Survey of Economics Exam Preparation Guide
Course Introduction
Survey of Economics provides a broad overview of the fundamental principles of both microeconomics and macroeconomics. This course introduces students to the basic concepts of supply and demand, market structures, consumer behavior, and the functioning of competitive and non-competitive markets. Additionally, it explores aggregate economic measures such as GDP, inflation, and unemployment, along with the role of government policy in influencing economic performance. Designed for students of all disciplines, the course emphasizes real-world applications, contemporary economic issues, and the development of critical-thinking skills necessary for understanding the economic forces shaping society.
Recommended Textbook Principles of Economics 5th Edition by Joshua Gans
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36 Chapters
4743 Verified Questions
4743 Flashcards
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Chapter 1: Ten Lessons From Economics
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) One advantage market economies have over central planning is that market economies:
A) are more efficient
B) solve the problem of scarcity
C) establish government economic control
D) provide an equal distribution of goods and services to consumers
Answer: A
Q2) Which of the following is an example of market failure?
A) a firm becomes insolvent and is forced out of the market
B) a firm's research and development fails to develop a new product
C) a firm closes down a factory due to poor sales
D) a firm's pollution into a river reduces the number of fish that can be caught
Answer: D
Q3) Suppose you got out to lunch with your wealthy but boring uncle. He pays for your meal. Does this violate the economic concept that 'There is no such thing as a free lunch'?
Answer: The issue is that everything has an opportunity cost. While there is no monetary cost to you, there is still an opportunity cost. You have to give up some of your time.
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Macroeconomics approaches the study of economics from the viewpoint of:
A) consumer behaviour
B) the labour market
C) government taxation and spending policies
D) the entire economy
Answer: D
Q2) Most economic theories have been developed and tested by using controlled experiments.
A)True
B)False
Answer: False
Q3) Refer to Graph 2-7. What is the opportunity cost to society of the movement from point C to point B, given the production possibilities frontier shown?
A) 650 pretzels
B) 500 pretzels
C) 300 pretzels
D) 150 pretzels
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Michael can score 30 points per game and Scottie can score 22 points per basketball game. Michael has both an absolute and a comparative advantage over Scottie in scoring.
A)True
B)False
Answer: False
Q2) Refer to Table 3-4. The opportunity cost of one unit of bread in Spain is:
A) four units of cheese
B) two units of cheese
C) one unit of cheese
D) 1/4 unit of cheese
Answer: A
Q3) Comparative advantage is based on:
A) capital costs
B) labour costs
C) dollar price
D) opportunity costs
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Supply and demand determine prices and prices allocate the economy's scarce resources.
A)True
B)False
Q2) Refer to Graph 4-3. The movement from point A to point B on the graph is called:
A) a decrease in supply
B) an increase in supply
C) a decrease in the quantity supplied
D) an increase in the quantity supplied
Q3) What is the practical purpose of ensuring ceteris paribus when explaining the results from a demand and supply model?
Q4) Supply and demand are the concepts that economists use most often.
A)True
B)False
Q5) Refer to Table 4-1. If the price increases from $1 to $3:
A) the market demand increases by 14 units
B) the quantity demanded in the market decreases by 13 units
C) the quantity demanded in the market decreases by 20 units
D) the quantity demanded in the market decreases by 5 units
Q6) How important are prices in allocating resources in a market economy?
Page 6
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) If the demand for illegal drugs is inelastic, drug education campaigns should:
A) reduce both drug use and drug-related crime
B) reduce drug use and increase drug-related crime
C) increase both drug use and drug-related crime unchanged
D) increase drug use and reduce drug-related crime
Q2) The demand for rare butterflies tends to be income:
A) elastic because they are relatively expensive
B) inelastic because butterflies are small animals
C) elastic because most buyers feel that they can do without it
D) inelastic because butterflies are difficult to breed
Q3) At a price of $2.00 per kilo, 1500 kilos of kiwifruit are supplied and at a price of $3.00 per kilos, 2500 kilos of kiwifruit are supplied. What is the price elasticity of the supply of kiwifruit between these two prices, using the midpoint formula?
