Macroeconomics
Midterm Exam
Course Introduction
Macroeconomics is the branch of economics that studies the behavior, performance, and structure of an entire economy rather than individual markets. It focuses on aggregate indicators such as GDP, unemployment rates, inflation, and national income to understand how economies function at a large scale. Topics covered include fiscal and monetary policy, economic growth, business cycles, and the impacts of government intervention in the economy. The course equips students with analytical tools to evaluate economic policies and understand global economic issues affecting nations and populations as a whole.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Q1) The federal government regulates how much carbon dioxide a factory can emit. This statement best represents this economic concept:
A) Resources are scarce.
B) "How much" is a decision at the margin.
C) Markets usually lead to efficiency.
D) When markets don't achieve efficiency, government intervention can improve society's welfare.
Answer: D
Q2) An apartment complex included a fixed price of water in the monthly rent. One day the city decided to attach a water meter to each individual apartment and charge the tenant for actual water usage. As a result, water usage in the apartment complex went way down. Explain this situation using a principle of economics.
Answer: By charging each person for actual water usage, the city set up an economic incentive to use less water. Apartment tenants responded and in the process exploited an opportunity to make themselves better off.
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3
Chapter 2: Economic Models- Trade-Offs and Trade
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Q1) (Table: Comparative Advantage I) Look at the table Comparative Advantage I. Sweden has an absolute advantage in producing:
A) cell phones only.
B) herring only.
C) both cell phones and herring.
D) neither cell phones nor herring.
Answer: B
Q2) Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. With specialization, _____ brownies and _____ cookies will be made in one day.
A) 15; 20
B) 40; 20
C) 40; 15
D) 55; 35
Answer: C
Q3) In the factor market, households buy goods and services.
A)True
B)False
Answer: False
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Chapter 3: Supply and Demand
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Q1) (Figure: The Market for Candy) Look at the figure The Market for Candy. A surplus of the good will exist at a price of:
A) P<sub>1</sub>.
B) P<sub>2</sub>.
C) P<sub>3</sub>.
D) There are no surpluses in this market.
Q2) Which of the following would result in a movement along the demand curve?
A) a change in preferences
B) an increase in the number of buyers
C) an increase in the number of suppliers
D) a decrease in income
Q3) The horizontal summation of individual demand curves for a particular product, holding the quantity demanded constant, is:
A) market demand.
B) market supply.
C) complements in production.
D) substitutes in production.
Q4) Explain the law of demand. What does it tell us about the shape of a demand curve?
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Chapter 4: Consumer and Producer Surplus
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Q1) Property rights are an important feature of an effective market because they:
A) lead to the development of government control over prices.
B) prevent harm to the environment from pollution.
C) give owners of goods and services the right to use and dispose of those goods and services as they choose.
D) are the basis for an equitable tax system.
Q2) (Figure: Producer Surplus) Look at the figure Producer Surplus. Total producer surplus is _____ when the price is $40.
A) $40
B) $60
C) $80
D) $85
Q3) (Figure: Monthly Supply of Bread) The figure Monthly Supply of Bread represents the monthly supply of bread at a local bakery. At $3 per loaf, the bakery produces 120 loaves per month. The producer surplus received by this bakery is equal to:
A) $120.
B) $60.
C) $360.
D) $180.
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Page 6
Chapter 5: Price Controls and Quotas- Meddling With Markets
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Q1) Suppose the United States removes the sugar quotas and the market price of sugar drops. Since sugar is an input in candy, in the candy bar market, we would expect consumer surplus to:
A) increase.
B) decrease.
C) not change.
D) Consumer surplus cannot be determined without information about the supply curve.
Q2) (Figure: Supply and Demand in Agriculture) Look at the figure Supply and Demand in Agriculture. If a price floor at P<sub>4</sub> is set to help improve farm incomes and the government wants to assure farmers that their output will be purchased, the government must purchase an amount of output equal to:
A) Q<sub>3</sub> - Q<sub>0</sub>.
B) Q<sub>3</sub> - Q<sub>1</sub>.
C) Q<sub>2</sub> - Q<sub>1</sub>.
