Microeconomics Test Questions
Course Introduction
Microeconomics explores the behavior and decision-making processes of individual consumers, firms, and industries within an economic system. The course examines foundational concepts such as supply and demand, elasticity, consumer choice, production theory, costs, market structures (including perfect competition, monopoly, oligopoly, and monopolistic competition), and the role of government in mitigating market failures. By analyzing how resources are allocated and prices are determined in various market settings, students develop a deeper understanding of how economic agents interact and how their choices impact the allocation of scarce resources.
Recommended Textbook
Economics Principles and Policy 13th Edition by William
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Page 2
J. Baumol
Chapter 1: What Is Economics
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Sample Questions
Q1) How does correlation differ from causation? Give an example of each to illustrate your answer.
Answer: Correlation means that two (or more) variables change in a systematic fashion.Economic examples include large cash withdrawals from banks at the end of the month, which coincide with payday and the due dates of bills.(The end of the month does not cause withdrawals.) Causation means that two (or more) variables are related so that a change in one actually causes a change in the other.Economic examples include a change in price leading to a change in the amount of an object which people wish to buy.(Non-economic examples can be used as well.)
Q2) Regarding economic models, which of the following statements is NOT true??
A)?An economic model is a simplified representation of a theory or part of a theory B)?An economic model can provide answers for policy makers.
C)An economic model can illuminate an important economic problem?
D)?An economic model can depict 3-variable diagrams.
Answer: B
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) Unemployment rates in the U.S.are generally:
A)higher than in Europe
B)lower than in Europe
C)about the same asin Europe
D)there are no unemployed in Europe
Answer: A
Q2) In a mixed economy
A)all economies choose the same mix of private and public involvement in the economy.
B)the government is more important than the private sector in generating output.
C)there is some government influence over the workings of the free market.
D)all of the above.
Answer: C
Q3) The concept of government as redistributor is
A)approved by many, but questioned by many as well.
B)generally rejected as against "the American way."
C)largely approved by a vast majority of Americans.
D)unnecessary in the United States because income disparities are small.
E)a conservative idea that many liberals reject.
Answer: A
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Chapter 3: The Fundamental Economic Problem: Scarcity and
Choice
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Sample Questions
Q1) A normal production possibilities frontier has a
A)positive slope, and is steeper near the horizontal axis than near the vertical axis.
B)negative slope, and is steeper near the horizontal axis than near the vertical axis.
C)positive slope, and is steeper near the vertical axis than near the horizontal axis.
D)negative slope, and is steeper near the vertical axis than near the horizontal axis.
E)zero slope, and it does not touch the horizontal axis.
Answer: B
Q2) Suppose a farmer produces 50 bushels of corn and 10 bushels of peanuts.According to Table 3-1, the opportunity cost of 10 more bushels of peanuts is
A)8 bushels of corn.
B)42 bushels of corn.
C)50 bushels of corn.
D)impossible to determine from the information given.
Answer: A
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Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) A shift in the supply curve of bicycles resulting from higher steel prices will lead to A)higher prices of bicycles.
B)lower prices of bicycles.
C)a shift in the demand curve for bicycles.
D)larger output of bicycles.
E)no change in the price of bicycles.
Q2) From 2007 to 2008, the Federal Reserve System reduced interest rates, the price that borrowers pay.As a result, economists expected that the supply of money would A)increase.
B)decrease.
C)not change.
D)Uncertain-economic theory has no answer to this question.
Q3) Lines, ration coupons, and black markets are symptoms of a A)price floor.
B)price ceiling.
C)free market.
D)barter economy.
Q4) List some of the problems that may arise when prices are controlled.
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) Consumer's surplus
A)is the gap between total willingness to pay and the total market value of a good.
B)guarantees that the market value of a good in money is equal to the total economic value of the good.
C)is always negative because of diminishing marginal utility.
D)is the total area under a consumer's demand curve.
