the tax are
A)positively related.
B)negatively related.
C)independent of each other.
D)equal to each other.
Q3) Refer to Figure 8-14.Which of the following statements is correct?
A)Supply 1 is more elastic than supply 2.
B)Demand 2 is more elastic than demand 1.
C)Demand 1 is more elastic than supply 1.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Deadweight
Loss and Tax Revenue As Taxes Vary
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Q1) Refer to Figure 8-22.Suppose the government changed the per-unit tax from $3.00 to $4.50.Compared to the original tax rate,this higher tax rate would
A)increase tax revenue and increase the deadweight loss from the tax.
B)increase tax revenue and decrease the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.
Q2) Refer to Figure 8-24.For an economy that is currently at point D on the curve,a decrease in the tax rate would
A)decrease consumer surplus.
B)decrease producer surplus.
C)increase tax revenue.
D)increase the deadweight loss of the tax.
Q3) The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as A)California economics.
B)welfare economics.
C)supply-side economics.
D)elasticity economics.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are costly to market participants because they A)transfer resources from market participants to the government.
B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
Q2) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency.
B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) A tax is imposed on a certain good.The tax produces revenue of $5,000 for the government.The tax reduces consumer surplus by $3,000 and it reduces producer surplus by $4,000.What is the amount of the deadweight loss of the tax?
Q2) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How much is the deadweight loss from this tax?
Q3) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.What price will sellers receive for the good after the tax is imposed?
Q4) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How many units of this good will be bought and sold after the tax is imposed?
Q5) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much is producer surplus after the tax is imposed?
Q6) Suppose that the market for product X is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $4 tax per unit?
Q7) Refer to Figure 8-25.How much is producer surplus at the market equilibrium?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) When a tax is imposed on buyers,consumer surplus decreases but producer surplus increases.
A)True
B)False
Q2) If the government imposes a $3 tax in a market,the equilibrium price will rise by $3.
A)True
B)False
Q3) When a tax is imposed on a good,consumer surplus decreases and producer surplus remains unchanged.
A)True
B)False
Q4) When a tax is imposed on sellers,producer surplus decreases but consumer surplus increases.
A)True
B)False
Q5) If the size of a tax doubles,the deadweight loss doubles.
A)True
B)False
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Chapter 9: Application International Trade
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Q1) Which of the following is not an important question for economic policy raised by the experience of the textile industry?
A)How does international trade affect consumer well-being?
B)Who gains and who loses from free trade among countries?
C)How do the gains from trade compare to the losses?
D)Which argument for restricting free trade is politically feasible?
Q2) A logical starting point from which the study of international trade begins is
A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.
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Chapter 9: Application International Trade: The
Determinants of Trade
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Q1) If a country allows trade and,for a certain good,the domestic price without trade is lower than the world price,
A)the country will be an exporter of the good.
B)the country will be an importer of the good.
C)the country will be neither an exporter nor an importer of the good.
D)Additional information is needed about demand to determine whether the country will be an exporter of the good,an importer of the good,or neither.
Q2) 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.
Q3) If the world price of coffee is lower than Colombia's domestic price of coffee without trade,then Colombia
A)should import coffee.
B)has a comparative advantage in coffee.
C)should produce just enough coffee to satisfy domestic demand.
D)should produce no coffee domestically.
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Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Q1) When a country allows trade and becomes an exporter of a good,which of the following is not a consequence?
A)The price paid by domestic consumers of the good increases.
B)The price received by domestic producers of the good increases.
C)The losses of domestic consumers of the good exceed the gains of domestic producers of the good.
D)The gains of domestic producers of the good exceed the losses of domestic consumers of the good.
Q2) A tariff on a product
A)enhances the economic well-being of the domestic economy.
B)increases the domestic quantity supplied.
C)increases the domestic quantity demanded.
D)results in an increase in producer surplus that is greater than the resulting decrease in consumer surplus.
Q3) Refer to Figure 9-10.The price and quantity of rifles in Mexico before trade is
A)P<sub>0</sub> and Q<sub>0</sub>.
B)P<sub>1</sub> and Q<sub>1</sub>.
C)P<sub>2</sub> and Q<sub>2</sub>.
D)P<sub>1</sub> and Q<sub>0</sub>.
Page 61
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) Suppose France subsidizes French wheat farmers,while Germany offers no subsidy to German wheat farmers.As a result of the French subsidy,sales of French wheat to Germany
A)may prompt German farmers to invoke the unfair-competition argument.
B)increase the consumer surplus of German buyers of wheat.
C)increase the total surplus of the German people.
D)All of the above are correct.
Q2) President Bush imposed temporary tariffs on imported steel in 2002.The reasons for this trade restriction is most consistent with the
A)national-security argument.
B)infant-industry argument.
C)unfair competition argument.
D)protection-as-a-bargaining chip-argument.
Q3) The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
A)if it works consumer surplus will decline.
B)if it works producer surplus falls.
C)if it fails the country faces a choice between two bad options.
D)if it fails total surplus will increase.
Page 62
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Chapter 9: Application International Trade: Conclusion
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Q1) Most economists view the United States' experience with trade as
A)one from which no firm conclusions about the virtues of free trade can be reached,due to the relatively short history of international trade in the U.S.
B)one from which no firm conclusions about the virtues of free trade can be reached,due to the lack of trade within the U.S.throughout most of the early history of the U.S.
C)an ongoing experiment that confirms the virtues of free trade.
D)an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.
Q2) In 2008,the Los Angeles Times asked members of the American public whether free international trade has helped or hurt the economy.Of those surveyed,
A)57 percent said free international trade helped the economy.
B)26 percent said free international trade helped the economy.
C)30 percent said free international trade hurt the economy.
D)16 percent said free international trade hurt the economy.
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Chapter 9: Application International Trade: Part A
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Q1) Suppose in the country of Jumanji that the price of wheat with no trade allowed is above the world price of wheat.If Jumanji allows free trade,will Jumanji be an importer or an exporter of wheat?
Q2) Refer to Figure 9-28.With no trade allowed,what are the equilibrium price and equilibrium quantity in this market?
Q3) Refer to Figure 9-27.Suppose the country imposes a $5 per unit tariff.If the country allows trade with a tariff,how much are consumer surplus,producer surplus,tariff revenue,and total surplus?
Q4) What are the arguments in favor of trade restrictions,and what are the counterarguments? According to most economists,do any of these arguments really justify trade restrictions? Explain.
Q5) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,what will be the domestic price in this market?
Q6) Refer to Scenario 9-3.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?
Q7) How does an import quota differ from an equivalent tariff?
Q8) A tax on an imported good is called a ------ .
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Chapter 9: Application International Trade: Part B
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Q1) Most economists support the infant-industry argument because it is so easy to implement in practice.
A)True
B)False
Q2) Imposing a quota on the import of a good is preferable to a tariff because a tariff creates a deadweight loss while a quota does not.
A)True B)False
Q3) When markets open up to international trade,we know that total surplus will rise.
A)True
B)False
Q4) William and Jamal live in the country of Dumexia.When Dumexia legalized international trade in bananas,the price of bananas in Dumexia increased.As a result,William became better off and Jamal became worse off.It follows that William is a seller,and Jamal is a buyer,of bananas.
A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) A macroeconomist is interested in
A)explaining how changes in sellers' behavior affect prices of a particular good.
B)explaining price changes in a particular market.
C)explaining why the unemployment rate is higher.
D)All of the above are correct.
Q2) Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
A)the unemployment rate
B)the inflation rate
C)gross domestic product
D)the trade deficit
Q3) Macroeconomists study
A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) Which of the following statements about GDP is correct?
A)GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
B)Money continuously flows from households to firms and then back to households,and GDP measures this flow of money.
C)GDP is generally regarded as the best single measure of a society's economic well-being.
D)All of the above are correct.
Q2) Gross domestic product measures
A)income and expenditures.
B)income but not expenditures.
C)expenditures but not income.
D)neither income nor expenditures.
Q3) For an economy as a whole,income must equal expenditure because
A)the number of firms is equal to the number of households in an economy.
B)individuals can only spend what they earn each period.
C)every dollar of spending by some buyer is a dollar of income for some seller.
D)every dollar of saving by some consumer is a dollar of spending by some other consumer.
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Chapter 10: Measuring a Nations Income: The
Measurement of GDP
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Q1) Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000.In 2014 she sold the house for $260,000.Which of the following statements is correct regarding the sale of the house?
A)The 2014 sale increased 2014 GDP by $260,000 and had no effect on 2011 GDP.
B)The 2014 sale increased 2014 GDP by $20,000 and had no effect on 2011 GDP.
C)The 2014 sale increased 2014 GDP by $260,000;furthermore,the 2014 sale caused 2011 GDP to be revised upward by $20,000.
D)The 2014 sale affected neither 2014 GDP nor 2011 GDP.