D) Q<sub>1</sub> - Q<sub>3</sub>.
Q3) How do price ceilings cause black markets?
Q4) How is a quota limit different from or similar to a price control?
Q5) How does a price ceiling cause deadweight loss in the market?
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Chapter 6: Elasticity
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Q1) The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?
A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) People will buy Pepsi instead of Coke.
Q2) A demand curve that is perfectly inelastic is:
A) horizontal.
B) vertical.
C) downward-sloping.
D) upward-sloping.
Q3) Suppose the cross-price elasticity between two goods is 1.5. If the price of one good increases by 10%, then the quantity demanded of the other good will:
A) decrease by 15%.
B) increase by 15%.
C) decrease by 1.5%.
D) increase by 1.5%.
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Page 8
Chapter 7: Taxes
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Q1) For a tax system to achieve equity, it must first achieve efficiency.
A)True
B)False
Q2) All of the following are costs associated with the imposition of a tax EXCEPT:
A) deadweight loss.
B) administrative cost.
C) revenues.
D) equilibrium pricing.
Q3) Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.
A) inelastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) elastic; elastic
Q4) Which of the following taxes is the largest source of government revenue?
A) sales
B) property
C) individual income
D) death
Q5) Explain how an excise tax levied on suppliers affects the supply curve.
Page 9
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Chapter 9: The Rational Consumer
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Sample Questions
Q1) Economists describe the satisfaction consumers receive from consuming goods and services as:
A) utility.
B) income effects.
C) budget constraints.
D) substitution effects.
Q2) Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.
A) 50
B) 10
C) 5
D) 100
Q3) (Figure and Table: The Budget Line) Look at the figure and table The Budget Line. An increase in income would:
A) rotate the budget line along the horizontal axis.
B) shift the budget line to the left.
C) rotate the budget line along the vertical axis.
D) shift the budget line to the right.
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Chapter 8: International Trade
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Sample Questions
Q1) Countries that engage in trade will tend to specialize in goods in which they have _____ and will _____ those goods.
A) a comparative advantage; import
B) an absolute advantage; export
C) a comparative advantage; export
D) an economic profit; import
Q2) Assume that the United States imposes an import quota on Italian shoes. Relative to the equilibrium world price that would exist in the absence of import quotas, the equilibrium price of shoes in the United States will most likely _____, and the equilibrium price of shoes in Italy will most likely _____.
A) increase; decrease
B) decrease; remain the same
C) decrease; increase
D) increase; remain the same
Q3) Some advocates of trade protection in the domestic market for steel argue that it is needed to protect domestic steelworkers' jobs. Why are economists usually unconvinced by this argument?
Q4) Explain the difference between comparative advantage and absolute advantage.
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Chapter 10: Decision Making by Individuals and Firms
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Q1) (Scenario: Betty's Cookie Shop) Given the information provided, Betty's implicit costs are:
A) her salary if she worked elsewhere and interest she forgoes by not selling her shop and putting the money in the bank.
B) the cost of labor, equipment, and raw materials.
C) the revenue she receives from selling her cookies plus the cost of labor, equipment, and raw materials.
D) revenue she receives from selling her cookies and her labor costs.
Q2) Total profit is maximized when marginal benefit _____ marginal cost.
A) is more than
B) is less than C) is equal to D) approaches
Q3) If at a given quantity _____, the decision maker should do _____ of the activity.
A) MB < MC; that amount
B) MB < MC; less
C) MB > MC; less
D) MB > MC; none
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Chapter 11: Perfect Competition and the Supply Curve
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Q1) (Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $35, how much is Sergei's profit at the optimal short-run output?
A) -$5
B) $110
C) $180
D) $330
Q2) (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the industry is in long-run equilibrium, how many shirts will each vendor sell?
A) 14
B) 20
C) 22
D) 24
Q3) A market that is in long-run equilibrium must also be in short-run equilibrium.
A)True
B)False
Q4) Explain how the long-run perfectly competitive equilibrium is efficient.
Page 13
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Chapter 12: Monopoly
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Q1) Entry barriers:
A) exist in all market structures.
