Survey of Economics Test
Questions
Course Introduction
Survey of Economics provides a broad overview of fundamental economic concepts, principles, and issues. The course introduces students to both microeconomics and macroeconomics, exploring topics such as supply and demand, market structures, consumer behavior, government intervention, national income, inflation, unemployment, and fiscal and monetary policy. Emphasis is placed on applying economic reasoning to real-world problems, understanding the role of economics in society, and evaluating current economic events and policies. This course is designed for students seeking a foundational understanding of economic systems and their impact on individuals and communities.
Recommended Textbook
Principles of Economics 5th Edition by
N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) College-age athletes who drop out of college to play professional sports
A) are not rational decision makers.
B) are well aware that their opportunity cost of attending college is very high.
C) are concerned more about present circumstances than their future.
D) underestimate the value of a college education.
Answer: B
Q2) One tradeoff society faces is between efficiency and equality.Define each term.If the U.S.government redistributes income from the rich to the poor,explain how this action affects equality as well as efficiency in the economy.
Answer: Efficiency is the property of society getting the most it can from its scarce resources.Equality is defined as the property of distributing economic prosperity fairly among the members of society.Often,these two goals conflict.When the government redistributes income from the rich to the poor,it reduces the reward for working hard.Fewer goods and services are produced and the economic pie gets smaller.When the government tries to cut the economic pie into more equal slices,the pie gets smaller.Policies aimed at achieving a more equal distribution of economic well-being,such as the welfare system,try to help those members of society who are most in need.The individual income tax asks the financially successful to contribute more than others to support the government.
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) If a line passes through the points (20,5)and (10,10),then the slope of the line is -2.
A)True
B)False
Answer: False
Q2) With respect to how economists study the economy,which of the following statements is most accurate?
A) Economists study the past,but they do not try to predict the future.
B) Economists use "rules of thumb" to predict the future.
C) Economists devise theories,collect data,and analyze the data to test the theories.
D) Economists use controlled experiments in much the same way that biologists and physicists do.
Answer: C
Q3) Refer to Figure 2-10.The slope of the curve between points A and B is
A) -5/2
B) -2/5
C) 2/5
D) 5/2
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,while Sandy can make 6 tables or 18 chairs.Given this,we know that
A) Mike has an absolute advantage in chairs.
B) Mike has a comparative advantage in tables.
C) Sandy has an absolute advantage in chairs.
D) Sandy has a comparative advantage in chairs.
Answer: A
Q2) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Given this,we know that the opportunity cost of 1 chair is
A) 1/5 table for Mike and 1/3 table for Sandy.
B) 1/5 table for Mike and 3 tables for Sandy.
C) 5 tables for Mike and 1/3 table for Sandy.
D) 5 tables for Mike and 3 tables for Sandy.
Answer: A
Q3) Some countries win in international trade,while other countries lose.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) A market is a group of buyers and sellers of a particular good or service.
A)True
B)False
Q2) Refer to Figure 4-1.If these are the only two consumers in the market,then the market quantity demanded at a price of $6 is
A) 12 units.
B) 14 units.
C) 19 units.
D) 21 units.
Q3) The supply curve for a good is
A) a line that relates profit and quantity supplied.
B) a line that relates input prices and quantity supplied.
C) a line that relates price and quantity supplied.
D) a line that relates price and profit.
Q4) The law of supply states that,other things equal,when the price of a good falls,the quantity supplied falls as well.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
A) 0
B) 0.5
C) 1
D) 1.5
Q2) For a particular good,a 12 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?
A) There are many substitutes for this good.
B) The good is a necessity.
C) The market for the good is narrowly defined.
D) The relevant time horizon is long.
Q3) If the cross-price elasticity of demand for two goods is negative,then the two goods are complements.
A)True
B)False
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Refer to Figure 6-1.A binding price ceiling is shown in A) panel (a)but not panel (b).
B) panel (b)but not panel (a).
C) both panel (a)and panel (b).
D) neither panel (a)nor panel (b).
Q2) The quantity sold in a market will increase if the government
A) decreases a binding price floor in that market.
B) decreases a binding price ceiling in that market.
C) increases a tax on the good sold in that market.
D) More than one of the above is correct.
Q3) The tax incidence depends on whether the tax is levied on buyers or sellers.
A)True
B)False
Q4) The minimum wage is an example of A) a price ceiling.
B) a price floor.
C) a wage subsidy.