Q2) The value of the housing services provided by the economy's owner-occupied houses is
A)included in GDP,and the estimated rental values of the houses are used to place a value on these housing services.
B)included in GDP,and the actual mortgage payments made on the houses are used to estimate the value of these rental services.
C)excluded from GDP since these services are not sold in any market.
D)excluded from GDP since the value of these housing services cannot be estimated with any degree of precision.
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Q1) During the current quarter,a firm produces consumer goods and adds some of those goods to its inventory rather than selling them.The value of the goods added to inventory is
A)not included in the current quarter GDP.
B)included in the current quarter GDP as investment.
C)included in the current quarter GDP as consumption.
D)included in the current quarter GDP as a statistical discrepancy.
Q2) The Carters' oldest son attends Big State University.He and his parents pay all his fees and tuition.These payments count in GDP as A)investment.
B)government spending.
C)consumption of services.
D)consumption of durable goods.
Q3) Which of the following is not an example of a durable good?
A)a refrigerator.
B)an automobile.
C)a business suit.
D)a furnace.
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Chapter 10: Measuring a Nations Income: Real Versus Nominal
GDP
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Q1) Suppose an economy's production consists only of corn and soybeans.In 2010,20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel.In 2009,the price of corn was $2 per bushel and the price of soybeans was $1 per bushel.Using 2009 as the base year,it follows that,for 2010,
A)nominal GDP is $50,real GDP is $100,and the GDP deflator is 50.
B)nominal GDP is $50,real GDP is $100,and the GDP deflator is 200.
C)nominal GDP is $100,real GDP is $50,and the GDP deflator is 50.
D)nominal GDP is $100,real GDP is $50,and the GDP deflator is 200.
Q2) Changes in the GDP deflator reflect
A)only changes in prices.
B)only changes in the amounts being produced.
C)both changes in prices and changes in the amounts being produced.
D)neither changes in prices nor changes in the amounts being produced.
Q3) A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009.It also reported a GDP deflator of 125 in 2010 and 105 in 2009.Between 2009 and 2010, A)real output and the price level both rose.
B)real output rose and the price level fell.
C)real output fell and the price level rose.
D)real output and the price level both fell.
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Chapter 10: Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being
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Q1) Which of the following statements regarding GDP is correct?
A)GDP includes factory production,but not any harm that may be inflicted on the environment.
B)GDP accounts for all activities taking place outside markets.
C)GDP provides detailed information about the distribution of income.
D)GDP is a good measure of economic well-being for all purposes.
Q2) Which of the following is a true statement?
A)International data leave few doubts that a nation's GDP per person is associated with its citizens' standard of living.
B)Rich and poor countries often have vastly different standards of living,but similar levels of real GDP per person.
C)The value of leisure time is included in the calculation of GDP per person.
D)International data indicate that measures on the distribution of income are closely associated with GDP per person.
Q3) GDP does not reflect
A)the value of leisure.
B)the value of goods and services produced at home.
C)the quality of the environment.
D)All of the above are correct.
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Chapter 10: Measuring a Nations Income: Part A
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Q1) Refer to Figure 23-2.Identify the location of firms and households.
Q2) For the economy as a whole,how does income compare to expenditures? Explain.
Q3) Write the formula for calculating a country's inflation rate using the GDP deflator.
Q4) The U.S.buys $500 billion of goods and $250 billion of services from foreign countries.Foreign countries buy $250 billion of goods and $300 billion of services from the U.S.What is net exports?
Q5) Alexandria,a British citizen,owns and manages a fish and chips shop in Washington,D.C.
She buys fresh food produced by U.S.workers,pays utilities to a U.S.company,and employs only U.S.citizens.What part,if any,of the restaurant's production is included in U.S.GDP? What part,if any,of the restaurant's production is included in U.S.GNP?
Q6) Identify the largest and smallest components of GDP.
Q7) Java Hut,a U.S.coffee retailer,buys $10 million worth of coffee beans from Colombia.It also pays $5 million for paper cups and utilities,all produced in the U.S.It sells the coffee it produces using the above inputs to U.S.consumers for $50 million.Overall how do these expenditure affect net exports? How do these expenditures effect U.S.consumption?
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Chapter 10: Measuring a Nations Income: Part B
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Q1) In 2015,government purchases were the largest component of U.S.GDP.
A)True
B)False
Q2) Additions to inventory subtract from GDP,and when the goods in inventory are sold,the reductions in inventory add to GDP.
A)True
B)False
Q3) Since transfer payments by government are not associated with the production of goods and services,they are not included in GDP.
A)True
B)False
Q4) The overall effect of accounting for purchases of foreign goods in GDP reduces GDP. A)True
B)False
Q5) U.S.GDP includes the market value of rental housing,but not the market value of owner-occupied housing services.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) The inflation rate is defined as the
A)price level in an economy.
B)change in the price level from one period to the next.
C)percentage change in the price level from the previous period.
D)price level minus the price level from the previous period.
Q2) The term inflation is used to describe a situation in which
A)the overall level of prices in the economy is increasing.
B)incomes in the economy are increasing.
C)stock-market prices are rising.
D)the economy is growing rapidly.
Q3) When the consumer price index rises,the typical family
A)has to spend more dollars to maintain the same standard of living.
B)can spend fewer dollars to maintain the same standard of living.
C)finds that its standard of living is not affected.
D)can offset the effects of rising prices by saving more.
Q4) When the consumer price index falls,the typical family
A)has to spend more dollars to maintain the same standard of living.
B)can spend fewer dollars to maintain the same standard of living.
C)finds that its standard of living is not affected.
D)can save less because they do not need to offset the effects of rising prices.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) A decrease in the price of domestically produced nuclear reactors will be reflected in A)both the GDP deflator and the consumer price index.
B)neither the GDP deflator nor the consumer price index.
C)the GDP deflator but not in the consumer price index.
D)the consumer price index but not in the GDP deflator.
Q2) The price index was 136 in one year and 142 in the next year.What was the inflation rate between the two years?
A)1.04 percent
B)4.41 percent
C)6.00 percent
D)42.00 percent
Q3) Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year.In 2012,the basket's cost was $50;in 2014,the basket's cost was $52;and in 2016,the basket's cost was $55.The value of the CPI in 2016 was
A)90.9.
B)104.0.
C)105.0.
D)110.0.
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Q1) The real interest rate tells you
A)how fast the number of dollars in your bank account rises over time.
B)how fast the purchasing power of your bank account rises over time.
C)the number of dollars in your bank account today.
D)the purchasing power of your bank account today.
Q2) 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.
Q3) Refer to Scenario 24-3.Sue Holloway's 1944 income in 2013 dollars is
A)$23,033.
B)$136,909.
C)$148,909.
D)$240,960.
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) If the CPI increased from 215 to 218 between the years 2012 and 2013,while the nominal interest rate increased from 3.25% to 3.80%,what is the real interest rate in 2013?
Q2) The CPI assumes a fixed basket of goods over time.In fact,consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen.What problem does this cause for measuring the cost of living?
Q3) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2010?
Q4) For a country like the United States,explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.
Q5) If the nominal interest rate is 8.3% and the inflation rate is 4.4%,what is the real interest rate?
Q6) If the price of beef rises and consumers buy more chicken and less beef,what kind of bias does the consumer price index exhibit?
Q7) If the inflation rate decreased from 3.33% to 2.90% between October and November,while the nominal interest rate increased from 4.75% to 4.80%,what is the real interest rate in November?
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Chapter 11: Measuring the Cost of Living: Part B
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Q1) The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.
A)True
B)False
Q2) The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year,then multiplying by 100.
A)True
B)False
Q3) The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.
A)True
B)False
Q4) The GDP deflator reflects the prices of all goods and services produced around the world,whereas the consumer price index reflects the prices of all goods and services bought by consumers.
A)True
B)False
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Chapter 12: Production and Growth
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Q1) In which of the following countries did real GDP per person fall by about 13% from 2000 to 2014?
A)India
B)Singapore
C)Zimbabwe
D)None of the above are correct.
Q2) Average income in some East Asian countries,as measured by real GDP per person,has recently grown at an average annual rate that implies income will double about every
A)10 years.
B)15 years.
C)20 years.
D)25 years.
Q3) There are large differences in the standard of living
A)across countries,but not within countries.
B)within countries over time,but not across countries.
C)across countries and within countries over time.
D)across countries,but not in technology or healthcare.
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million.The year before,real GDP was 500.0 billion and the population was 2.0 million.What was the growth rate of real GDP per person during the year?
A)12 percent
B)10 percent
C)4 percent
D)2 percent
Q2) Which of the following is higher in Mali than in the United Kingdom?
A)Modern sanitation access
B)Income per person
C)Child mortality
D)Percent of the population enrolled in college
Q3) Which of the following countries had the highest growth rate over about the last 100 years?