Q4) In any market, total revenue is the price:
A) divided by the price elasticity of demand
B) multiplied by the quantity
C) plus the quantity
D) multiplied by the quantity minus the costs of production
Q5) What is elasticity and why do economists use the concept?
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Chapter 6: Supply, Demand and Government Policies
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Sample Questions
Q1) If a tax is imposed on a market with elastic demand and inelastic supply, buyers will bear most of the burden of the tax.
A)True
B)False
Q2) The consequences of economic policies are often predicted or intended by their advocates.
A)True
B)False
Q3) When analysing the economic effects of government policies:
A) supply and demand are the most useful tools of analysis
B) one finds that the effects are always those stated in the legislation
C) supply and demand are not useful, since they apply only to unregulated markets
D) one usually finds them to be the random outcome of economic shocks
Q4) The term tax incidence refers to the:
A) division of income tax between high-income and low-income earners
B) level of tax levied on a buyer of a good
C) division of the tax burden between buyers and sellers
D) division of tax between federal and local government
Q5) Why are economists nearly always opposed to price controls?
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Chapter 7: Consumers, Producers and the Efficiency of Markets
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Sample Questions
Q1) When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.
A)True
B)False
Q2) When markets fail, public policy can:
A) do nothing to improve the situation
B) potentially remedy the problem and increase economic efficiency
C) always remedy the problem and increase economic efficiency
D) in theory, remedy the problem, but in practice, has proven to be ineffective
Q3) Refer to Graph 7-7. Explain why this graph verifies the fact that the market equilibrium (quantity) maximises the sum of producer and consumer surplus.
Q4) Positive analysis refers to what:
A) is
B) should be
C) could be
D) is politically correct
Q5) Consumer surplus is closely related to the demand curve for a product.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) When a tax is levied on a good buyers are worse off but not sellers.
A)True
B)False
Q2) The greater the social pressure for mothers to be housekeepers and stay out of the labour force the:
A) more elastic the supply of labour
B) less elastic the supply of labour
C) flatter the labour supply curve
D) greater the reduction in output caused by a tax on labour
Q3) According to Graph 8-3, the benefits to the government (total tax revenue) is:
A) $4000
B) $3600
C) $2400
D) $1600
Q4) If the labour supply curve is nearly vertical:
A) a tax on labour has a large deadweight loss
B) a tax on labour has a small deadweight loss
C) a tax on labour has little impact on the amount of work labour is willing to do
D) both B and C are correct
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Chapter 9: Application: International Trade
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Sample Questions
Q1) According to Graph 9-6, producer surplus in Spain after trade would be:
A) C
B) C + B
C) A + B + D
D) B + C + D
Q2) In 1983, New Zealand had 16 car assembly plants. These plants were protected from international competition by very high tariffs. These tariffs were later removed. Assuming that New Zealand is a price taker in the automobile market, explain the welfare changes that occurred after the tariffs were removed. Identify the winners and losers of the policy.
Q3) In Graph 9-9, the free-trade price and quantity demanded would be:
A) P<sub>1</sub>, Q<sub>1</sub>
B) P<sub>1</sub>, Q<sub>4</sub>
C) P<sub>2</sub>, Q<sub>2</sub>
D) P<sub>2</sub>, Q<sub>3</sub>
Q4) Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium price without trade, thus reducing the gains from trade.
A)True
B)False
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Page 11
Chapter 10: Externalities
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Sample Questions
Q1) Assume that your housemate is very messy. (There is no law against being messy.) Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you. The Coase theorem would suggest that an efficient solution would be for you to:
A) pay your housemate at least $100 but no more than $200 to clean up after herself
B) pay your housemate at least $201 to clean up after herself
C) charge your housemate at least $100 to have you clean up after her
D) charge your housemate at least $200 but no more than $300 to keep you from complaining about the mess
Q2) Which of the following is true of positive consumption externalities?