Q2) In Figure 5-9, the consumer's marginal rate of substitution at his optimum choice of X and Y is
A) 1.
B)16.
C)8.
D) 8.
Q3) In Figure 5-11, a consumer is initially at point A.There is a price change and she moves to B.It follows that
A)the demand for beer follows the law of demand.
B)the demand for beer does not follow the law of demand.
C)wine is an inferior good.
D)the consumer is confused.
Q4) What is marginal analysis?
Page 7
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) A demand curve with unit elasticity can never touch either the vertical or horizontal axes.
A)True
B)False
Q2) Would a profit-maximizing firm sell where demand is inelastic?
A)No, this would not follow the rule of MC = MR.
B)No, the firm could not profitably raise price.
C)Yes, the firm could profitably lower price to attract sales.
D)Yes, in this case there are few substitutes for the good.
Q3) The current price of concert t-shirts is $20 each, and the company has been selling 400 per week.If price elasticity is 2.5 and the price changes to $21, how many t-shirts will be sold per week?
Q4) The price elasticity of demand for widgets at any particular price is determined by A)whether widgets are luxuries or necessities.
B)how much of their budgets consumers spend on widgets.
C)whether there are any good substitutes for widgets.
D)All of the above are correct.
Q5) How might a court use cross elasticity in an antitrust case?
Q6) Why are time series data unlikely to give an accurate estimate of demand?
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) If a firm has a U-shaped long-run average cost curve,
A)its fixed cost rises as output rises.
B)it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.
C)it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production.
D)the firm can maximize its output by operating at the point of minimum long-run average cost.
Q2) Average physical product measures the increase in total output that results from a one-unit increase in an input.
A)True
B)False
Q3) Production indifference curves show the combination of inputs that produce a given output.
A)True
B)False
Q4) Explain why the average cost curve for the long run differs from that for the short run.
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Chapter 8: Output, Price, and Profit: the Importance of Marginal Analysis
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Sample Questions
Q1) Define the following terms completely and concisely.
a.marginal revenue
b.average revenue
c.optimal decision
d.satisficing
e.marginal profit
Q2) The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property.Profit-maximizing firms that stay in business will respond by
A)raising prices to pay the tax.
B)cutting output to reduce costs.
C)lowering prices to stimulate demand.
D)doing nothing.
Q3) The typical total profit graphical presentation is shown as A)a square.
B)a rectangle.
C)a hill, or mound.
D)an S curve.
Q4) What is the value of marginal profit at the profit-maximizing output?
Q5) Given a demand curve, explain how total revenue may be calculated.
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the
Dog
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Sample Questions
Q1) To the investor, stocks are riskier than bonds because
A)interest rates fluctuate more than stock prices.
B)dividends depend on profits.
C)speculators manipulate stocks but not bonds.
D)dividends are taxed twice.
Q2) Corporations must always pay dividends to their shareholders.
A)True
B)False
Q3) A portfolio's performance is its yield to the holder.
A)True
B)False
Q4) Which of the following is a series of rules that stops trading on an exchange for a relatively short period of time?
A)program trading
B)market limits
C)stop orders
D)circuit breakers
Q5) For a corporation, issuing bonds is riskier than issuing stock.
A)True
B)False
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) The market demand schedule in perfect competition is horizontal. A)True
B)False
Q2) Explain why taxes on pollutants reduce pollution while subsidies to firms cutting their pollutants actually increase pollution.
Q3) In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.
A)True
B)False
Q4) The perfectly competitive firm's short-run shutdown rule is to shut down immediately if
A)TR < TC.
B)TR < SRFC.
C)TR < SRVC.
D)TR < MC > Q.
Q5) A tax on polluting firms
A)would shift the LRAC curve upward.
B)would shift the LRAC curve downward.
C)would have the same impact on the firm as a subsidy. D)tends to have the perverse effect of increasing pollution.