A)Japan
B)China
C)Germany
D)United States
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) Hit-It produces 320 baseball bats per day using 2 workers who each work 8 hours per day.What is Hit-It's productivity?
A)320 baseball bats
B)160 baseball bats per hour
C)20 baseball bats per hour
D)None of the above is correct.
Q2) Which of the following is not correct?
A)Countries that have had higher output growth per person have typically done so without higher productivity growth.
B)A country's standard of living and its productivity are closely related.
C)Productivity refers to output produced per hour of work.
D)Increases in productivity can be used to increase output or leisure.
Q3) Both Arnold and Will work 10 hours a day.Arnold can produce six baskets of goods per hour while Will can produce four baskets of the same goods per hour.It follows that Arnold's
A)productivity is greater than Will's.
B)output is greater than Will's.
C)standard of living is higher than Will's.
D)All of the above are correct.
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) If WarmWear,a U.S.manufacturer of winter clothing,opens a new factory in Austria,then
A)Austrian GNP increases by more than Austrian GDP,because GDP includes income earned by foreigners working in Austria.
B)Austrian GNP increases by more than Austrian GDP,because GDP excludes income earned by foreigners working in Austria.
C)Austrian GNP increases by less than Austrian GDP,because GDP includes income earned by foreigners working in Austria.
D)Austrian GNP increases by less than Austrian GDP,because GDP excludes income earned by foreigners working in Austria.
Q2) Which of the following is consistent with the catch-up effect?
A)The United States had a higher growth rate before 1900 than after.
B)After World War II the United States had lower growth rates than war-ravaged European countries.
C)Although the United States has a relatively high level of output per person,its growth rate is rather modest compared to some countries.
D)All of the above are correct.
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Q1) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
Q2) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability. B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
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Chapter 12: Production and Growth: Part A
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Q1) What is a production function? Write an equation for a typical production function,and explain what each of the terms represents.
Q2) When a country eliminates tariffs and other trade restrictions, intending to promote economic growth, it is pursuing _______ oriented policies.
Q3) When a country imposes tariffs, intending to protect domestic firms from foreign competition, it is pursuing _______ oriented policies.
Q4) Why is productivity related to the standard of living? In your answer be sure to explain what productivity and the standard of living mean.Make a list of things that determine labor productivity.
Q5) An important prerequisite for the price system to work is an economy-wide respect for _______ rights.
Q6) What are inward-oriented policies? Do most economists recommend these types of policies to poor countries?
Q7) In what sense is it likely that geography has an effect on a country's rate of economic growth?
Q8) Because of __________, an increase in the saving rate leads to higher growth of income and productivity only for a while.
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Chapter 12: Production and Growth: Part B
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Sample Questions
Q1) It is possible for a country without a lot of domestic natural resources to have a high standard of living.
A)True
B)False
Q2) An increase in capital increases productivity only if it is purchased and operated by domestic residents.
A)True
B)False
Q3) Economists generally believe that policies such as reducing barriers to trade are likely to foster economic growth.
A)True
B)False
Q4) Indonesians,for example,have a lower standard of living than Americans because they have a lower level of productivity.
A)True
B)False
Q5) Petroleum is an example of a nonrenewable resource.
A)True B)False
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Chapter 13: Saving Investment and the Financial System
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Sample Questions
Q1) Institutions that help to match one person's saving with another person's investment are collectively called the
A)Federal Reserve system.
B)banking system.
C)monetary system.
D)financial system.
Q2) When opening a print shop you need to buy printers,computers,furniture,and similar items.Economists call these expenditures
A)capital investment.
B)investment in human capital.
C)business consumption expenditures.
D)personal saving.
Q3) The financial system does NOT influence
A)long-run economic growth.
B)saving and investment.
C)the amount of capital in the economy.
D)the amount of natural resources in the economy.
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86
Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy
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Sample Questions
Q1) Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $3,and retained earnings of $1 a share.What was the price of a share of Mallard stock?
A)$15
B)$30
C)$45
D)$60.
Q2) A low price-earnings ratio indicates that either the stock is
A)undervalued or people are relatively optimistic about the corporation's prospects.
B)overvalued or people are relatively optimistic about the corporation's prospects.
C)overvalued or people are relatively pessimistic about the corporation's prospects.
D)undervalued or people are relatively pessimistic about the corporation's prospects.
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Chapter 13: Saving Investment and the Financial System:
Saving and Investment in the National Income Accounts
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Sample Questions
Q1) According to the definitions of national saving and public saving,if Y,C,and G remained the same,an increase in taxes would
A)raise national saving and public saving.
B)raise national saving and raise public saving.
C)leave national saving and public saving unchanged.
D)leave national saving unchanged and raise public saving.
Q2) In a closed economy,public saving is the amount of
A)income that households have left after paying for taxes and consumption.
B)income that businesses have left after paying for the factors of production.
C)tax revenue that the government has left after paying for its spending.
D)spending that the government undertakes in excess of the taxes it collects.
Q3) If in a closed economy Y = $11 trillion,which of the following combinations would be consistent with national saving of $3 trillion?
A)C = $8 trillion,G = $3 trillion
B)C = $13 trillion,G = -$1 trillion
C)C = $9 trillion,G = $5 trillion
D)C = $7 trillion,G = $1 trillion
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Page 88
Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Sample Questions
Q1) Crowding out occurs when
A)investment declines because a budget deficit makes interest rates rise.
B)investment declines because a budget deficit makes interest rates fall.
C)investment increases because a budget surplus makes interest rates rise.
D)investment increases because a budget surplus makes interest rates fall.
Q2) If the nominal interest rate is 7 percent and the real interest rate is 2 percent,then what is the inflation rate?
A)9.0 percent
B)5 percent
C)3.5 percent
D)None of the above is correct.
Q3) Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?
A)The demand for loanable funds shifted rightward.
B)The demand for loanable funds shifted leftward.
C)The supply of loanable funds shifted rightward.
D)The supply of loanable funds shifted leftward.
Q4) A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.
Page 89
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Chapter 13: Saving Investment and the Financial System:
Part A
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Sample Questions
Q1) List three characteristics of a bond that would make its interest rate higher than otherwise.
Q2) What is the main function of the financial system?
Q3) In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.
Q4) Public saving is the difference between ----- and -----.
Q5) A restaurant chain announces declining revenues. Whats the name of the type of risk that this news raises for holders of this chains bonds? What does this news to do the interest rate on this chains bonds?
Q6) The financial system is important because it helps to match one persons _____ with another persons _____.
Q7) Congress and the President allow people to make greater contributions to tax-deferred savings accounts.Which curve in the market for loanable funds would shift,which direction would it shift,what would happen to the interest rate,and what would happen to investment spending?
Q8) If consumers reduced their spending,what would happen to the interest rate and investment?
Page 90
Q9) What is a mutual fund?
Q10) _____ and _____ are the two most important financial intermediaries.
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Chapter 13: Saving Investment and the Financial System:
Part B
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Sample Questions
Q1) Index funds are financial intermediaries,but municipal bonds are not.
A)True
B)False
Q2) Lenders sell bonds and borrowers buy them.
A)True
B)False
Q3) Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.
A)True
B)False
Q4) Public saving is T - G,while private saving is Y - T - C.
A)True
B)False
Q5) We interpret the term loanable funds to mean the flow of resources available to fund private investment.
A)True
B)False
B)False Page 92
Q6) Public saving is equal to national saving minus private saving. A)True
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Chapter 14: The Basic Tools of Finance
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Sample Questions
Q1) The financial system
A)involves bank accounts,mortgages,stock prices,and many other items.
B)involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C)coordinates the economy's saving and investment.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Present Value
Measuring the Time Value of Money
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Sample Questions
Q1) On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?
A)$25,962
B)$27,297
C)$30,188
D)None of the above are correct to the nearest dollar.
Q2) Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent.Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.
A)Both Laura and Cassie are correct.
B)Both Laura and Cassie are incorrect.
C)Only Laura is correct.
D)Only Cassie is correct.
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Page 95
Chapter 14: The Basic Tools of Finance: Managing Risk
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Sample Questions
Q1) Kyle puts a greater proportion of his portfolio into government bonds.Kyle's action
A)increases both risk and the average rate of return.
B)decreases both risk and the average rate of return.
C)increases risk,but decreases the average rate of return.
D)decreases risk,but increases the average rate of return.
Q2) Which of the following is adverse selection?
A)the risk associated with selecting stocks in only a few specific companies
B)the risk that a person will become overconfident in his ability to select stocks
C)a high-risk person being more likely to apply for insurance
D)after obtaining insurance a person having less incentive to be careful
Q3) Other things the same,as the stocks of a greater number of corporations are held in a portfolio,
A)risk increases at an increasing rate.
B)risk increases at a decreasing rate.
C)risk decreases at an increasing rate.
D)risk decreases at a decreasing rate.