A) social value exceeds private value and market quantity exceeds socially optimal quantity
B) social value is less than private value and market quantity exceeds socially optimal quantity
C) social value exceeds private value and market quantity is less than socially optimal quantity
D) social value seldom exceeds private value and therefore social quantity is less than private quantity
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) If all citizens in a certain city were given identical debit cards to pay for their use of toll roads, which of the following statements would be true if the debit cards could be sold privately from person to person?
A) this would be a very egalitarian policy
B) this system would end up being a redistribution of income from those that drive more to those that drive less
C) this system could potentially be a redistribution of income from the rich to the poor if the poor drive less
D) all of the above are true
Q2) A foot-long cheeseburger, due to its immense size is:
A) non-excludable and rival
B) non-excludable and non-rival
C) excludable and rival
D) excludable and non-rival
Q3) In nearly all cases the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide.
A)True
B)False
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Chapter 12: The Design of the Tax System
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154 Flashcards
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Sample Questions
Q1) The marginal tax rate is the extra taxes paid on an additional dollar of income.
A)True
B)False
Q2) The most appropriate measure of the sacrifice made by a taxpayer is the:
A) average tax rate
B) marginal tax rate
C) lump-sum tax rate
D) sales tax rate
Q3) The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that:
A) police services are more frequently used in poor neighbourhoods
B) the wealthy benefit more from services provided by government than the poor
C) the poor are more active in political processes
D) there is more crime in rich neighbourhoods than poor neighbourhoods
Q4) The most important taxes for state and local governments in Australia are individual and company income taxes.
A)True
B)False
Q5) Explain the difference between vertical equity and horizontal equity.
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Chapter 13: The Costs of Production
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Sample Questions
Q1) As a starting point, economists assume that firms are organised to: (i) maximise their sales
(ii) maximise their profit
(iii) minimise their tax
A) (i) only
B) (i) and (ii)
C) (ii) only
D) (i) and (iii)
Q2) Jack received all As in his classes last semester. If Jack gets all Cs in his classes this semester, his grade point average may or may not fall.
A)True
B)False
Q3) Diminishing marginal product of labour is NOT likely to be observed when:
A) experienced workers in labour teams will not share their skills with others
B) there are enough personal computers to allocate them to new staff in an office
C) there are shortages of skilled workers in the forestry sector
D) new workers have to use the oldest technology in a plant
Q4) Explain why the long-run average total cost curve has a U-shape.
Q5) Define the Law of Diminishing returns:
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) If a firm is able to influence the market price of the good it sells, it has market power.
A)True
B)False
Q2) Explain the role of opportunity costs in differentiating between economic profits and accounting profits.
Q3) When new firms enter a perfectly competitive market:
A) entering firms will earn zero profit
B) profits of existing firms must fall
C) existing firms will see their costs rise
D) consumers will likely observe increasing prices
Q4) According to the information provided, at the end of the first year of operating her new business, Lee's accountant reported an accounting profit of $50 000. What was Lee's economic profit?
A) $15 000 profit
B) $25 000 profit
C) $40 000 profit
D) $50 000 profit
Q5) Explain the relationship between a firm's supply curve and its costs.
Q6) What are the three assumptions that are made about a competitive market?
Page 16
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Chapter 15: Monopoly
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Sample Questions
Q1) Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for:
A) natural monopolies
B) government-created monopolies
C) resource monopolies
D) innovation
Q2) A monopoly market:
A) generally fails to maximise total economic wellbeing
B) always maximises total economic wellbeing
C) always minimises consumer surplus
D) generally fails to maximise producer surplus
Q3) Refer to Graph 15-2. If the monopoly firm wants to maximise its profit, it should operate at a level of output equal to:
A) Q<sub>1</sub>
B) Q<sub>2</sub>
C) Q<sub>3</sub>
D) Q<sub>4</sub>
Q4) Describe how government is involved in creating a monopoly. Why might the government create one? Give an example.