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Chapter 11: Monopoly
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Sample Questions
Q1) Which of the following is not a barrier to entry?
A)Legal restrictions
B)Patents
C)Large sunk costs
D)Survivor rights
Q2) Entry barriers can lead to long-run economic profits.
A)True
B)False
Q3) Table 11-1 shows demand and total cost schedules for the monopolist Monopoliteria.Monopoliteria's profit-maximizing price per unit in dollars is A)1.
B)3.
C)5.
D)4.
E)6.
Q4) To be a natural monopoly, a firm must
A)control an essential natural resource input.
B)be very large.
C)have a continuously falling average cost curve as output rises.
D)have falling average costs over a substantial range of total market demand.
Page 13
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the
A)prisoner's dilemma.
B)Nash equilibrium.
C)maximin criterion.
D)tacit collusion.
Q2) Price leadership may sometimes be an example of covert collusive behavior by oligopolies.
A)True
B)False
Q3) A perfectly contestable market is one which a firm can enter and exit without losing its investment.
A)True
B)False
Q4) Long-run equilibrium under monopolistic competition requires that
A)the demand curve intersect the average cost curve.
B)the demand curve be tangent to the average cost curve.
C)price be equal to marginal cost.
D)quantity produced be at the point where average cost is at a minimum.
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) It is easy to discern the difference between vigorous competition and the exercise of monopoly power.
A)True
B)False
Q2) The most important advantages of bigness will be found in industries that show increasing returns to scale.
A)True
B)False
Q3) Define the following terms and explain their importance to the study of economics: a.antitrust policy b.economies of scale c.economies of scope
Q4) One reason regulators push for higher prices in an industry is to
A)prevent excess profits in the industry.
B)protect the public from excessively low prices.
C)encourage usage of the good or service.
D)protect against the demise of existing firms.
Q5) The antitrust laws are enforced by government agencies such as the Federal Trade Commission and the Department of Justice.
A)True
B)False
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) In a market system, prices are used to coordinate economic activity.
A)True
B)False
Q2) Which of the following statements concerning efficiency is correct?
A)If a toll road is heavily used so that traffic movement is slowed, the price per vehicle should be reduced since the road is generating more revenue.
B)Economists advocate high prices for abundant resources and low prices for scarce resources.
C)If a toll road is heavily used and traffic movement is difficult, the price per vehicle should be increased to shift some traffic to less-crowded roads.
D)None of the above is desirable in promoting efficient use of scarce road space.
Q3) For a rational consumer, the consumer's surplus will never be a negative number.
A)True
B)False
Q4) How does the task of production planning happen in a laissez-faire economy?
Q5) What is the rule for efficient output selection and how does the competitive market achieve it?
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) Effective methods of dealing with externalities would include
A) taxing firms that generate beneficial externalities.
B) imposing fines equal to the difference between MSC and MPC on firms that generate beneficial externalities.
C) giving a subsidy per unit equal to the difference between MSC and MPC to firms that generate beneficial externalities.
D) restricting the output of firms that generate beneficial externalities.
Q2) Symmetric information generally leads to efficient allocations of resources.
A)True
B)False
Q3) If long-term investments are increasing,
A)current consumption must be increasing.
B)interest rates must be relatively low.
C)interest rates must be relatively high.
D)the people must be experiencing a "defective telescopic faculty."
Q4) In the allocation of resources between present and future
A)the market works imperfectly.
B)the market works perfectly.
C)centrally planned economies are more efficient than market economies.
D)the invisible hand guarantees efficiency in market economies.
Page 17
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Chapter 16: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) Economists consider environmental pollution to be a(n)
A)externality.
B)pure public good.
C)allocatively efficient outcome.
D)public interest outcome.
Q2) If a depletable resource is selling in a perfectly competitive market, its price will rise by greater and greater dollar amounts each year.
A)True
B)False
Q3) Under an emissions tax program, the government sets ____; under an emissions permits program, the government sets ____.