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96
Chapter 14: The Basic Tools of Finance: Asset Valuation
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Sample Questions
Q1) Which of the following is correct?
A)Managed funds typically have a higher return than indexed funds.This tends to refute the efficient market hypothesis.
B)Managed funds typically have a higher return than indexed funds.This tends to support the efficient market hypothesis.
C)Index funds typically have a higher rate of return than managed funds.This tends to refute the efficient market hypothesis.
D)Index funds typically have a higher rate of return than managed funds.This tends to support the efficient market hypothesis.
Q2) After much anticipation a company releases a new smartphone.The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting.The unexpectedly negative reaction to the smartphone would
A)raise the present value and the price of the corporation's stock.
B)raise the present value and reduce the price of the corporation's stock.
C)reduce the present value and the price of the corporation's stock.
D)reduce the present value and raise the price of the corporation's stock.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Sample Questions
Q1) Economists disagree as to whether
A)the stock price of a company should reflect the company's expected profitability.
B)the basic tools of finance reflect valid ideas.
C)stock prices reflect rational estimates of a company's true worth.
D)there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.
Q2) Stock market fluctuations
A)often go hand in hand with fluctuations in the economy more broadly.
B)rarely have anything to do with fluctuations in the economy more broadly.
C)have few,if any,macroeconomic implications.
D)are attributable to the widespread belief that the efficient markets hypothesis is correct.
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98
Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.
Q2) Should a person who is risk averse hold a portfolio with no stock and only bonds? Explain.
Q3) Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years.According to the rule of 70,approximately how much will your heirs be able to withdraw?
Q4) A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?
Q5) At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?
Q6) If the interest rate is 5 percent,then what is the present value of $2,000 to be received in three years?
Q7) What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.
Q8) Write the formula for finding the future value in n years of $x today.
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Chapter 14: The Basic Tools of Finance: Part B
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Sample Questions
Q1) Because the statistic called the standard deviation measures the volatility of a variable,it is used to measure the return of a portfolio.
A)True B)False
Q2) If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.
A)True B)False
Q3) A person with diminishing marginal utility of wealth is risk averse.
A)True B)False
Q4) The rule of 70 applies to a growing savings account but not to a growing economy. A)True B)False
Q5) The future value of $1 saved today is $1/(1 + r). A)True B)False
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Chapter 15: Unemployment
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Sample Questions
Q1) The natural rate of unemployment is the
A)unemployment rate that would prevail with zero inflation.
B)rate associated with the highest possible level of GDP.
C)difference between the long-run and short-run unemployment rates.
D)amount of unemployment that the economy normally experiences.
Q2) Cyclical unemployment refers to
A)the portion of unemployment created by job search.
B)short-run fluctuations around the natural rate of unemployment.
C)changes in unemployment due to changes in the natural rate of unemployment.
D)the portion of unemployment created by wages set above the equilibrium level.
Q3) Cyclical unemployment is closely associated with
A)long-term economic growth.
B)short-run ups and downs of the economy.
C)fluctuations in the natural rate of unemployment.
D)changes in the minimum wage.
Q4) To maintain their standard of living,most people rely on
A)government assistance.
B)their labor earnings.
C)their personal savings.
D)All of the above are correct.
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Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) Just after World War II,the labor-force participation rate of women was
A)about 25 percent,and in 2015 it was about 50 percent.
B)about 33 percent,and in 2015 it was about 60 percent.
C)about 50 percent,and in 2015 it was about 70 percent.
D)about 60 percent,and in 2015 it was about 80 percent.
Q2) Spells of unemployment end about
A)1/5 of the time with the person leaving the labor force.
B)1/4 of the time with the person leaving the labor force.
C)1/3 of the time with the person leaving the labor force.
D)1/2 of the time with the person leaving the labor force.
Q3) Who is included in the labor force by the Bureau of Labor Statistics?
A)Tina,who worked most of the week in a steel factory
B)Kelly,who is temporarily laid off but expects to be recalled
C)DJ,who does not have a job but is looking for work
D)All of the above are correct.
Q4) Recent entrants into the labor force account for about
A)1/5 of those who are unemployed.
B)1/4 of those who are unemployed.
C)1/3 of those who are unemployed.
D)1/2 of those who are unemployed.
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Chapter 15: Unemployment: Job Search
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Sample Questions
Q1) Which of the following is not a cause of frictional unemployment?
A)the destruction of manufacturing jobs
B)a worker leaving a job to find one with better benefits
C)minimum-wage laws
D)unemployment insurance
Q2) Wanda quit her job because she was unhappy at work.Arnold was fired from his landscaping job because his company was downsizing.Who is eligible for unemployment insurance benefits?
A)both Wanda and Arnold
B)Wanda but not Arnold
C)Arnold but not Wanda
D)neither Wanda nor Arnold
Q3) Which of the following is a source of frictional unemployment?
A)changes in the composition of demand among industries or regions
B)minimum wages
C)labor unions
D)None of the above is correct.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Sample Questions
Q1) Refer to Figure 28-3.At the equilibrium wage,how many workers are unemployed?
A)0
B)4,000
C)5,000
D)8,000
Q2) When a minimum-wage law forces the wage to remain above the equilibrium level,the result is
A)both a shortage of labor and a shortage of jobs.
B)a shortage of labor and a surplus of jobs.
C)a surplus of labor and a shortage of jobs.
D)both surplus of labor and a surplus of jobs.
Q3) 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.
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Chapter 15: Unemployment: Unions and Collective Bargaining
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Sample Questions
Q1) Unions contribute to
A)frictional but not structural unemployment.
B)structural but not frictional unemployment.
C)both frictional and structural unemployment.
D)neither frictional nor structural unemployment.
Q2) Which of the following is not correct?
A)A union is a worker association that bargains with employers over wages,benefits,and working conditions.
B)Unions play a much larger role in the U.S.labor market now than they did in the past.
C)Unions play a large role in many European countries.
D)A union is a type of cartel.
Q3) Unions contribute to
A)structural unemployment but not the natural rate of unemployment.
B)the natural rate of unemployment but not structural unemployment.
C)both structural unemployment and the natural rate of unemployment.
D)neither structural unemployment nor the natural rate of unemployment.
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105
Chapter 15: Unemployment: The Theory of Efficiency Wages
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Sample Questions
Q1) The efficiency-wage theory of worker turnover suggests that firms with higher turnover will have
A)higher production costs and higher profits.
B)higher production costs and lower profits.
C)lower production costs and higher profits.
D)lower production costs and lower profits.
Q2) According to the theory of efficiency wages,if a firm stops paying efficiency wages it is likely to see a(n)
A)increase in the number of job applicants and an increase in how long workers stay on the job.
B)increase in the number of job applicants and a decrease in how long workers stay on the job.
C)decrease in the number of job applicants and an increase in how long workers stay on the job.
D)decrease in the number of job applicants and a decrease in how long workers stay on the job.
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Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Following the recession of 2001,there was a month in which employment and the unemployment rate both rose.Assuming the computations were correct,how is it possible for both to have increased?
Q2) Briefly describe how labor unions can affect wages in non-unionized industries.
Q3) Briefly summarize the advantages and disadvantages of unemployment insurance.
Q4) Write the formula for calculating the unemployment rate.
Q5) How does the government measure the economy's rate of unemployment?
Q6) Give an historical example of an efficiency wage that was considered by the firm to be "one of the finest cost-cutting moves we ever made."
Q7) What problems arise in interpreting unemployment data?
Q8) Explain the effect of right-to-work laws on the collective bargaining power of labor unions.
Q9) Briefly explain the four rationales for efficiency wages.
Q10) Briefly compare the structural unemployment that arises from minimum-wage laws to the frictional unemployment that arises from the process of job search.
Q11) List the four types of efficiency-wage theory.
Q13) List the four ways to explain unemployment in the long run. Page 107
Q12) Give a few examples of how sectoral shifts temporarily cause unemployment.
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Chapter 15: Unemployment: Part B
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Sample Questions
Q1) The Bureau of Labor Statistics' household survey and establishment survey both yield the same results about total employment.
A)True
B)False
Q2) The labor-force participation rate tells us the fraction of the population that is able to participate in the labor market.
A)True
B)False
Q3) The Bureau of Labor Statistics produces data on unemployment and other aspects of the labor market from a regular survey of about 600 households,called the Current Population Survey.
A)True
B)False
Q4) Critics of government-run employment agencies and public training programs argue that the private market is better at matching workers and jobs than the government is.
A)True
B)False
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Page 109
Chapter 16: The Monetary System
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Sample Questions
Q1) A double coincidence of wants
A)is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)is required in an economy that relies on barter.
C)is a hindrance to the allocation of resources when it is required for trade.
D)All of the above are correct.
Q2) In an economy that relies upon barter,
A)trade does not require a double coincidence of wants.
B)scarce resources are allocated just as easily as they are in economies that do not rely upon barter.