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Chapter 16: Business Strategy
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Sample Questions
Q1) A dominant strategy is the best strategy for a player to follow regardless of the strategies pursued by other players.
A)True
B)False
Q2) Refer to Table 16-5. Non-cooperative outcomes typically imply an outcome:
A) that is worse for both parties to the 'game'
B) that is better for both parties to the 'game'
C) in which society is always worse off
D) in which society is always better off
Q3) Once a cartel is formed, the market is in effect served by:
A) imperfect competition
B) a monopoly
C) monopolistic competition
D) an oligopoly
Q4) The tit-for-tat strategy in repeated prisoners' dilemma games:
A) is often dominated by more complex gaming strategies
B) is never dominated by more complex gaming strategies
C) often dominates more complex gaming strategies
D) was not socially optimal according to Robert Axelrod
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Chapter 17: Competition Policy
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Sample Questions
Q1) If a manufacturer does not exercise retail price maintenance, a free-rider problem may become evident among retailers and ultimately lead to lower profits for the manufacturer.
A)True
B)False
Q2) Suppose an airline sells its tickets at an artificially low price in order to force an efficient competitor out of the market and thus reduce long run competition. This firm has adopted:
A) predatory pricing
B) aggressive marketing
C) resale price maintenance
D) transparent pricing
Q3) A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.
A)True
B)False
Q4) Regulated natural monopolies typically have rising average costs.
A)True
B)False
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Chapter 18: Monopolistic Competition
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Q1) In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (e.g. of cigarettes and liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximising its tax revenue from the sale of these products? Explain your answer.
Q2) Refer to Graph 17-3. Panel d in the set of figures shown depicts the effect on incumbent firms of:
A) existing firms exiting the market
B) long-run economic losses
C) a decrease in the diversity of products offered in the market
D) new entrants in the market
Q3) Refer to Graph 17-4. Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:
A) incurring economic gains
B) in a short-run equilibrium, but not a long-run equilibrium
C) in both a short-run and a long-run equilibrium
D) in a long-run equilibrium, but not a short-run equilibrium
Q4) Summarise the main similarities and differences between monopolistic competition and perfect competition.
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Chapter 19: The Markets for the Factors of Production
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Q1) If the forestry sector decreases its demand for land, then the equilibrium land rental price will rise but the land made available for forestry will not change.
A)True
B)False
Q2) A key determinant of labour productivity is:
A) family size
B) the wage rate
C) the amount of human capital workers acquire through education and training
D) the demand for the final product produced by labour
Q3) Refer to the information provided. Suppose the price of fresh tuna suddenly increases, Gertrude is likely to react by:
A) becoming a seller in the factor market
B) hiring less crew workers
C) increasing her demand for crew workers
D) trying to decrease her catch to preserve fish stocks
Q4) The demand for apple pickers is derived from the demand for apples.
A)True
B)False
Q5) Define the terms diminishing marginal product and the value of marginal product.
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Chapter 20: Earnings, Unions and Discrimination
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Q1) Evidence of discrimination is most apparent when one compares wages among broad groups.
A)True
B)False
Q2) Restricting some jobs to only union members is likely to:
A) reduce total employment and raise wages earned by insiders
B) reduce total employment and decrease wages earned by insiders
C) increase total employment and raise wages earned by insiders
D) increase total employment and decrease wages earned by insiders
Q3) The theory of efficiency wages explains above-equilibrium wages by assuming that workers get a rise in wage when they prove they are increasing their productivity.
A)True
B)False
Q4) Are unions good or bad for the economy?