A)the price of the right to pollute; the price of the right to pollute
B)the price of the right to pollute; the permitted total quantity of pollution
C)the permitted total quantity of pollution; the price of the right to pollute
D)the permitted total quantity of pollution; the permitted total quantity of pollution
Q4) Pollution is a relatively new phenomenon.
A)True
B)False
Page 18
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Chapter 17: Taxation and Resource Allocation
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Sample Questions
Q1) Under a progressive tax, the fraction of income paid in taxes
A)rises as income rises.
B)is unchanged as income changes.
C)falls as income rises.
D)is proportional to the change in income.
Q2) Many environmentalists have advocated a substantial increase in the gasoline tax to cut down the federal deficit and to reduce pollution due to auto emissions.Such a tax increase would be devastating to people who commute significant distances to work.In fact, it would provide an incentive to relocate closer to work or change jobs.Economists refer to such effects of taxes as the
A)burden of a tax.
B)regressive incidence of a tax.
C)incidence of a tax.
D)excess burden of a tax.
Q3) The authors of the text suggest that a comprehensive personal income tax with few loopholes would be efficient and equitable.What is their reasoning for this statement?
Q4) States rely primarily on income taxes as a source of revenue.
A)True
B)False
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Chapter 18: Pricing the Factors of Production
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Sample Questions
Q1) The equilibrium rent for marginal land
A)equals zero.
B)depends on the supply and demand of land.
C)exceeds the opportunity cost of the land.
D)is always greater than the equilibrium rent for nonmarginal land.
Q2) The demand for borrowed funds is a derived demand.
A)True
B)False
Q3) If the interest rate is r (expressed as a decimal number), the present value today of $1 to be received n years from today equals ____.
A)$1rn
B)$1(1 + r)n
C)$1/(1 + r)n
D)$1/(1 + n)r
Q4) What are the factors that contribute to productivity growth in the market economy and which of them is considered most important?
Q5) The quantity demanded of an input normally rises as its price rises.
A)True B)False
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Sample Questions
Q1) The more specialized and highly valued a worker's skills are,
A)the lower is her stock of human capital.
B)the more likely she is to earn economic rent.
C)the less likely she is to sell her skills on the primary labor market.
D)the more likely she is to be directly affected by minimum wage legislation.
Q2) One of the reasons for the growth performance of free market economies is firms' use of innovation to compete with one another.
A)True
B)False
Q3) When large oligopolistic firms negotiate with the unions of their employees, the resulting bargaining process closely resembles
A)perfect competition.
B)a dual labor market.
C)monopolistic competition.
D)bilateral monopoly.
Q4) If the MRP of labor is below the wage rate, the firm should lay off workers.
A)True
B)False
Q5) Explain how the demand for labor is determined.
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Chapter 20: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Affirmative action programs are intended to combat
A)poverty.
B)economic inequality.
C)discriminatory practices by employers.
D)"comparable worth" systems of compensation.
Q2) The poverty line is the income level
A)earned by a worker employed full-time at the minimum wage.
B)below which a family is officially considered "poor."
C)above which a family is not entitled to government assistance.
D)that is the average for American families.
Q3) TANF compels welfare recipients to go to work after a period of two years.
A)True
B)False
Q4) Which of the following taxes tend to make income distribution in the United States more equal?
A)sales (i.e., excise) taxes
B)personal income taxes
C)payroll taxes
D)All of the above are correct.
Q5) How does the idea of a leaky bucket relate to the study of income distribution?
Page 22
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Chapter 21: Is Useconomic Leadership Threatened
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Sample Questions
Q1) About _____% of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line.
A)3%
B)10%
C)27%
D)40%
Q2) Productivity levels in rich countries are:
A)higher than in poor countries
B)lower than in poor countries
C)about the same as in poor countries
D)not related to those in poor countries
Q3) Previously a creditor nation, in the 1980s the U.S.became a debtor nation.