C)there is no item in the economy that is widely accepted in exchange for goods and services.
D)All of the above are correct.
Q3) As opposed to a payments system based on barter,a payments system based on money
A)requires a double coincidence of wants.
B)leads to less specialization.
C)makes trades less costly.
D)None of the above is correct.
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Page 110
Chapter 16: The Monetary System: The Meaning of Money
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Sample Questions
Q1) Which of the following is included in both M1 and M2?
A)savings deposits
B)demand deposits
C)small time deposits
D)money market mutual funds
Q2) In measuring the stock of money in the U.S. ,M1 includes
A)traveler's checks.
B)savings deposits.
C)credit cards
D)none of the above.
Q3) Any item that people can use to transfer purchasing power from the present to the future is called
A)a medium of exchange.
B)a unit of account.
C)a store of value.
D)None of the above is correct.
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Chapter 16: The Monetary System: The Federal Reserve System
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Sample Questions
Q1) Who can vote on Federal Open Market Committee decisions?
A)all of the members of the Board of Governors and all of the Federal Reserve Bank presidents
B)all of the members of the Board of Governors and some of the Federal Reserve Bank presidents
C)some of the members of the Board of Governors and all of the Federal Reserve Bank presidents
D)some of the members of the Board of Governors and some of the Federal Reserve Bank presidents
Q2) The Board of Governors
A)is chaired by the U.S.Secretary of the Treasury.
B)members are elected by the U.S.public.
C)has 7 members.
D)All of the above are correct.
Q3) The Federal Reserve was created
A)in 1913 by Congress
B)as a result of the Great Depression
C)according to the standards enforced by NATO
D)by President Kennedy
Page 112
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Chapter 16: The Monetary System: Banks and the Money Supply
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Sample Questions
Q1) A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is
A)a liability for the bank and an asset for Greg's Ice Cream.The loan increases the money supply.
B)a liability for the bank and an asset for Greg's Ice Cream.The loan does not increase the money supply.
C)an asset for the bank and a liability for Greg's Ice Cream.The loan increases the money supply.
D)an asset for the bank and a liability for Greg's Ice Cream.The loan does not increase the money supply.
Q2) On a bank's T-account,which are part of the bank's assets?
A)both deposits made by its customers and reserves
B)deposits made by its customers but not reserves
C)reserves but not deposits made by its customers
D)neither deposits made by its customers nor reserves
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Page 113
Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Sample Questions
Q1) In the 19th century,when crop failures often led to bank runs,banks would make relatively fewer loans and hold relatively more excess reserves.By itself,these actions by the banks should have
A)increased the money multiplier and the money supply.
B)decreased the money multiplier and increased the money supply.
C)increased the money multiplier and decreased the money supply.
D)decreased both the money multiplier and the money supply.
Q2) If the discount rate is raised then banks borrow
A)more from the Fed so reserves increase.
B)more from the Fed so reserves decrease.
C)less from the Fed so reserves increase.
D)less from the Fed so reserves decrease.
Q3) The Fed decreases reserves if it conducts open market
A)purchases or auctions term credit.
B)purchases but not if it auctions term credit
C)sales or auctions term credit
D)sales but not if it auctions term credit
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Page 114
Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) The ease with which an asset can be converted into the economys medium of exchange is known as _____.
Q2) Name three actions the Fed can take to increase the money supply.
Q3) Why is the president of the New York Fed always a voting member of the FOMC?
Q4) Suppose the required reserve ratio is 20%.What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general,why might the actual amount of total money creation be less than the maximum?
Q5) Monetary policy has an important influence on _____ and _____ in the short run.
Q6) Are credit cards and debit cards money? What's the difference between credit and debit cards?
Q7) The Fed began paying interest on reserves in October 2008.Holding all else constant,what effect would this have on the money supply?
Q8) Why do Federal Reserve Board of Governors have long (14 year)terms?
Q9) Describe the role of bank leverage in bank insolvency during times of falling asset prices.
Q10) How does the Fed Open Market Committee increase the money supply?
Q11) Monetary policy is made by the ______.
Q12) What does it mean for the Fed to be the "lender of last resort?" Page 115
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Chapter 16: The Monetary System: Part B
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Q1) Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.
A)True B)False
Q2) An increase in the reserve requirement increases reserves and decreases the money supply.
A)True B)False
Q3) Bank runs are only a concern under a fractional-reserve banking system.
A)True B)False
Q4) The Federal Reserve was created in 1913 after a series of bank failures in 1907. A)True B)False
Q5) In a system of 100-percent-reserve banking,changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers. A)True B)False
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Chapter 17: Money Growth and Inflation
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22 Verified Questions
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Sample Questions
Q1) Over the past 80 years,the overall price level in the U.S.has experienced a(n)
A)4-fold increase.
B)10-fold increase.
C)13-fold increase.
D)17-fold increase.
Q2) There was hyperinflation during the A)period 1880-1896 in the United States.
B)1970s in the United States.
C)early part of the current century in Zimbabwe.
D)All of the above are correct.
Q3) If the price level increased from 200 to 250,then what was the inflation rate?
A)50 percent
B)25 percent
C)20 percent
D)None of the above is correct.
Q4) Inflation can be measured by the A)change in the consumer price index.
B)percentage change in the consumer price index.
C)percentage change in the price of a specific commodity.
D)change in the price of a specific commodity.
Page 118
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Chapter 17: Money Growth and Inflation: The Classical
Theory of Inflation
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Sample Questions
Q1) When the money market is drawn with the value of money on the vertical axis,if money supply and money demand both shift to the right
A)the price level must have risen
B)the price level must have fallen.
C)the price level rises if money supply shifts farther than money demand.
D)the price level falls if money supply shifts farther than money demand.
Q2) An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.
A)His real and nominal salary have risen.
B)His real and nominal salary have fallen.
C)His real salary has risen and his nominal salary has fallen.
D)His real salary has fallen and his nominal salary has risen.
Q3) The supply of money is determined by
A)the price level.
B)the Treasury and Congressional Budget Office.
C)the Federal Reserve System.
D)the demand for money.
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Chapter 17: Money Growth and Inflation: The Costs of
Inflation
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Sample Questions
Q1) Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?
A)Inflation is 3 percent;the tax rate is 15 percent.
B)Inflation is 2 percent;the tax rate is 40 percent.
C)Inflation is 1 percent;the tax rate is 50 percent.
D)The after-tax real interest rate is the same for all of the above.
Q2) Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?
A)menu costs and shoeleather costs
B)menu costs but not shoeleather costs
C)shoeleather costs but not menu costs
D)menu costs but not shoeleather costs.
Q3) When inflation rises,people tend to go to the bank
A)more often,giving rise to menu costs.
B)more often,giving rise to shoeleather costs.
C)less often,giving rise to redistribution costs.
D)less often,thereby lessening the severity of the inflation tax.
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Page 120
Chapter 17: Money Growth and Inflation: Conclusion
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Sample Questions
Q1) In order to maintain stable prices,a central bank must
A)maintain low interest rates.
B)keep unemployment low.
C)tightly control the money supply.
D)sell indexed bonds.
Q2) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
Q3) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
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Chapter 17: Money Growth and Inflation: Part A
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Sample Questions
Q1) Define each of the symbols and explain the meaning of M × V = P × Y.
Q2) In the long run inflation is explained by _______.For countries that had hyperinflation this source of inflation arose primarily because the government
Q3) In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.
Q4) If velocity is 6,real output is 10,000,and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change,what happens to the price level? Are the change in the money supply and the change in the price level proportional?
Q5) Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?
Q6) The costs a business incurs to change its prices are called ___________.
Q7) The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.
Page 122
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Chapter 17: Money Growth and Inflation: Part B
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Sample Questions
Q1) An excess supply of money is eliminated by a decrease in the value of money.
A)True
B)False
Q2) The inflation rate is measured as the percentage change in a price index.
A)True
B)False
Q3) The money demand curve shifts to the left when the Fed buys government bonds.
A)True
B)False
Q4) Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.
A)True
B)False
Q5) The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.
A)True
B)False
Q6) The price level is determined by the supply of,and demand for,money.
A)True
B)False
Page 123
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Sample Questions
Q1) International trade
A)raises the standard of living in all trading countries.
B)lowers the standard of living in all trading countries.
C)leaves the standard of living unchanged.
D)raises the standard of living for importing countries and lowers it for exporting countries.
Q2) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
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Page 124
Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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227 Verified Questions
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Sample Questions
Q1) A Japanese flour mill buys wheat from the United States and pays for it with yen.Other things the same,Japanese
A)net exports increase,and U.S.net capital outflow increases.
B)net exports increase,and U.S.net capital outflow decreases.
C)net exports decrease,and U.S.net capital outflow increases.
D)net exports decrease,and U.S.net capital outflow decreases.