Q5) One of the reasons that movie stars have extraordinarily high incomes is that:
A) movie stars do their own stunts
B) technological advances in the movie industry have ceased
C) even without makeup the average movie star is extraordinarily attractive
D) almost everyone can enjoy movies at a low cost
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Chapter 21: Income Inequity and Poverty
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Q1) The maximin criterion suggests that the focus of social policy would be to:
A) elevate the wellbeing of all workers
B) elevate the wellbeing of those at the bottom of the income distribution
C) ensure an egalitarian distribution of income
D) expropriate the factors of production from the capitalist class
Q2) The utilitarian case for redistributing income is based on the assumption of:
A) a notion of fairness engendered by equality
B) diminishing marginal utility
C) rising marginal utility
D) collective consensus
Q3) Saving and borrowing behaviour is indicative of a family:
A) that has a difficult time balancing its standard of living
B) that is most likely to be on the upper end of the income distribution
C) adjusting its standard of living to reflect transitory changes in income
D) that is most likely to be poor
Q4) In-kind transfers are:
A) non-monetary goods and services given to the poor
B) benefits that are transferred to the rich
C) provided by kindly and caring people
D) obtained primarily by the middle class
Page 23
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Chapter 22: The Theory of Consumer Choice
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Q1) If the consumption of one good is increased, how must a consumer alter his consumption of another good in order to remain indifferent between two bundles?
A) he must reduce his consumption of another good
B) he must increase his consumption of another good
C) he must not change his consumption of another good
D) he can reduce, increase or not change his consumption of another good
Q2) When two goods are perfect complements, the indifference curves are:
A) straight lines
B) right angles
C) intersecting
D) upward-sloping
Q3) A consumer who doesn't spend all of her income:
A) would be at a point inside her budget constraint
B) would not be consuming positive quantities of all goods
C) must be consuming at a point where her budget constraint touches one of the axes
D) would be at a point outside of her budget constraint
Q4) What is a Giffen good and does it conform to the law of demand. If not, why do economists still describe the law of demand as a law?
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Chapter 23: Frontiers of Microeconomics
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Q1) What are two implications of the Condorcet paradox?
Q2) Which of the following statements are implications of the lemons problem in the used car market? (i) many people avoid buying vehicles in this market (ii) used cars have a market value much less than that of new cars (iii) buyers are just as aware of a used car's defects as sellers
A)(i) only
B)(i) and (ii)
C)(i) and (iii)
D)(ii) and (iii)
Q3) Private insurance companies cannot do anything to reduce the impact of the moral hazard problem.
A)True
B)False
Q4) Politicians are never motivated by self-interest.
A)True
B)False
Q5) The median voter is the voter exactly in the middle of a distribution.
A)True
B)False
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Chapter 24: Measuring a Nations Income
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Q1) A farmer sells wheat to a miller for $100. The miller makes the wheat into flour and sells it to a baker for $200. The baker makes the wheat into bread and sells it to a grocer for $300. The grocer sells the bread to the public for $400. The effect on GDP is:
A) an increase of $1000
B) an increase of $100
C) an increase of $600
D) an increase of $400
Q2) Real GDP is:
A) the production of goods and services valued at current-year prices
B) the production of goods and services valued at constant prices
C) the production of goods and services valued at future-year prices
D) the production of goods and services valued at the ratio of current-year prices to constant prices
Q3) According to the income-expenditure identity, the total income of a country equals the sum of the four types of expenditure: consumption, investment, government purchases and net exports.
A)True
B)False
Q4) Define GDP and explain why some products are excluded.
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Chapter 25: Measuring the Cost of Living
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Q1) The RBA uses headline inflation as the basis for its cash rate decision.
A)True
B)False
Q2) An important difference between the GDP deflator and the CPI is that:
A) the GDP deflator reflects the prices of all goods and services produced domestically, whereas the CPI reflects the prices of goods and services bought by consumers
B) the GDP deflator reflects the prices of goods and services bought by producers, whereas the CPI reflects the prices of goods and services bought by consumers
C) the GDP deflator reflects the prices of all goods and services produced by a nation's resources, whereas the CPI reflects the prices of goods and services bought by consumers
D) the GDP deflator reflects the prices of goods and services bought by producers and consumers, whereas the CPI reflects the prices of goods and services bought by consumers
Q3) The CPI can be used to turn dollar figures into meaningful measures of purchasing power.