D) a tax.
Q5) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
Page 8
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Chad is willing to pay $5.00 to get his first cup of morning latté.He buys a cup from a vendor selling latté for $3.75 per cup.Chad's consumer surplus is
A) $8.75.
B) $5.00.
C) $3.75.
D) $1.25.
Q2) Refer to Figure 7-17.At equilibrium,producer surplus is
A) $36.
B) $72.
C) $108.
D) $144.
Q3) Refer to Table 7-5.If the market price of an orange is $0.70,the market quantity of oranges demanded per day is
A) 5
B) 6
C) 7
D) 9
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Chapter 8: Application: The Costs of Taxation
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Q1) Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?
A) The price elasticity of demand for gasoline is 0.1;the price elasticity of supply for gasoline is 0.6;and the gasoline tax amounts to $0.20 per gallon.
B) The price elasticity of demand for gasoline is 0.1;the price elasticity of supply for gasoline is 0.4;and the gasoline tax amounts to $0.20 per gallon.
C) The price elasticity of demand for gasoline is 0.2;the price elasticity of supply for gasoline is 0.6;and the gasoline tax amounts to $0.30 per gallon.
D) There is insufficient information to make this determination.
Q2) A tax on a good causes the size of the market to increase.
A)True
B)False
Q3) The most important tax in the U.S.economy is the tax on corporations' profits.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-2.The world price for baskets represents
A) the demand for baskets from the rest of the world.
B) the supply of baskets from the rest of the world.
C) the level of inefficiency in the domestic market caused by trade.
D) the gap between domestic quantity demanded and domestic quantity supplied and the resulting shortage.
Q2) If the United States imposes a tariff on automobiles,then
A) total surplus in the American automobile market decreases.
B) producer surplus in the American automobile market increases.
C) U.S.imports of foreign automobiles decrease.
D) All of the above are correct.
Q3) When a country takes a multilateral approach to free trade,it
A) removes trade restrictions on its own.
B) reduces its trade restrictions while other countries do the same.
C) does not remove trade restrictions no matter what other countries do.
D) is willing to trade with multiple countries at once.
Q4) If a tariff is placed on watches,the price of both domestic and imported watches will rise by the amount of the tariff.
A)True
B)False
Page 11
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Chapter 10: Externalities
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Questions
Q1) Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?
A) They are equal.
B) The after-tax equilibrium quantity is greater than the socially optimal quantity.
C) The after-tax equilibrium quantity is less than the socially optimal quantity.
D) There is not enough information to answer the question.
Q2) Refer to Figure 10-4.Externalities in this market could be internalized if
A) there were a tax on the product.
B) there were a subsidy for the product.
C) production were stopped.
D) the Coase theorem failed.
Q3) When externalities are present in a market,the well-being of market participants
A) and market bystanders are both directly affected.
B) and market bystanders are both indirectly affected.
C) is directly affected,and market bystanders are indirectly affected.
D) is indirectly affected,and market bystanders are directly affected.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Goods that are rival in consumption include both
A) natural monopolies and public goods.
B) public goods and common resources.
C) common resources and private goods.
D) private goods and natural monopolies.
Q2) Some goods,such as lighthouses,can switch between being public goods and being private goods depending on the circumstances.
A)True
B)False
Q3) Refer to Table 11-3.What is the value of the 13<sup>th </sup>unit of national defense in Happyville?
A) $8
B) $14
C) $18
D) $24
Q4) A cost-benefit analysis of a highway is difficult to conduct because analysts
A) cannot estimate the explicit cost of a project that has not been completed.
B) are unlikely to have access to costs on similar projects.
C) are not able to consider the opportunity cost of resources.
D) will have difficulty estimating the value of the highway.
Page 13
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Chapter 12: The Design of the Tax System
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Q1) Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future.What category of spending is this?
A) National defense
B) Social Security
C) Income security
D) Farm support programs
Q2) Over the past 100 years,as the U.S.economy's income has grown, A) tax rates have decreased,while tax revenues have increased.
B) tax rates have increased,while tax revenues have decreased.
C) both tax rates and tax revenues have increased.
D) both tax rates and tax revenues have decreased.
Q3) According to the ability-to-pay principle,it is fair for people to pay taxes based on the amount of government services that they receive.
A)True
B)False
Q4) Vertical equity is not consistent with a regressive tax structure.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) The marginal product of an input in the production process is the increase in A) total revenue obtained from an additional unit of that input.