Q2) If business opportunities in a country become relatively less attractive relative to those of other countries,then
A)both its net exports and net capital outflows fall.
B)both its net exports and net capital outflows rise.
C)its net exports fall and its net capital outflows fall.
D)its net exports rise and its net capital outflows fall
Q3) From 2000 to 2012 the U.S.had a trade
A)surplus and a large net capital inflow.
B)surplus and a large net capital outflow.
C)deficit and a large net capital inflow.
D)deficit and a large net capital outflow.
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Page 125
Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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Sample Questions
Q1) Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S.If a pound of bananas in the U.S.costs $.50,and the exchange rate is 10 Guatemalan Quetzals per dollar,what is the price of bananas in Guatemala?
A)2.50 Quetzals per pound
B)4.00 Quetzals per pound
C)5.75 Quetzals per pound
D)6.25 Quetzals per pound
Q2) Other things the same,the real exchange rate between American and Chinese goods would be higher if
A)prices of Chinese goods were higher,or the number of yuan a dollar purchased was higher.
B)prices of Chinese goods were higher,or the number of yuan a dollar purchased was lower.
C)prices of Chinese goods were lower,or the number of yuan a dollar purchased was higher.
D)prices of Chinese goods were lower,or the number of yuan a dollar purchased was lower.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: A First Theory of Exchange-Rate Determination
Purchasing-Power Parity
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Sample Questions
Q1) On behalf of your firm,you make frequent trips to Tokyo.You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S.This observation is
A)consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States.
B)consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States.
C)inconsistent with purchasing-power parity,but might be explained by limited opportunities for arbitrage in haircuts across international borders.
D)None of the above is correct.
Q2) If purchasing-power parity holds,a bushel of rice costs $10 in the U.S. ,and the nominal exchange rate is 25 Thai baht per dollar,what is the price of rice in Thailand?
A)400 baht
B)250 bhat
C)100 bhat
D)None of the above is correct.
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Page 127
Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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67 Verified Questions
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Sample Questions
Q1) Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.
Q2) Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X,what would explain the appreciation of the dollar?
Q3) While vacationing in Italy,you see an interesting meal on a menu.The price is 24 euros.
A.If the exchange rate is .80 euros per dollar,how many dollars would you have to give up to buy the meal?
B.If the dollar appreciated against the euro,but the price of the meal remained 24 euro,would the meal cost more or fewer dollars? Explain.
Q4) Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States.If the exchange rate is .80 euros per dollar,what is the real exchange rate?
Q5) A pound of steak costs $10 in the U.S.and 56.25 riyals (the currency of Saudi Arabia)in Saudi Arabia.If the real exchange rate is 2/3,what is the nominal exchange rate? Show your work.
Q6) How do we find the real exchange rate from the nominal exchange rate?
Page 128
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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Sample Questions
Q1) Other things the same,an increase in foreign prices raises the real exchange rate.
A)True
B)False
Q2) A Turkish firm exchanges lira (Turkish currency)for dollars.It then uses these dollars to purchase computers from the U.S.These actions decrease U.S.net capital outflow and increase U.S.net exports.
A)True
B)False
Q3) The large trade deficits in the U.S.during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.
A)True
B)False
Q4) From 2008 to 2012 both U.S.saving and U.S.investment fell.
A)True
B)False
Q5) In an open economy,national saving can be less than investment.
A)True
B)False
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Chapter 19: A Macroeconomic Theory of the Open Economy
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3 Verified Questions
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Sample Questions
Q1) The open-economy macroeconomic model examines the determination of
A)the output growth rate and the real interest rate.
B)unemployment and the exchange rate.
C)the output growth rate and the inflation rate.
D)the trade balance and the exchange rate.
Q2) The open-economy macroeconomic model includes
A)only the market for loanable funds.
B)only the market for foreign-currency exchange.
C)both the market for loanable funds and the market for foreign-currency exchange.
D)neither the market for loanable funds nor the market for foreign-currency exchange.
Q3) Over the past three decades,the United States has
A)generally had,or been very near to a trade balance.
B)had trade deficits in about as many years as it has trade surpluses.
C)persistently had a trade deficit.
D)persistently had a trade surplus.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for Foreign-Currency Exchange
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141 Verified Questions
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Sample Questions
Q1) Which of the following is the most likely response to an increase in the U.S.real interest rate?
A)a London bank purchases a U.S.bond instead of a Japanese bond it had considered purchasing
B)U.S.firms decide to buy more capital goods
C)a U.S.citizen decides to put less money in his savings account than he had planned.
D)All of the above are consistent.
Q2) Other things the same,a decrease in the U.S.real interest rate induces
A)Americans to buy more foreign assets,which increases U.S.net capital outflow.
B)Americans to buy more foreign assets,which reduces U.S.net capital outflow.
C)foreigners to buy more U.S.assets,which reduces U.S.net capital outflow.
D)foreigners to buy more U.S.assets,which increases U.S.net capital outflow.
Q3) If the supply of dollars in the market for foreign-currency exchange shifts left,then the exchange rate
A)rises and the quantity of dollars exchanged falls.
B)rises and the quantity of dollars exchanged does not change.
C)rises and the quantity of dollars exchanged rises.
D)falls and the quantity of dollars exchanged does not change.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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45 Verified Questions
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Sample Questions
Q1) When the U.S.real interest rate falls,purchasing U.S.assets becomes
A)less attractive and so U.S.net capital outflow rises.
B)less attractive and so U.S.net capital outflow falls.
C)more attractive and so U.S.net capital outflow rises.
D)more attractive and so U.S.net capital outflow falls.
Q2) Which of the following is correct concerning the open-economy macroeconomic model?
A)The net-capital-outflow curve slopes upward.
B)The key determinant of net capital outflow is the real exchange rate.
C)The supply of dollars in the market for foreign-currency exchange is vertical.
D)None of the above is correct.
Q3) Other things the same,if foreign companies desired to buy more U.S.medical equipment and U.S.residents desired to buy more foreign bonds
A)net exports and the exchange rate would rise.
B)net exports would rise,but what would happen to the exchange rate is uncertain.
C)net exports would fall,but what would happen to the exchange rate is uncertain.
D)net exports and the exchange rate would fall.
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Page 132
Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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Sample Questions
Q1) If the risk of buying U.S.assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds,then
A)net capital outflow and the real exchange rate will rise.
B)net capital outflow will rise and the real exchange rate will fall.
C)net capital outflow will fall and the real exchange rate will rise.
D)net capital outflow and the exchange rate will fall.
Q2) An increase in the budget deficit
A)reduces net capital outflow and domestic investment.
B)reduces net capital outflow and raises domestic investment.
C)raises net capital outflow and domestic investment
D)raises net capital outflow and reduces domestic investment.
Q3) When a country experiences capital flight,which of the following rise?
A)its real interest rate and its real exchange rate
B)its real interest rate but not its real exchange rate
C)its real exchange rate but not its real interest rate
D)neither its real interest rate nor its foreign exchange rate
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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Sample Questions
Q1) If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.
Q2) Suppose that the U.S.government budget deficit decreases.What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.
Q3) Political events convince people that the assets of country x are now riskier.As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?
Q4) What is the source of the supply of dollars in the market for foreign-currency exchange?
Q5) What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?
Q6) If for some reason U.S.residents increase their purchases of foreign assets,then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?
Q7) What effect do protectionist policies have on the trade deficit?
Page 134
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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Source URL: https://quizplus.com/quiz/79629
Sample Questions
Q1) In the long run,import quotas increase net exports.
A)True
B)False
Q2) An import quota imposed by the U.S.would reduce U.S.imports,but have no impact on U.S.exports.
A)True
B)False
Q3) The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.
A)True
B)False
Q4) According to the open-economy macroeconomic model,if the U.S.government budget deficit decreases,then both U.S.domestic investment and net capital outflow increase.
A)True
B)False
Q5) In the open-economy macroeconomic model,the real exchange rate does not affect net capital outflow.
A)True
B)False
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Chapter 20: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) In October 2009,the official unemployment rate rose to A)10%.
B)8%.
C)6%
D)4%.
Q2) On average,over the last 50 years,real GDP has grown by about
A)3 percent per year.
B)2 percent per year.
C)1 percent per year.
D)4 percent per year.
Q3) During recessions
A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.
Q4) During a recession the economy experiences
A)rising employment and income.
B)rising employment and falling income.
C)rising income and falling employment.
D)falling employment and income.
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Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) Investment is a
A)small part of real GDP,so it accounts for a small share of the fluctuation in real GDP.
B)small part of real GDP,yet it accounts for a large share of the fluctuation in real GDP.
C)large part of real GDP,so it accounts for a large share of the fluctuation in real GDP.
D)large part of real GDP,yet it accounts for a small share of the fluctuation in real GDP.
Q2) Which of the following rises during recessions?