A)True
B)False
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Chapter 26: Production and Growth
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Q1) The word productivity refers to:
A) the quantity of goods and services that a worker can produce in a year
B) the quantity of goods and services that a worker can produce in a day
C) the quantity of goods and services that a worker can produce for each hour of work
D) the quantity of goods and services that a nation produces in a year
Q2) Is there statistical evidence that shows correlations between investment and economic growth, and between population growth and economic growth across countries, where growth is defined in terms of per-capita GDP? Does this evidence prove a causal relationship?
Q3) A production function shows the relationship between:
A production function shows the relationship between:
A) the quantity of inputs used in production and the quantity of output from production
B) gross domestic product and national income
C) workers as inputs and consumers as buyers
D) production and spending
Q4) Technological knowledge enables improved productivity.
A)True
B)False
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Chapter 27: Saving, Investment and the Financial System
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Q1) A bond is:
A) a certificate of credit that specifies the credit of the holder of the bond
B) a capital investment
C) a certificate of indebtedness that specifies the obligations of the issuer to the holder of the bond
D) a factor of production
Q2) Which of the following equations represents the GDP in an open economy?
A) Y = C + I + G
B) S = I - G
C) Y = C + I + G + NX
D) I = Y - C + G
Q3) What would happen to investment if the government were to increase the tax on interest income?
A) Investment spending would fall
B) Investment spending would rise
C) Investment would be unaffected
D) Investment could rise, fall or remain unchanged
Q4) Using the national income accounting identity, derive the relationship between national saving and investment. Also decompose national saving into private saving and public saving.
29
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Chapter 28: The Natural Rate of Unemployment
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Q1) When a union raises the wage above the equilibrium level, ceteris paribus:
A) it reduces the quantity of labour supplied
B) it increases the quantity of labour demanded
C) it results in surplus of labour in the labour market
D) it decreases unemployment
Q2) What is the theory of efficiency wages?
Q3) Which of the following contributes to the natural rate of unemployment?
A) Unions
B) Efficiency wages
C) Job search
D) All of the above
Q4) Most spells of unemployment are:
A) short , and most unemployment observed at any given time is long-term
B) long , and most unemployment observed at any given time is long-term
C) short, and most unemployment observed at any given time is short-term
D) long , and most unemployment observed at any given time is short-term
Q5) Discuss the 'unionisation' debate. What are the positive and negative effects when a union raises the wage above the equilibrium level?
Q6) Explain when minimum laws are binding and result in unemployment.
Q7) Explain the worker-effort variant of efficiency wage theory with moral hazard.
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Chapter 29: The Monetary System
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Q1) If the RBA purchased government securities, then:
A) the money supply would decrease
B) the money supply would not change
C) the money supply would increase
D) none of the above
Q2) The purpose of a central bank is to:
A) control the value of money
B) regulate the supply of money
C) oversee the banking system
D) all of the above
Q3) A medium of exchange is an item that people use specifically to transfer purchasing power from the present to the future.
A)True
B)False
Q4) If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:
A) can create money by making a new loan
B) can hold excess reserves
C) cannot make a new loan
D) both B and C
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Chapter 30: Inflation: Its Causes and Costs
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Q1) If P is the price of goods and services measured in terms of money, then:
A) P measures the value of money measured in terms of goods and services
B) 1/P measures the number of dollars needed to buy a basket of goods and services
C) 1/P measures the quantity of goods and services that can be bought with $1
D) All of the above
Q2) The principle of monetary neutrality implies that an increase in the money supply will:
A) decrease the price level
B) lower nominal interest rates
C) lower the unemployment rate
D) not affect real interest rates
Q3) Unexpected inflation has no wealth redistribution effect on the population.
A)True
B)False
Q4) The growth of EFTPOS and internet banking has reduced shoeleather costs as people do not need to go into the bank anymore.
A)True
B)False
Q5) What is the classical dichotomy, and to whom do we attribute it?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Purchasing-power parity theory suggests that one unit of any given currency should have the same real value in all countries.