B) profit obtained from an additional unit of that input.
C) total revenue obtained from an additional unit of that input .
D) quantity of output obtained from an additional unit of that input.
Q2) Refer to Table 13-4.Assume Gallo's currently employs 2 workers.What is the marginal product of labor when Gallo's adds a 3rd worker?
A) 5 corks per hour
B) 10 corks per hour
C) 20 corks per hour
D) 25 corks per hour
Q3) Refer to Figure 13-4.Which curve is most likely to represent marginal cost?
A) A
B) B
C) C
D) D
Q4) Average variable cost is equal to total variable cost divided by quantity of output.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) In a competitive market with free entry and exit,if all firms have the same cost structure,then
A) all firms will operate at their efficient scale in the short run.
B) all firms will operate at their efficient scale in the long run.
C) the price of the product will differ across firms.
D) Both a and b are correct.
Q2) Changes in the output of a perfectly competitive firm,without any change in the price of the product,will change the firm's
A) total revenue.
B) marginal revenue.
C) average revenue.
D) All of the above are correct.
Q3) When economic profits are zero in equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.
A)True
B)False
Q4) Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits.Can this scenario be maintained in the long run? Explain your answer.
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Chapter 15: Monopoly
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Sample Questions
Q1) A monopolist will choose to increase output when A) market price increases.
B) at all levels of output,marginal cost increases.
C) at the present level of output,marginal revenue exceeds marginal cost.
D) the demand curve shifts to the left.
Q2) Patent and copyright laws encourage A) creative activity.
B) lower prices due to decreasing average total costs.
C) competition among firms.
D) Both a and b are correct.
Q3) Refer to Table 15-1.What is the marginal revenue for the monopolist for the sixth unit sold?
A) 3
B) 5
C) 11
D) 17
Q4) Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.
A)True
B)False
Page 17
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Chapter 16: Monopolistic Competition
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Q1) An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,
A) price may exceed marginal revenue,but in the long run,price equals marginal revenue.
B) price may exceed marginal cost,but in the long run,price equals marginal cost.
C) price may exceed average total cost,but in the long run,price equals average total cost.
D) there are many firms in the market,but in the long run,there are only a few firms in the market.
Q2) Professional organizations and producer groups have an incentive to
A) restrict advertising in order to enhance competition on the basis of price.
B) restrict advertising in order to reduce competition on the basis of price.
C) encourage advertising in order to reduce competition on the basis of price.
D) encourage advertising in order to enhance competition on the basis of price.
Q3) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Sample Questions
Q1) Refer to Table 17-4.Assume there are two high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.What price will they charge for a subscription when this market reaches a Nash equilibrium?
A) $120
B) $160
C) $200
D) $240
Q2) Nobel prize-winner Thomas Schelling
A) opposed the use of game theory as a means of analyzing strategic situations.
B) used mathematics to give precise formulations to game theory.
C) described drug addiction as a "game against oneself."
D) had his life portrayed in the movie A Beautiful Mind.
Q3) Game theory is important for the understanding of A) competitive markets.
B) monopolies.
C) oligopolies.
D) all market structures.
Q4) Explain the practice of resale price maintenance and discuss why it is controversial.
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Chapter 18: The Markets for the Factors of Production
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Q1) Along the horizontal axis of the production function we typically measure A) revenue.
B) the marginal product of the input.
C) the quantity of input.
D) the quantity of output.
Q2) The production function is the
A) increase in the amount of output from an additional unit of labor.
B) marginal product of an input times the price of output.
C) relationship between the quantity of inputs and output.
D) shift in labor demand caused by a change in the price of output.
Q3) Labor-augmenting technological advances increase the marginal productivity of labor.
A)True B)False
Q4) The rental price of capital is the price a person pays to own the capital indefinitely. A)True B)False
Q5) Using the theory of wage determination,explain why wages in developing countries.where levels of capital are small,are typically quite low.
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Chapter 19: Earnings and Discrimination
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Q1) The market wage could be higher than the equilibrium wage if a worker
A) belongs to a labor union.
B) is covered by a minimum-wage law.
C) is paid an efficiency wage.
D) All of the above are correct.
Q2) Other things equal,when the supply of workers is low,one would predict that market wages would be
A) relatively high.
B) relatively low.
C) determined solely by factors that affect demand.
D) determined outside the domain of economic theory.
Q3) Studies of professional sports teams suggest that,in sports,racial discrimination is A) rare.