A)layoffs and consumer spending
B)layoffs but not consumer spending
C)consumer spending but not layoffs
D)neither layoffs nor consumer spending
Q3) During recessions,income
A)and unemployment both rise.
B)rises and unemployment falls.
C)falls and unemployment rises.
D)and unemployment both fall.
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Explaining Short-Run Economic Fluctuations
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Sample Questions
Q1) Most economists believe that classical theory describes the world
A)in the short run.
B)in the long run.
C)in both the short run and the long run.
D)in neither the short run nor the long run.
Q2) Which of the following would not be included in aggregate demand?
A)an increase in firms' inventories.
B)purchases of goods by households.
C)firms' purchases of newly produced machinery.
D)government's tax collections.
Q3) According to classical macroeconomic theory,changes in the money supply affect
A)variables measured in terms of money and variables measured in terms of quantities or relative prices
B)variables measured in terms of money but not variables measured in terms of quantities or relative prices
C)variables measured in terms of quantities or relative prices,but not variables measured in terms of money
D)neither variables measured in terms of money nor variables measured in terms of quantities or relative prices
Page 138
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Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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141 Verified Questions
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Source URL: https://quizplus.com/quiz/79711
Sample Questions
Q1) Other things the same,as the price level falls,a country's exchange rate
A)and interest rates rise.
B)and interest rates fall.
C)falls and interest rates rise.
D)rises and interest rates fall.
Q2) Other things the same,if the U.S.price level falls,then
A)U.S.residents want to buy more foreign bonds.The real exchange rate rises.
B)U.S.residents want to buy more foreign bonds.The real exchange rate falls.
C)U.S.residents want to buy fewer foreign bonds.The real exchange rate rises.
D)U.S.residents want to buy fewer foreign bonds.The real exchange rate falls.
Q3) Other things the same,an increase in the price level induces people to hold
A)less money,so they lend less,and the interest rate rises.
B)less money,so they lend more,and the interest rate falls.
C)more money,so they lend more,and the interest rate falls.
D)more money,so they lend less,and the interest rate rises.
Q4) Other things the same,the aggregate quantity of goods demanded decreases if A)real wealth falls.
B)the interest rate rises.
C)the dollar appreciates.
D)All of the above are correct.
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The Aggregate-Supply Curve
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Sample Questions
Q1) Other things the same,continued increases in the money supply lead to
A)continued increases in the price level and real GDP.
B)continued increases in the price level but not continued increases in real GDP.
C)continued increases in real GDP but not continued increases in the price level.
D)a one-time permanent increase in both prices and real GDP.
Q2) The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%,then firms have
A)higher than desired prices,which leads to an increase in the aggregate quantity of goods and services supplied.
B)higher than desired prices,which leads to a decrease in the aggregate quantity of goods and services supplied.
C)lower than desired prices,which leads to an increase in the aggregate quantity of goods and services supplied.
D)lower than desired prices,which leads to a decrease in the aggregate quantity of goods and services supplied.
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Page 140
Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Economic expansions in Europe and China would cause
A)the U.S.price level and real GDP to rise.
B)the U.S.price level and real GDP to fall.
C)the U.S.price level to rise and real GDP to fall.
D)the U.S.price level to fall and real GDP to rise.
Q2) Refer to Figure 33-4.If the economy is in long-run equilibrium,then an adverse shift in aggregate supply would move the economy from
A)A to B.
B)C to D.
C)B to A.
D)D to C.
Q3) Refer to Figure 33-6.Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?
A)LRAS<sub>1</sub>
B)LRAS<sub>2</sub>
C)LRAS<sub>3</sub>
D)Both LRAS<sub>1</sub> and LRAS<sub>3</sub>
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Page 141
Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Q1) Make a list of things that would shift the long-run aggregate supply curve to the right.
Q2) Using the aggregate demand and aggregate supply model,an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?
Q3) Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?
Q4) The long-run trend in real GDP is upward.How is this possible given business cycles? What explains the upward trend?
Q5) Identify the direction of the change during a recession in each of the following: consumption expenditures,investment expenditures,and unemployment.
Q6) Refer to Figure 33-16.Suppose the economy starts at P<sub>3</sub> and Y<sub>2</sub>.If there is a decrease in government purchases,identify the price and output levels that the economy would move to in the short run.
Q7) Explain how a change in the expected price level would shift the short-run and long-run aggregate-supply curves.
Q8) Refer to Figure 33-12.Identify periods 1 and 2.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Q1) A decrease in the money supply causes the interest rate to rise so that investment falls.
A)True
B)False
Q2) All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output supplied increases when the actual price level exceeds the expected price level.
A)True
B)False
Q3) In the long-run,an increase in aggregate demand increases the price level,but not real GDP.
A)True
B)False
Q4) We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.
A)True
B)False
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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Shifts in aggregate demand affect the price level in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short and long run.
D)neither the short nor long run.
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) A goal of monetary policy and fiscal policy is to
A)offset the shifts in aggregate demand and thereby eliminate unemployment.
B)offset shifts in aggregate demand and thereby stabilize the economy.
C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)enhance the shifts in aggregate demand and thereby increase economic growth
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144
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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Q1) Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?
A)the wealth effect
B)the interest-rate effect
C)the exchange-rate effect
D)All of the above are correct.
Q2) If expected inflation is constant,then when the nominal interest rate increases,the real interest rate
A)increases by more than the change in the nominal interest rate.
B)increases by the change in the nominal interest rate.
C)decreases by the change in the nominal interest rate.
D)decreases by more than the change in the nominal interest rate.
Q3) In recent years,the Federal Reserve has conducted policy by setting a target for the
A)size of the money supply.
B)growth rate of the money supply.
C)federal funds rate.
D)discount rate.
Page 145
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Fiscal Policy Influences
Aggregate Demand
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Q1) Assuming no crowding-out,investment-accelerator,or multiplier effects,a $100 billion increase in government expenditures shifts aggregate demand
A)right by more than $100 billion.
B)right by $100 billion.
C)left by more than $100 billion.
D)left by $100 billion.
Q2) Refer to Scenario 34-2.The marginal propensity to consume for this economy is A)0.64.
B)0.83.
C)0.56.
D)0.840.
Q3) Refer to Scenario 34-2.The multiplier for this economy is A)1.31.
B)6.25.
C)2.78.
D)2.27.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Using Policy to Stabilize the Economy
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Q1) Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?
A)decrease the money supply
B)increase government expenditures
C)increase taxes
D)All of the above are correct.
Q2) During recessions,automatic stabilizers tend to make the government's budget
A)move toward deficit.
B)move toward surplus.
C)move toward balance.
D)not necessarily move the budget in any particular direction.
Q3) Refer to Figure 34-9.Suppose the economy is currently at point A.To restore full employment,the Federal Reserve should
A)purchase government bonds,which will increase the money supply.
B)purchase government bonds,which will reduce the money supply.
C)sell government bonds,which will increase the money supply.
D)sell government bonds,which will reduce the money supply.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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Q1) Refer to Figure 34-12.Suppose the multiplier is 5 and the economy is currently at point A.To stabilize output at $1000,the government should ----- purchases by $-----.
Q2) When the Federal Reserve conducts an open-market purchase,the money supply ----- and aggregate demand -----.
Q3) Last year,total income increased $1,000 and consumption increased $800.An increase in government spending equal to $10 would cause output to increase by $----because the multiplier is ------.
Q4) Suppose a wave of optimism causes firms to increase investment.To stabilize output and employment,the Federal Reserve will -----.
Q5) A decrease in taxes ---- aggregate demand through larger ----- by households.
Q6) The theory of ----- states that the ----- adjusts to bring money supply and money demand into balance.
Q7) The wealth-effect notes that a ----- price level increases the real value of households' wealth.The larger real wealth ----- the quantity of goods and services demanded.
Q8) There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Q1) A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.
A)True
B)False
Q2) During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.
A)True
B)False
Q3) According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
A)True
B)False
Q4) The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) Suppose policymakers take actions that cause a contraction of aggregate demand.Which of the following is a short-run consequence of this contraction?
A)The inflation rate decreases.
B)The level of output decreases.
C)The unemployment rate increases.
D)All of the above are correct.
Q2) When monetary and fiscal policymakers expand aggregate demand,which of the following costs is incurred in the short run?
A)Short-run aggregate supply decreases.
B)The natural rate of unemployment increases.
C)The price level increases more rapidly.
D)The money supply increases less rapidly.
Q3) One determinant of the natural rate of unemployment is the A)rate of growth of the money supply.
B)minimum wage rate.
C)expected inflation rate.
D)All of the above are correct.
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Page 150
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Q1) Refer to Figure 35-4.Assume the figure depicts possible outcomes for the year 2018.In 2018,the economy is at point A on the left-hand graph,which corresponds to point A on the right-hand graph.The price level in the year 2017 was A)106.
B)108.
C)110.
D)112.
Q2) If the central bank increases the money supply,then in the short run prices
A)rise and unemployment falls.