A)True
B)False
Q4) In terms of innovation and growth, the U.S.economic system has far exceeded the achievements of any other type of economy, even in ancient history.
A)True
B)False
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Chapter 22: An Introduction to Macroeconomics
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Sample Questions
Q1) An increase in aggregate demand will result in inflation.
A)True
B)False
Q2) The recession of 1973-1975 was unusual in that both inflation and unemployment increased at the same time.This suggests that the primary cause of the recession was an
A)inward shift of the aggregate demand curve.
B)outward shift of the aggregate supply curve.
C)inward shift of the aggregate supply curve.
D)outward shift of the aggregate demand curve.
Q3) The worst post-World War II recession in the United States occurred in A)1964.
B)1973.
C)1981.
D)2007.
Q4) Business cycles in the United States after World War II have been
A)more severe than before the war.
B)less severe than before the war.
C)the same as the pre-war cycles.
D)easier to predict than the pre-war cycles.
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Chapter 23: The Goals of Macroeconomic Policy
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Q1) Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent.At the end of the six-month period, prices have risen by 4 percent.
A)Purchasing power has been redistributed to Rachel.
B)No purchasing power has been redistributed.
C)Purchasing power has been redistributed to Phoebe.
D)Both Rachel and Phoebe received extra purchasing power.
Q2) Does inflation always cause workers losses due to decreases in real wages? Why or why not?
Q3) The production function shows the volume of output that can be produced from given inputs.
A)True
B)False
Q4) The unemployment rate for married men is usually higher than the rate for teenagers.
A)True
B)False
Q5) The incentive to lend increases as the real rate of interest decreases.
A)True
B)False
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Chapter 24: Economic Growth: Theory and Policy
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Q1) Long-term productivity growth trends have resulted in the
A)increased predominance of the British economy.
B)relative decline of the U.S.relative to the U.K.
C)relative decline of the Japanese economy.
D)relative growth of the Japanese economy.
Q2) Which of the following would a macroeconomist classify as capital?
A)a software program for an accounting firm
B)a share of stock in General Electric
C)a corporate bond from IBM
D)All of the above are types of capital.
Q3) The lack of a universal productivity effect of higher education was demonstrated by the experience of
A)the United Kingdom.
B)Ireland.
C)France.
D)the Soviet Union.
Q4) The production function shifts upward as the capital stock increases.
A)True
B)False
Q5) Describe the three pillars of productivity growth.
Page 26
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Sample Questions
Q1) Why is investment spending a highly volatile component?
Q2) The "investment" component of aggregate demand will include all of the following except
A)expenditures of business firms on new plants.
B)expenditures of business firms on new equipment.
C)resales of existing physical assets.
D)household spending on new homes.
Q3) According to the data in Table 8-1, the value of GNP is A)900.
B)950.
C)955.
D)960.
Q4) Which of the following will most likely cause movement along the consumption function?
A)a change in disposable income
B)a change in interest rates
C)a change in tastes
D)a change in consumers' expectations
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Q5) What is the marginal propensity to consume (MPC) and why is it important in predicting consumer behavior?
Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation
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Q1) For a given price level, a downward shift of the expenditures schedule corresponds to an
A)inward shift of the aggregate demand curve.
B)outward shift of the aggregate demand curve.
C)outward shift of the aggregate supply curve.
D)inward shift of the aggregate supply curve.
Q2) When the expenditure level is above the full employment level of GDP, a possible consequence is
A)falling prices.
B)rising prices.
C)falling disposable income.
D)high levels of unemployment.
Q3) Investment spending is a leakage from the circular flow model.
A)True
B)False
Q4) In the income-expenditure model, at equilibrium GDP
A)either unemployment or inflation may occur.
B)inflation can occur but unemployment cannot.
C)unemployment can occur but inflation cannot.
D)both unemployment and inflation are impossible.