B) common and that owners of teams are largely to blame.
C) common and that customers (fans)are largely to blame.
D) None of the above is correct;there are no reliable studies of discrimination in sports due to the difficulties inherent in measuring athletes' productivity.
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Chapter 20: Income Inequality and Poverty
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Q1) Explain what information is contained in the poverty rate statistic.Are there problems in using an absolute scale to measure poverty? If so,explain them.
Q2) The founders of utilitarianism include
A) A.C.Pigou and John Maynard Keynes.
B) Jeremy Bentham and John Stuart Mill.
C) Augustin Cournot and Jean B.Say.
D) A.Kondratieff and Thomas Malthus.
Q3) Critics of the minimum wage argue that
A) labor demand is inelastic so firms can adjust production.
B) too many older employees benefit at the expense of teenage workers.
C) many minimum-wage earners are teenagers from middle-class families.
D) All of the above are correct.
Q4) The maximin criterion suggests that social policy should
A) expropriate the factors of production from the capitalist class.
B) ensure an equal distribution of income.
C) elevate the well-being of those at the bottom of the income distribution.
D) elevate the well-being of all workers.
Q5) Fewer than three percent of families are poor for eight or more years.
A)True
B)False
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Chapter 21: The Theory of Consumer Choice
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Q1) The marginal rate of substitution is
A) the slope of a budget constraint.
B) always constant.
C) the slope of an indifference curve.
D) the point at which the budget constraint and the indifference curve are tangent.
Q2) When two goods are perfect complements,the indifference curves are right angles.
A)True
B)False
Q3) Consider two goods,books and hamburgers.The slope of the consumer's budget constraint is measured by the
A) consumer's income divided by the price of hamburgers.
B) relative price of books and hamburgers.
C) consumer's marginal rate of substitution.
D) number of books purchased divided by the number of hamburgers purchased.
Q4) When two goods are perfect substitutes,the
A) indifference curve is a downward-sloping straight line.
B) marginal rate of substitution is constant.
C) indifference curve is a vertical straight line.
D) Both a and b are correct.
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Chapter 22: Frontiers of Microeconomics
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Q1) Refer to Table 22-3.If (1)the first vote pits "school" against "park," and (2)the second vote pits "road" against the winner of the first vote,then the outcome is as follows:
A) "School" wins the first vote and "school" wins the second vote,so they build a school.
B) "School" wins the first vote and "road" wins the second vote,so they build a road.
C) "Park" wins the first vote and "park" wins the second vote,so they build a park.
D) "Park" wins the first vote and "road" wins the second vote,so they build a road.
Q2) In economics,a difference in access to relevant knowledge is called a(n)
A) relevancy frontier.
B) knowledge gap.
C) information asymmetry.
D) information equilibrium.
Q3) Signaling is an action taken by an uninformed party to induce an informed party to reveal information.
A)True
B)False
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Chapter 23: Measuring a Nations Income
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Q1) U.S.GDP and U.S.GNP are related as follows:
A) GNP = GDP + Value of exported goods - Value of imported goods.
B) GNP = GDP - Value of exported goods + Value of imported goods.
C) GNP = GDP + Income earned by foreigners in the U.S.- Income earned by U.S.citizens abroad.
D) GNP = GDP - Income earned by foreigners in the U.S.+ Income earned by U.S.citizens abroad.
Q2) The consumption component of GDP includes spending on
A) durable goods and nondurable goods,but not spending on services.
B) durable goods and services,but not spending on nondurable goods.
C) nondurable goods and services,but not spending on durable goods.
D) durable goods,nondurable goods,and services.
Q3) Which of the following is not included in U.S.GDP?
A) unpaid cleaning and maintenance of houses
B) services such as those provided by lawyers and hair stylists
C) the estimated rental value of owner-occupied housing
D) production of foreign citizens living in the United States
Q4) Changes in real GDP reflect only changes in the amounts being produced.
A)True
B)False
Page 25
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Chapter 24: Measuring the Cost of Living
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Q1) Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on recreation and consumer spending on education and communication.
A)True
B)False
Q2) Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 in 2001 and 221.25 in 2006.Ruben's 2001 salary in 2006 dollars is
A) $75,000;thus,Ruben's purchasing power increased between 2001 and 2006.
B) $75,000;thus,Ruben's purchasing power decreased between 2001 and 2006.