B)fall and unemployment rises.
C)and unemployment rise.
D)and unemployment fall.
Q3) If the central bank decreases the money supply,then in the short run prices
A)rise and unemployment falls.
B)fall and unemployment rises.
C)and unemployment rise.
D)and unemployment fall.
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Page 151
Chapter 22: The Short Run Trade Off Between Inflation and
Shifts in the Phillips Curve the Role of Expectations
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Q1) A decrease in expected inflation shifts
A)the long-run Phillips curve left.
B)the short-run Phillips curve left.
C)neither the short-run nor long-run Phillips curve left.
D)both the short-run and long-run Phillips curve left.
Q2) In the long run an increase 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,if the Fed decreases the rate at which it increases the money supply,
A)inflation and unemployment will be higher.
B)inflation will be higher and unemployment will be lower.
C)inflation will be lower and unemployment will be higher.
D)None of the above is correct.
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Chapter 22: The Short Run Trade Off Between Inflation and
Unemployment: Shifts in the Phillips Curve the Role of Supply Shocks
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Q1) Refer to Figure 35-9.The shift of the aggregate-supply curve from AS<sub>1</sub> to AS<sub>2</sub>
A)results in a more favorable trade-off between inflation and unemployment.
B)results in a more favorable trade-off between inflation and the growth rate of real GDP.
C)represents an adverse shock to aggregate supply.
D)represents a favorable shock to aggregate supply.
Q2) A shock increases the costs of production.Given the effects of this shock,if the central bank wants to return the unemployment rate towards its previous level it would
A)increase the rate at which the money supply increases.This will also move inflation closer to its previous rate..
B)increase the rate at which the money supply increases.However,this will make inflation higher than its previous rate
C)decrease the rate at which the money supply increases.This will also move inflation closer to its original rate
D)decrease the rate at which the money supply increases.However,this will make higher than its previous rate.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Cost of Reducing Inflation
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Q1) Refer to The Economy in 2008.The short-run effects of the housing and financial crisis are shown by
A)moving to the right along the short-run Phillips curve.
B)moving to the left along the short-run Phillips curve.
C)shifting the short-run Phillips curve right.
D)shifting the short-run Phillips curve left.
Q2) Which of the following describes the Volcker disinflation most accurately?
A)Almost all of the public believed that the Fed would keep money growth low,so unemployment rose less than it would have otherwise.
B)Almost all of the public believed that the Fed would keep money growth low,so unemployment rose more than it would have otherwise.
C)Much of the public did not believe that the Fed would keep money growth low,so unemployment rose less than it would have otherwise.
D)Much of the public did not believe that the Fed would keep money growth low,so unemployment rose more than it would have otherwise.
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Page 154
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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Q1) A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.
Q2) The Fed increases the money supply growth rate.Assuming inflation expectations remain constant,use a Phillips curve diagram to show the short-run effects of the Fed's policy.
Q3) A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?
Q4) List one specific policy that would shift the long-run Phillips curve to the right.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Q6) Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and 109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?
Q7) Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
Q8) What is meant by the natural rate of unemployment?
Q9) What is meant by accommodation?
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Q1) If expected inflation increases,the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.
A)True
B)False
Q2) The natural rate of unemployment is the same as the socially optimal rate of unemployment.
A)True
B)False
Q3) In the long run,the inflation rate depends primarily on the growth rate of the money supply.
A)True
B)False
Q4) An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.
A)True
B)False
Q5) In most of the 1970s,the Fed's policy created expectations of high inflation.
A)True
B)False
Page 156
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy
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Q1) Which of the following likely occurs when households and firms become more pessimistic?
A)increased spending
B)increased aggregate demand
C)increased real GDP
D)an increase in the unemployment rate
Q2) Fluctuations in employment and output result from changes in
A)aggregate demand only.
B)aggregate supply only.
C)aggregate demand and aggregate supply.
D)neither aggregate demand nor aggregate supply.
Q3) When aggregate demand is high,risking higher inflation,those in favor of using monetary and fiscal policy to stabilize the economy might recommend
A)increasing government spending.
B)expanding the money supply.
C)lowering taxes.
D)the Fed sell government bonds.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Fight Recessions With Spending
Hikes Rather Than Tax Cuts
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Q1) Stimulus spending in 2009 was used for
A)building roads and bridges.
B)providing aid to local and state governments.
C)making payments to the unemployed.
D)All of the above are correct.
Q2) An increase in the money supply
A)reduces interest rates and shifts aggregate demand to the right.
B)reduces interest rates and shifts aggregate supply to the right
C)raises interest rates and shifts aggregate demand to the right.
D)raises interest rates and shifts aggregate supply to the right.
Q3) Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the
A)price level and real GDP change by more than otherwise.
B)price level change by more than otherwise and real GDP change by less than otherwise.
C)price level change by less than otherwise and real GDP change by more than otherwise.
Page 158
D)price level and real GDP change by more than otherwise
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary Policy Be Made by Rule Rather Than by Discretion
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Q1) A 1977 amendment to the Federal Reserve Act of 1913
A)requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment.
B)requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability.
C)requires the Federal Reserve to place equal weight on promoting price stability and maximum employment.
D)says the Federal Reserve should promote price stability and maximum employment,but does not specify how the Federal Reserve should weight these goals.
Q2) If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,
A)the short-run Phillips curve would shift up.
B)the short-run Phillips curve would shift down.
C)the long-run Phillips curve would shift right.
D)the long-run Phillips curve would shift left.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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Q1) Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?
A)Avoid unexpected changes in the inflation rate.
B)Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)Make policy that would discourage firms from issuing indexed bonds.
D)All of the above are correct.
Q2) An added benefit of inflation is that it allows for the possibility of A)menu costs.
B)aggregate supply shocks.
C)negative real interest rates.
D)recessions.
Q3) For the Fed to fully eliminate the costs of inflation,how low does the inflation rate need to be?
A)0 percent
B)3 percent
C)5 percent
D)6 percent
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Which of the following are justifications for running a budget deficit?
A)avoiding raising tax rates
B)stabilizing an economy during a recession
C)both a and b
D)neither a nor b
Q2) In June of 2010,the government had a debt of about $8.6 trillion.Over the next year real GDP grew by about 1.6% and inflation was about 2%.What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?
A)about $68.8 billion
B)about $137.6 billion
C)about $275.2 billion
D)about $309.6 billion
Q3) Which of the following is correct?
A)Deficits always require people to consume at the expense of their children.
B)If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)If the government is in debt it must be running a deficit currently.
D)The current government debt is a large share of lifetime income.
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Q1) Which of the following two effects of a decrease in the tax rate on saving would raise savings?
A)the income effect and the substitution effect
B)the income effect but not the substitution effect
C)the substitution effect but not the income effect
D)neither the substitution effect nor the income effect
Q2) Which of the following is true concerning IRA's,401(k)and 403(b)plans?
A)There are no limits on the amount of funds people can hold in them.
B)Some people are not eligible to hold them.
C)There are never penalties for withdrawals.
D)All of the above are correct.
Q3) IRAs,and 401(k)and 403(b)plans
A)impose added taxes on those who save.
B)place no limits on the amount people can deposit into these programs.
C)impose penalties for withdrawals except under certain circumstances.
D)None of the above is correct.
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Q1) The six debates over macroeconomic policy exist mostly because A)economists disagree over basic issues such as the importance of saving for economic growth.
B)there are tradeoffs and people disagree about the best way to deal with them.
C)politicians offer misleading information.
D)people fail to clearly see the benefits or the costs of most changes.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) Explain why policy lags could make stabilization policies counterproductive.
Q2) During recessions,even with no changes in policy,the deficit tends to ------ because -------------.
Q3) Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government.Explain this argument.
Q4) Explain the time inconsistency of monetary policy.
Q5) Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?
Q6) Economists believe that a little bit of inflation may be a good thing.What are the potential benefits of inflation?
Q7) In addition to the tax code,other policies reduce the incentives for people to save Provide an example.
Q8) Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?
Q9) Explain why fiscal policy actions typically work with a lag.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) In essence,a consumption tax puts all saving into tax-advantaged savings accounts. A)True
B)False
Q2) Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.
A)True
B)False
Q3) In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).
A)True
B)False
Q4) Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.
A)True
B)False
Q5) A recession has no benefit to society-it represents a sheer waste of resources. A)True
B)False
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Chapter 24: A-Financial-Overview-Of-The-US
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Q1) The largest budgetary expense for a typical state or local government is A)education.
B)Medicare.
C)highways.
D)income security.
Q2) Public schools,which educate most students through high school,are paid for primarily by
A)state governments.
B)local governments.
C)the federal government.
D)taxpayers directly.
Q3) Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a percentage of GDP?
A)increasing life expectancies
B)increasing healthcare costs
C)increasing fertility rates
D)Both a and b are correct.
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Page 166