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Q1) A consequence of an inflationary gap is ____ as output begins to decrease and prices continue to increase.
A)stagflation
B)reflation
C)disinflation
D)perflation
Q2) When inflation occurs, net exports will
A)increase as imports decrease.
B)increase as exports increase.
C)decrease as imports decrease.
D)decrease as imports increase.
Q3) A severe hurricane hits Florida, destroying large amounts of the citrus crop.What is the most likely effect of this on aggregate supply?
A)It will be unchanged.
B)No effect, the economy will move along the curve to a higher price level.
C)No effect, the economy will move along the curve to a lower price level.
D)It will increase.
E)It will decrease.
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) The government's fiscal policy is its plan to influence aggregate demand by changing
A)the money supply.
B)minimum wage levels.
C)sales taxes.
D)taxation and spending.
Q2) Refer to Table 11-1.What is the level of consumption in this model?
A)2,950
B)2,750
C)2,550
D)2,350
E)2,150
Q3) Which of the following factors has the most quantitative importance on the oversimplified multiplier formula?
A)it ignores variable imports
B)it ignores price-level changes
C)it ignores income taxes
D)All of these equally affect the oversimplified multiplier formula
Q4) How do transfer payments function as negative taxes?
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Chapter 29: Money and the Banking System
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Q1) Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of A)unidirectional trade.
B)joint venture.
C)barter.
D)monetary exchange.
Q2) One advantage of a money system compared to a barter system is that A)barter never works.
B)money creates the need for banks.
C)money is more efficient.
D)everyone has money.
Q3) The concept of money as a "unit of account" involves the use of money to A)speed transactions.
B)reduce shopping time.
C)protect against inflation.
D)quote prices.
Q4) Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.
Q5) What is the criticism leveled against deposit insurance by the FDIC?
Q6) Explain the "too big to fail" doctrine.
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) An increase in the interest rate is associated with an increase in bond prices.
A)True
B)False
Q2) The actual control of the Federal Reserve System resides in the
A)Congress of the United States.
B)member banks.
C)Senate Banking Committee.
D)Board of Governors.
Q3) Why does the economy's aggregate demand curve have a negative slope?
Q4) The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed
A)acts when a majority of member banks agree on policy and the banks rarely agree.
B)earns interest on discounting and cannot afford to lose the revenue.
C)does not know how banks will respond to discount rate changes.
D)has been directed by Congress to set the discount rate at a permanent level.
Q5) To increase the money supply, the Fed purchases government securities from banks, paying for them with new reserves.
A)True
B)False
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) Assume that Sharon purchases $5,000 worth of a stock.To do so she uses $1,000 of her own money and borrows the remaining $4,000 at a 7.0% interest rate.If the stock's value decreases by 10% in one year and she has to sell the stock at that time, what is her rate of return?
A) 10%
B) 50%
C) 78%
D) 156%
Q2) If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 6.0%, what is the interest rate spread on this particular corporate bond?
A)4.0%
B)4.5%
C)7.5%
D)9.0%
Q3) Leverage is essential to a bank's profitability but it also increases risk.
A)True
B)False
Q4) Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.
A)simple; and also simple
B)simple; but difficult
C)difficult; but simple
D)difficult; and also difficult
Q2) Which of the following is an example of active fiscal policy?
A)Income tax revenues rise in an inflationary period.
B)Income tax revenues fall in a recession.
C)Congress passes a major tax increase in an inflationary period.
D)Unemployment benefits increase in a recession.
Q3) When recessions occur, advocates of small government should recommend
A)reductions in the number of federal employees.
B)reductions in transfer payments.
C)reductions in taxes.
D)increases in transfer payments and government spending.
Q4) The Federal Reserve has policy instruments that it can aim directly at a specific category of asset price bubble.
A)True
B)False
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) In contrast to Argentina in 2001, the United States debt is less of a burden because the U.S.debt is
A)an obligation to pay over a longer period of time.