C) $85,000;thus,Ruben's purchasing power increased between 2001 and 2006.
D) $85,000;thus,Ruben's purchasing power decreased between 2001 and 2006.
Q3) Refer to Scenario 24-4.The Charlieville salary in Wrexington dollars is
A) $24,000.00.
B) $26,666.67.
C) $60,000.00
D) $66,666.67.
Q4) A COLA automatically raises the wage when the CPI rises.
A)True
B)False
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Chapter 25: Production and Growth
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Q1) Which of the following is an example of a renewable natural resource?
A) fish
B) soybeans
C) wood
D) All of the above are correct.
Q2) The average amount of goods and services produced from each hour of a worker's time is called
A) GDP.
B) per capita GDP.
C) productivity.
D) technological knowledge.
Q3) Inward-oriented policies
A) are generally supported by economists.
B) are primarily concerned with the development of human capital.
C) in some ways are like prohibiting the use of certain technologies.
D) All of the above are correct.
Q4) If a country made it easier for people to establish and prove the ownership of their property,real GDP per person would likely rise.
A)True
B)False
Page 27
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Chapter 26: Saving, investment, and the Financial System
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Q1) A low P/E for a stock indicates that A) people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition.
B) its dividends have been low so that no one is willing to pay very much for it.
C) the corporation is possibly overvalued.
D) All of the above are correct.
Q2) An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.
A)True
B)False
Q3) Suppose Sarah Lee Corporation stock has a P/E ratio of 8.This P/E ratio is relatively A) low,indicating that buyers may expect earnings to rise.
B) low,indicating that buyers may expect earnings to fall.
C) high,indicating that buyers may expect earnings to rise.
D) high,indicating that buyers may expect earnings to fall.
Q4) Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.
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Chapter 27: The Basic Tools of Finance
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Q1) George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?
A) 4 years
B) 5 years
C) 6 years
D) 7 years
Q2) Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of Carter Corporation Stock fall?
A) both the interest rate rising and the revenue announcement
B) neither the interest rate rising nor the revenue announcement
C) only the interest rate rising
D) only the revenue announcement
Q3) People who are risk averse dislike bad outcomes more than they like comparable good outcomes.
A)True
B)False
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Page 29
Chapter 28: Unemployment
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Q1) Minimum-wage laws and unions are similar to each other but different from efficiency wages in that minimum-wage law and unions
A) cause unemployment,but efficiency wages do not.
B) cause the quantity of labor supplied to exceed the quantity of labor demanded,but efficiency wages do not.
C) cause wages to be above the equilibrium level.
D) prevent firms from lowering wages in the presence of a surplus of workers.
Q2) Refer to Table 28-1.The labor force of Wrexington in 2005 was
A) 1300
B) 1900
C) 2004
D) 3000
Q3) Economists have found that union workers earn what percent more than similar nonunion workers?
A) 0 to 5
B) 5 to 10
C) 10 to 20
D) 20 to 30
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Chapter 29: The Monetary System
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Q1) The legal tender requirement means that
A) people are more likely to accept the dollar as a medium of exchange.
B) the government must hold enough gold to redeem all currency.
C) people may not make trades with anything else.
D) All of the above are correct.
Q2) Money allows people to specialize in what they do best,thereby raising everyone's standard of living.
A)True
B)False
Q3) The measure of the money stock called M1 includes
A) wealth held by people in their checking accounts.
B) wealth held by people in their savings accounts.
C) wealth held by people in money market mutual funds.
D) everything that is included in M2 plus some additional items.
Q4) Credit cards
A) are included in M1 but not M2.
B) are included in M1 and M2.
C) are included in M2 but not M1
D) are not included in any measure of the money supply.
Q5) Compare the Board of Governors and the Federal Open Market Committee.
Page 31
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Chapter 30: Money Growth and Inflation
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Q1) Which of the following helps to explain why the inflation fallacy is a fallacy?
A) Increases in the price level can be created by increases in money demand.
B) Nominal incomes tend to rise at the same time that the price level is rising.
C) As the price level rises,the value of a dollar falls.
D) Inflation only changes nominal variables.
Q2) When money is neutral,which of the following increases when the money supply growth rate increases?
A) real output growth
B) real interest rates
C) nominal interest rates
D) the money supply divided by the price level
Q3) The supply of money is determined by
A) the price level.
B) the Treasury and Congressional Budget Office.
C) the Federal Reserve System.
D) the demand for money.