B) exist in perfect competition and monopolistically competitive markets.
C) do not exist in any market structures; otherwise nothing would be produced.
D) exist in monopoly and oligopoly markets.
Q2) De Beers became a monopoly by:
A) establishing control over diamond mines.
B) use of economies of scale.
C) use of technological superiority.
D) ownership of a patent.
Q3) A monopoly's short-run marginal cost is constant at $10. This implies that its average variable cost is also constant and equal to $10.
A)True B)False
Q4) A monopoly increases price by limiting the quantity supplied to a market. A)True B)False
Q5) Price discrimination can never occur in oligopoly. A)True B)False
Page 14
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Chapter 13: Oligopoly
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Q1) The Herfindahl-Hirschman index is a measure of concentration found by:
A) squaring the percentage market share of each firm in the industry.
B) squaring the percentage market share of each firm in the industry and then summing the squared market shares.
C) summing the percentage market shares of each firm in the industry.
D) squaring the sums of the concentration ratios found in an industry survey of the largest four and largest eight firms.
Q2) A firm that is in an oligopoly knows that its _____ affect its _____ and that the _____ of its rivals will affect it.
A) actions; rivals; reactions
B) price changes; total revenue in a positive way; reactions
C) actions rarely; rivals; actions
D) price increases; total revenue in the long run only; large but not small price changes
Q3) In an oligopoly:
A) there are many sellers.
B) there are no barriers to entry.
C) firms recognize their interdependence.
D) total surplus is maximized.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Q1) A firm in monopolistic competition maximizes its profit by producing so that:
A) MC = ATC.
B) MC = AR.
C) MC = MR.
D) MC = P.
Q2) In monopolistic competition:
A) firms may advertise to increase demand for their product.
B) entry of new firms shifts the demand curve for existing firms to the right.
C) when some firms exit, the demand curve for the firms that remain in the industry shifts to the left.
D) firms earn large economic profits in the long run.
Q3) General Snacks is a typical firm in monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the long run, the economic profits of typical firms in the industry will be:
A) typical of those earned by monopoly firms.
B) positive but less than the level typically earned by monopoly firms.
C) zero.
D) negative.
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Chapter 15: Externalities
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Q1) A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that this does NOT happen is that:
A) most individuals are unfamiliar with the Coase theorem.
B) the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
C) agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads.
D) lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive.
Q2) A negative externality:
A) is any cost above the economic cost.
B) equals the social cost plus the firm's private cost.
C) is an uncompensated cost imposed by an individual or firm on others.
D) equals the opportunity cost minus the social costs.
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Chapter 16: Public Goods and Common Resources
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Q1) The tendency of people or firms to consume a public good without paying for it is called the _____ problem.
A) free-cost
B) free-rider
C) free-goods
D) free-market
Q2) You work in an office and one of your coworkers has announced his retirement. You have offered to purchase the retirement gift, so you place a collection jar in the lunch room for anonymous donations to help pay for the gift. After a week you find very little money in the jar, so you end up paying for a large share of the retirement gift. You are the victim of the _____ problem.
A) common resource
B) private good
C) overuse of a common resource
D) free-rider
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18
Chapter 17: The Economics of the Welfare State
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Q1) Medicaid is funded by:
A) private charities.
B) the federal government only.
C) state governments only.
D) federal and state governments.
Q2) Poverty tends to be more prevalent for those over age 65 than for those under age 18.
A)True
B)False
Q3) The provision of specific goods and services (rather than cash) to needy people by way of welfare programs is:
A) the income effect.
B) the wealth effect.
C) in-kind benefits.
D) Rawlsian assistance.
Q4) Which of the following programs is NOT an antipoverty program?
A) the Earned Income Tax Credit
B) Temporary Assistance for Needy Families
C) Social Security
D) Medicaid
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Chapter 18: Factor Markets and the Distribution of Income
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Q1) Consider the labor market for accountants. As more people earn accounting degrees, we should expect to see:
A) a shift to the right of the labor supply curve.
B) a shift to the right of the labor demand curve.