B)owed entirely to U.S.citizens and banks.
C)an obligation to pay in domestic currency.
D)an obligation to pay in foreign currency.
Q2) The U.S.national debt at the end of 2014 was about $30 trillion.
A)True
B)False
Q3) Argentina in 2001 faced a debt problem more serious than the U.S.debt problem because Argentina was obligated to repay its debt in
A)U.S.dollars.
B)their own currencies.
C)a relatively short period of time.
D)large installments.
Q4) Like the debt of many families, the national debt in 2014 was many times larger than the national income.
A)True B)False
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Q1) Some of the promising approaches to reducing the natural rate of unemployment have to do with education, training, and job placement.What implementation problems do you anticipate?
Q2) Policies to lower the natural rate of unemployment include
A)proposals to raise the minimum wage rate.
B)mandated prison sentences for drug dealers.
C)retraining programs and employment services.
D)changes in the tax laws.
Q3) Given the situation in graph (1) in Figure 17-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?
A)A to B
B)A to D
C)C to E
D)D to C
Q4) If the short-run Phillips curve is steep, the inflationary costs of using expansionary policy to reduce unemployment would be substantial.
A)True
B)False
Q5) What is the effect of supply-side inflation on the short-run Phillips curve?
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Chapter 35: International Trade and Comparative Advantage
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Q1) The basic concept behind strategic trade policy is that free trade is the best policy to pursue, but some countries don't play by those rules.Therefore,
A)it makes no sense to engage in trade at all, and it makes sense to be self-sufficient.
B)it makes sense to restrict imports of items that are of military significance in order to maintain a strong defense posture.
C)it makes sense to threaten to protect markets unless other nations agree to open theirs.
D)it makes no sense to export items of strategic importance to other nations, because they should make them on their own.
Q2) The effect of an import quota is to
A)raise the price and reduce the quantity of imports.
B)raise the price and the quantity of imports.
C)lower the price and the quantity of imports.
D)raise the quantity and reduce the price of imports.
Q3) "The United States has more oil in Alaska than there is oil in Kuwait.Therefore, the United States should stop importing oil." Evaluate this statement using economic analysis.
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Chapter 36: The International Monetary System: Order or Disorder
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Q1) Exchange rates determined by the forces of demand and supply are called
A)fixed exchange rates.
B)floating exchange rates.
C)equilibrium exchange rates.
D)dirty exchange rates.
Q2) Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?
A)No, a currency rises or falls against all currencies.
B)No, this could happen only under the gold standard.
C)Yes, but only if all governments agree on the new rates.
D)Yes, this is possible in a world of floating rates.
Q3) Under a gold standard, a discovery of gold will
A)decrease the general price level.
B)increase the general price level.
C)cause increased unemployment.
D)cause decreased rates of economic growth.
Q4) Differentiate between the current account balance and the capital account balance.
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Q5) What is the euro and why has it been created?
How has its value changed relative to the U.S.dollar since its inception?
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) Following the economic crisis in 1994-1995, the Mexican peso fell sharply in value.What will be the main economic effects in Mexico of such an exchange rate change?
A)It will decrease aggregate demand and aggregate supply, so that output will certainly fall, and prices may fall as well.
B)It will increase aggregate demand and aggregate supply, so that output will certainly rise, and prices may rise as well.
C)It will increase aggregate demand and decrease aggregate supply, so that prices will certainly rise and output may rise as well.
D)It will decrease aggregate demand and increase aggregate supply, so that prices will certainly fall and output may fall as well.
Q2) One of the principal factors behind the U.S.trade deficits of the 1990s has been
A)slow growth and recession in many important trading partners.
B)rapid growth and inflation in many important trading partners.
C)significant depreciation of the dollar.
D)rising real interest rates in the United States.
Q3) Discuss the opposing points of view on U.S.trade deficit.
Q4) Explain how exchange rate changes affect aggregate demand.
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