A)True
B)False
Q2) The trade balance is:
A) domestically produced goods and services that are sold abroad
B) foreign-produced goods that are sold domestically
C) net exports
D) all goods and services available inside the country
Q3) Which of the following is not strongly affected by international trade?
A) Net foreign investment
B) Exchange rates
C) Domestic inflation
D) All of the above are strongly affected by international trade
Q4) When the money supply decreases:
A) the nominal exchange rate appreciates
B) the nominal exchange rate depreciates
C) the real exchange rate appreciates
D) the nominal exchange rate is unaffected
Q5) List five factors that may influence a country's demand for goods traded?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) Whereas in the long-run macroeconomic model of a closed economy, monetary changes affect only nominal variables, in the long-run macroeconomic model of an open economy, monetary changes also affect real variables.
A)True
B)False
Q2) The supply of and demand for loanable funds directly depends on:
A) the real interest rate
B) exports
C) imports
D) none of the above
Q3) At the equilibrium real interest rate, the amount that people (including government) want to save exactly balances the desired quantity of net foreign investment.
A)True
B)False
Q4) Citing a recent example, describe how a loss of overseas confidence due to political/financial instability may cause that country's exchange rate to depreciate.
Q5) Explain why the Australian dollar may appreciate owing to a change in interest rates?
34
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) The downward slope of the aggregate-demand curve shows that:
A) a fall in the price level reduces the overall quantity of goods and services demanded
B) a rise in the price level increases the overall quantity of goods and services demanded
C) a fall in the price level has no effect on the overall quantity of goods and services demanded
D) a fall in the price level increases the overall quantity of goods and services demanded
Q2) Keynes attempted to explain:
A) short-run economic fluctuations and advocated policies to increase aggregate supply
B) short-run economic fluctuations and advocated policies to increase aggregate demand
C) long-run economic growth and advocated policies to increase aggregate demand
D) long-run economic growth and advocated policies to increase aggregate supply
Q3) Using the real GDP measure, Australia did not have a recession. However other measures state otherwise. Identify and explain why these may be used valid evidence of a downturn, even though they are NOT used to measure the business cycle.
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The theory of liquidity preference states that the interest rate adjusts to bring money supply and money demand into balance.
A)True
B)False
Q2) According to the Ricardian equivalence theory, what would happen if the government were to cut taxes without changing its spending?
A) Public and national saving would fall
B) Public and national saving would rise
C) Public and national saving would not change
D) Private saving would rise, public saving would fall, and national saving would be unaffected
Q3) The government reduces taxes by $20 million. Suppose that there is no crowding-out effect, and that the marginal propensity to consume is 0.9. What is the total effect on aggregate demand?
A) $18 million
B) $22 million
C) $180 million
D) $200 million
Q4) Define expansionary and contractionary fiscal policy, giving examples of each.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Rational expectations theory is based on the assumption that people optimally allocate their incomes - that is, they decide how much they consume and how much they save.
A)True
B)False
Q2) Proponents of rational expectations theory argue that when government policies change, people adjust their expectations accordingly, and that failure to include that fact once led to estimates of the sacrifice ratio that were unreliable guides to policy.
A)True
B)False
Q3) If decreases in money supply or cuts in government contract aggregate demand, they can lower inflation in the short run, but only at the expense of higher unemployment.
A)True
B)False
Q4) Suppose that the RBA increases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the following statements is correct?
A) The benefits of reducing inflation to zero are permanent, and the costs are temporary
B) The benefits of reducing inflation to zero are temporary, and the costs are temporary
C) The benefits of reducing inflation to zero are permanent, and the costs are permanent
D) The benefits of reducing inflation to zero are temporary, and the costs are permanent
Q2) There are some situations in which running a budget deficit is justifiable.
A)True
B)False
Q3) Economies can be left to find their own solution.
A)True
B)False
Q4) Policymakers trying to stabilise the economy may often do just the opposite. A)True
B)False
Q5) What are the costs of inflation for society?
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