C) an increase in labor along a stable labor supply curve.
D) an increase in labor along a stable labor demand curve.
Q2) A determinant of the demand for a factor of production is the:
A) price of the factor.
B) productivity of the factor.
C) quantity of the factor supplied.
D) compensating differential.
Q3) Suppose Billy Bud's Bucking Broncos employs 20 workers at a daily wage of $60 each. The average product of labor is 30 bucking broncos per day; the marginal product of the last worker is 12 bucking broncos per day; and total fixed cost is $3,600 for equipment. What is the marginal cost of the last bucking bronco produced?
A) $0.20
B) $5.00
C) $240.00
D) $720.00
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Page 20
Chapter 19: Uncertainty, Risk, and Private Information
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Sample Questions
Q1) Two consumers go to the insurance company to purchase life insurance. James is a smoker and a police officer who races motorcycles in his spare time. Kathy is a nonsmoker and a librarian who likes to make quilts in her spare time. The insurance company knows that both consumers are 40 years old, but the company has no information about occupations or hobbies. How does the private information in this situation set up an adverse-selection problem? How could the insurance company lessen this problem?
Q2) (Table: Utility for Terri and Mary) Look at the table Utility for Terri and Mary. Each has an income of $300. If each were offered insurance to offset the risk of falling income, _____ would pay a larger premium because she is the consumer with _____ risk aversion.
A) Terri; more
B) Terri; less
C) Mary; more
D) Mary; less
Q3) A random variable has a certain future value.
A)True
B)False
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Chapter 20: Macroeconomics- the Big Picture
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Q1) Monetary policy attempts to affect the overall level of spending by making changes in:
A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.
Q2) When economists measure economic growth, they often use:
A) the inflation rate.
B) the unemployment rate.
C) nominal GDP.
D) real GDP.
Q3) Long-run growth is:
A) a sustained upward trend in the economy's overall output per person, which generates higher incomes and a higher standard of living for its members.
B) an increase in the rate of inflation across time, which reduces real salaries.
C) an increase in the overall output of the economy over a three- or four-year period.
D) a reduction in the price level over decades.
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Chapter 21: Gdp and the Consumer Price Index
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Q1) If nominal GDP of 2012 was higher than nominal GDP of 2011:
A) production in 2012 was higher than production in 2011, while prices remained unchanged.
B) production or prices or both were higher in 2012 than in 2011.
C) prices in 2012 were higher than prices in 2011, while production remained unchanged. D) production in 2012 went down and prices increased.
Q2) (Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in consumer spending, which of the following is likely to happen?
A) an increase in the nominal GDP
B) an increase in the real GDP
C) an increase in the unemployment rate
D) an increase in the inflation rate
Q3) Investment spending is spending on:
A) productive physical capital.
B) bonds.
C) shares of stock.
D) productive physical capital, bonds, and shares of stock.
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Chapter 22: Unemployment and Inflation
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Q1) Unemployment rates tend to:
A) be the same across geographic areas.
B) vary between age groups and ethnicities.
C) increase when the economy expands.
D) stay the same only when there is cyclical unemployment.
Q2) Unemployment that results when more people are seeking jobs than there are jobs available is _____ unemployment.
A) frictional
B) structural
C) cyclical
D) natural
Q3) An increase in the number of discouraged workers in the economy tends to:
A) raise the official unemployment rate.
B) lower the official unemployment rate.
C) lower the number of people who are frictionally unemployed.
D) increase the number of people who are structurally unemployed.
Q4) A jobless recovery occurs when GDP is growing at a below-average rate and unemployment is rising.
A)True
B)False
Page 24
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Chapter 23: Long-Run Economic Growth
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Q1) If technology advances:
A) more output can be obtained from the same inputs.
B) more inputs are needed to produce the same output.
C) less output can be obtained from the same inputs.
D) less output can be produced even with more inputs.
Q2) There are two countries on a peninsula. The first has a per capita annual growth rate of 2%, and its neighbor to the south has an annual growth rate of 5%. How much sooner will the country in the south double its GDP per capita than its neighbor in the north?