Q4) Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.
A)True
B)False
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) If the nominal exchange rate e is foreign currency per dollar,the domestic price is P,and the foreign price is P*,then the real exchange rate is defined as
A) e(P*/P).
B) e(P/P*).
C) e + P/P.
D) e - P/P*.
Q2) List the factors that might influence a country's exports,imports,and trade balance.
Q3) Refer to Table 31-2.For which country(ies)in the table does purchasing-power parity hold?
A) Bolivia and Japan
B) Bolivia and Morocco
C) Japan and Morocco
D) Norway and Thailand
Q4) If Saudi Arabia had positive net exports last year,then it
A) sold more abroad than it purchased abroad and had a trade surplus.
B) sold more abroad than it purchased abroad and had a trade deficit.
C) bought more abroad than it sold abroad and had a trade surplus.
D) bought more abroad than it sold abroad and had a trade deficit.
Page 33
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If interest rates rose more in the U.S.than in Canada,then other things the same
A) U.S.citizens would buy more Canadian bonds and Canadian citizens would buy more U.S.bonds.
B) U.S.citizens would buy more Canadian bonds and Canadian citizens would buy fewer U.S.bonds.
C) U.S.citizens would buy fewer Canadian bonds and Canadian citizens would buy more U.S.bonds.
D) U.S.citizens would buy fewer Canadian bonds and Canadian citizens would buy fewer U.S.bonds.
Q2) If the risk of buying U.S.assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds,then A) net capital outflow and the real exchange rate will rise. B) net capital outflow will rise and the real exchange rate will fall. C) net capital outflow will fall and the real exchange rate will rise. D) net capital outflow and the exchange rate will fall.
Q3) In the 1980s,both the U.S.government budget and U.S.trade deficits increased. A)True B)False
Q4) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) The initial impact of an increase in an investment tax credit is to shift
A) aggregate demand right.
B) aggregate demand left.
C) aggregate supply right.
D) aggregate supply left.
Q2) Refer to Stock Market Boom 2014.In the short run what happens to the price level and real GDP?
A) both the price level and real GDP rise.
B) both the price level and real GDP fall.
C) the price level rises and real GDP falls.
D) the price level falls and real GDP rises.
Q3) An increase in the expected price level shifts short-run aggregate supply to the A) right,and an increase in the actual price level shifts short-run aggregate supply to the right.
B) right,and an increase in the actual price level does not shift short-run aggregate supply.
C) left,and an increase in the actual price level shifts short-run aggregate supply to the left.
D) left,and an increase in the actual price level does not shift short-run aggregate supply.
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The wealth effect helps explain the slope of the aggregate-demand curve.This effect is
A) relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B) relatively important in the United States because consumption spending is a large part of GDP.
C) relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D) relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.
Q2) The Fed is concerned about stock market booms because the booms
A) increase consumption spending.
B) increase investment spending.
C) increase both consumption and investment spending.
D) None of the above is correct.
Q3) How does a reduction in the money supply by the Fed make owning stocks less attractive?
Q4) What is the difference between monetary policy and fiscal policy?
Q5) Explain how unemployment insurance acts as an automatic stabilizer.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Which of the following would not be associated with a favorable supply shock?
A) the short-run Phillips curve shifts left
B) unemployment falls
C) the price level rises
D) output rises.
Q2) According to Friedman and Phelps,policymakers face a tradeoff between inflation and unemployment
A) only in the long run.
B) only in the short run.
C) in neither the long run nor short run.
D) in both the short run and long run.
Q3) The experience of the Volcker disinflation of the early 1980s
A) generally increased estimates of the sacrifice ratio.
B) generally decreased estimates of the sacrifice ratio.
C) clearly refuted the predictions of the proponents of rational expectations.
D) clearly refuted the predictions of the opponents of rational expectations.
Q4) The Phillips curve and the short-run aggregate supply curve are closely related,yet one slopes downward and the other slopes upward.Discuss.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the following is not correct?
A) Government debt can continue to rise forever.
B) If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C) Social Security does not transfer wealth from younger generations to older generations.
D) The average U.S.citizens' share of the government debt represents about 1 percent of her lifetime income.
Q2) If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the
A) left,and the sacrifice ratio will be low.
B) left,and the sacrifice ratio will be high.
C) right,and the sacrifice ratio will be low.
D) right,and the sacrifice ratio will be high.
Q3) Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.
A)True
B)False
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