A) 5 years
B) 10 years
C) 15 years
D) 21 years
Q3) Among the factors that are important for economic growth are:
A) property rights.
B) growth accounting.
C) natural resources.
D) convergence.
Q4) A nation's real GDP per capita increased from $250 billion to $275 billion in one year. Calculate the nation's growth rate.
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Chapter 24: Savings, Investment Spending
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Q1) When the housing market collapsed in 2007, the demand for loanable funds decreased and caused interest rates to decrease.
A)True
B)False
Q2) (Scenario: Open Economy S = I) Look at the scenario Open Economy S = I. How much is the net capital inflow?
A) $1 trillion
B) $2 trillion
C) $3 trillion
D) $4 trillion
Q3) A person who is risk averse loses less welfare from losing $100 than he or she gains in welfare from winning $100.
A)True
B)False
Q4) Interest rates decreased during the 1980s because expectations of future inflation were lower.
A)True
B)False
Q5) Compare stocks and bonds with respect to risk and return.
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Chapter 25: Fiscal Policy
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Q1) In Japan during the 1990s _____ policies were put into effect to _____.
A) contractionary tax; counter inflation
B) contractionary spending; counter inflation
C) expansionary tax; counter inflation
D) expansionary spending; prop up aggregate demand
Q2) Real GDP equals $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If the government increases spending by $10 billion, real GDP will increase by:
A) $10 billion.
B) $20 billion.
C) $27.8 billion.
D) $50 billion.
Q3) After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _____, and interest rates_____.
A) increased; increased to record levels
B) increased; remained very low
C) decreased; increased
D) decreased; decreased
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) Bonds of the U.S. government that mature in less than a year are called:
A) commercial paper.
B) U.S. Treasury bills.
C) federal funds.
D) U.S. reserves.
Q2) In the financial crisis of 2008, which of the following firms failed?
A) Bear Stearns, an investment bank
B) AIG, an insurance company
C) Lehman Brothers, an investment bank
D) Bank of America, a commercial bank
Q3) Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered by deposit insurance, were not allowed to trade in financial assets, such as stocks and bonds.
A)True
B)False
Q4) Money used to buy groceries is a:
A) medium of exchange.
B) reserve of wealth.
C) unit of account.
D) store of value.
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Chapter 27: Monetary Policy
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Q1) (Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is in a recessionary gap at point f, it could move to point g as a result of:
A) a decrease in the money supply.
B) a rise in the discount rate.
C) an increase in the money supply.
D) sales of government securities in the open market.
Q2) (Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y<sub>2</sub>, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.
A) recessionary; actual; potential; expansionary
B) recessionary; potential; actual; expansionary
C) inflationary; actual; potential; contractionary
D) inflationary; potential; actual; contractionary
Q3) An increase in the demand for money would result from a(n):
A) decrease in nominal GDP.
B) decrease in real GDP.
C) decrease in the price level.
D) increase in the price level.
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Page 29
Chapter 28: Inflation, Disinflation, and Deflation
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Q1) If the short-run Phillips curve has shifted downward, the _____ curve has shifted to the _____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
Q2) Suppose that you live in a city whose economic growth has been declining for several months. Oddly, the official unemployment rate in your city has not begun to rise. How can you explain this?
Q3) If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is:
A) $4 billion.
B) $25 billion.
C) $400 billion.
D) $2.5 trillion.
Q4) The liquidity trap is associated with all of the following EXCEPT:
A) a large reduction in the demand for loanable funds.
B) the nominal interest rate falling to zero.
C) monetary policy becoming ineffective.
D) fiscal policy becoming ineffective.
Page 30
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Chapter 29: Crises and Consequences
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Q1) Long-term unemployment is measured by the percentage of the unemployed who have been out of work for:
A) a week or longer.
B) 6 weeks or longer.
C) 20 weeks or longer.
D) 27 weeks or longer.
Q2) In a recession, the Fed usually sells short-term government securities to increase interest rates and decrease spending.
A)True
B)False
Q3) As a consequence of the 2008 financial crisis, the economies of the United States and the European Union shrank by more than 25%.
A)True
B)False
Q4) The 2008 financial crisis in Europe was caused primarily by problems with:
A) home loans.
B) commercial real estate loans.
C) credit cards.
D) public debt.
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Chapter 30: Macroeconomics- Events and Ideas
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Sample Questions
Q1) Keynesian theory argued that monetary policy could be very effective during a depression.
A)True
B)False
Q2) Milton Friedman's argument was that the Fed should follow a monetary policy rule so that the money supply would:
A) grow at a slow and steady rate.
B) remain constant.
C) grow proportionally with the price level.
D) grow at the same rate as the GDP growth rate.
Q3) According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____ and the price level rises, while aggregate output_____.
A) right; increases
B) left; remains constant
C) right; decreases
D) left; decreases
Q4) Keynes emphasized short-run effects of aggregate demand on aggregate output.
A)True
B)False
Page 32
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Chapter 31: Open-Economy Macroeconomics
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Q1) Assume the nominal exchange rate is £0.593 per dollar, the price level in the United States is 250, and the price level in Britain is 225. The real exchange rate is £0.659 per dollar.
A)True
B)False
Q2) An appreciated dollar will cause aggregate demand to:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Q3) Explain two purposes of devaluation and revaluation in a fixed exchange rate regime.
Q4) To maintain its target exchange rate for the yuan, China had to sell yuan and buy dollars and other currencies.
A)True
B)False
Q5) If the euro depreciates, then a Mediterranean cruise will be cheaper for U.S. tourists. A)True
B)False
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Chapter 32: Graphs in Economics
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Q1) (Figure: Good X and Good Y) Look at the figure Good X and Good Y. If we move from point C to point B in the figure, the x-variable has ______ units and the y-variable has ______ units.
A) decreased by 2; increased by 15
B) increased by 2; decreased by 15
C) decreased by 15; increased by 2
D) increased by 15; decreased by 2
Q2) The relation between two variables that move in opposite directions is said to be:
A) independent.
B) positive.
C) direct.
D) negative.
Q3) In a time-series graph, large changes can be made to appear trivial by:
A) changing the scale of the axes.
B) labeling more intervals.
C) defining the dependent variable.
D) defining the independent variable.
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Chapter 33: Toward a Fuller Understanding
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Q1) If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _____ the asset will _____ profits.
A) not buying; increase
B) purchasing; increase
C) purchasing; decrease
D) not buying; decrease
Q2) The _____ the period, the _____ is the present value of a given future payment, all other things held constant.
A) longer; less
B) shorter; less
C) longer; more
D) shorter; the more uncertain
Q3) The present value of a future payment _____if the _____.
A) increases; wait period increases.
B) decreases; future payment increases.
C) increases; interest rate decreases.
D) decreases; stock market rises.
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and small popcorn, Matt says, "Oh, I'm indifferent." This means Matt:
A) doesn't want popcorn and soda.
B) thinks both bundles give him the same utility.
C) thinks neither bundle gives him utility.
D) thinks the utility he gained from popcorn and soda exactly equals their cost.
Q2) (Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. If a new health report is released stating that there is a connection between baby back rib dinners and heart attacks and this concerns Sara, each combination of Cubs tickets and baby back ribs will now yield _____ for Sara.
A) less utility
B) more utility
C) the same level of utility
D) It is impossible to determine how Sara's utility will be affected.
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Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) Alex's wage rate falls. Holding everything else constant, Alex's new time allocation budget line will:
A) shift in toward the origin, parallel to the old one.
B) shift away from the origin, parallel to the old one.
C) rotate to the left on the x-axis.
D) rotate down on the y-axis.
Q2) If leisure is a normal good for Randy, then both the substitution effect and the income effect of a decrease in the wage rate will cause Randy to work fewer hours.
A)True
B)False
Q3) (Figure: Rita's Time Allocation Budget Line) Look at the figure Rita's Time Allocation Budget Line. It is based on 80 hours available for labor and leisure. If her hourly wage doubles, the vertical intercept will be:
A) $1,120.
B) $1,400.
C) $1,600.
D) $2,000.
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