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APMacroPracFINAL
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Exhibit 3-2
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____
1. Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes
point C. Which of the following is consistent with the change in equilibrium from point B to C (assuming that
this is a normal good)?
a. There was an increase in resource prices and income stayed constant.
b. There was a decrease in resource prices and income stayed constant.
c. There was an increase in resource prices and income decreased.
d. There was an increase in resource prices and income increased.
2. Refer to Exhibit 3-2. Suppose equilibrium is at point A. Something then changes and equilibrium becomes
point C. Which of the following is consistent with the change in equilibrium from point A to C (assuming that
this is a normal good)?
a. There was an increase in income and production technology advanced.
b. There was a decrease in income and production technology advanced.
c. There was an increase in the price of a substitute and an increase in wages.
d. There was a decrease in the price of a complement and an increase in wages.
Exhibit 3-4
8
Price (dollars)
S
6
4
2
D
5
____
____
____
____
____
10
15
20
25
Quantity
3. Refer to Exhibit 3-4. If this is a competitive market, price and quantity will gravitate toward
a. $6 and 10 units, respectively.
b. $6 and 20 units, respectively.
c. $4 and 15 units, respectively.
d. $2 and 15 units, respectively.
4. Which of the following statements represents a correct and sequentially accurate economic explanation?
a. X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the
price of X falls, and the demand for Y rises.
b. X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the
price of X falls, and the demand for Y falls.
c. X is an inferior good and Y is a substitute for X. Income falls, the demand for X rises, the
price of X rises, and the demand for Y falls.
d. X is an inferior good and Y is a substitute for X. Income rises, the quantity demanded of X
rises, the price of X rises, and the demand for Y falls.
e. none of the above
5. Which of the following statements best represents the law of supply?
a. Price and quantity supplied are inversely related.
b. Price and quantity supplied are directly related.
c. Price and quantity supplied are inversely related, ceteris paribus.
d. Price and quantity supplied are directly related, ceteris paribus.
e. Price and supply are directly related, ceteris paribus.
6. If the CPI is 100 in the base year and 140 in the current year, how much did prices rise between these two
years?
a. 40 percent
b. 140 percent
c. 1.40 percent
d. 0.14 percent
7. The base year is the year
a. in which prices are unstable.
b. in which prices are lowest.
c. in which prices are highest.
d. that serves as a reference point or benchmark.
e. in which nominal output is largest.
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____
____
____
8. The unemployment rate equals the
a. number of employed persons divided by the number of unemployed persons.
b. number of unemployed persons divided by the civilian non-institutional population.
c. number of unemployed persons divided by the civilian labor force.
d. sum of unemployed persons and discouraged workers divided by the civilian labor force.
9. A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is
said to be __________ unemployed
a. frictionally
c. cyclically
b. structurally
d. underemployed
10. Gross Domestic Product (GDP) is the total market value of all
a. final goods and services produced annually within a country's borders.
b. final and intermediate goods and services produced annually within a country's borders.
c. intermediate goods and services produced annually within a country's borders.
d. final goods and services produced every month within a country's borders.
11. Which of the following illustrates double counting?
a. The total market value of the steel used to produce a car and the total market value of the
car itself are summed.
b. The total market value of tennis rackets and the total market value of tennis balls are
summed.
c. The total market value of picture frames and the total market value of camera film are
summed.
d. The total market value of eyeglasses and the total market value of carpet are summed.
e. b and c
12. Which of the following is counted in GDP?
a. the purchase of 100 shares of Microsoft stock
b. the services of a real estate broker
c. government transfer payments
d. the sale of a used car
e. none of the above
13. Which of the following would definitely not be included in the measurement of GDP?
a. value of the services of a painter who paints your garage
b. value of the services of a person who mows his or her own lawn
c. value of the services of a maid who cleans your house
d. value of the services of a plumber who fixes your kitchen sink
14. A business cycle refers to the
a. continued expansion in Real GDP.
b. recurrent swings (up and down) in Real GDP.
c. continued decline in Real GDP.
d. period when Real GDP grows at unusually high rates.
e. none of the above
15. What does annual economic growth refer to?
a. annual increases in GDP
b. annual increases in consumption spending
c. annual increases in investment spending
d. annual increases in Real GDP
e. none of the above
____ 16. An aggregate demand (AD) curve shows the
a. amount of a particular good people are willing and able to buy at a particular price, ceteris
paribus.
b. real output (Real GDP) people are willing and able to sell at different price levels, ceteris
paribus.
c. real output (Real (GDP) people are willing and able to buy and to sell at different price
levels, ceteris paribus.
d. real output (Real GDP) people are willing and able to buy at different price levels, ceteris
paribus.
____ 17. Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's
AD curve.
a. movement down along
b. movement up along
c. a rightward shift of
d. a leftward shift of
____ 18. A short-run aggregate supply curve shows the
a. amount of a particular good producers are willing and able to buy at a particular price,
ceteris paribus.
b. real output (Real GDP) producers are willing and able to sell at different price levels,
ceteris paribus.
c. real output (Real GDP) people are willing and able to buy and to sell at different price
levels, ceteris paribus.
d. real output (Real GDP) people are willing and able to buy at different price levels, ceteris
paribus.
____ 19. Can a change in the price level change aggregate demand?
a. Yes, as the price level rises, aggregate demand falls.
b. Yes, but only under the condition that the real balance effect is operational.
c. No, only a change in a nonprice factor can change aggregate demand.
d. No, a change in the price level can only change aggregate supply.
e. none of the above
____ 20. Business taxes fall. This raises __________, which raises __________ and the __________ curve shifts
rightward.
a. consumption; aggregate demand (AD); AD
b. investment; government purchases; AD
c. investment; aggregate demand (AD); AD
d. net exports; aggregate demand (AD); AD
e. none of the above
____ 21. Personal income taxes rise. This lowers __________, which lowers __________ and the __________ curve
shifts __________.
a. net exports; aggregate demand (AD); AD; leftward
b. consumption; short-run aggregate supply (SRAS); SRAS; rightward
c. government revenue; net exports; AD; rightward
d. consumption; aggregate demand (AD); AD; leftward
e. none of the above
____ 22. An economy is producing its Natural Real GDP when the rate of unemployment is equal to the __________
unemployment rate.
a. frictional
b. structural
c. sum of the frictional unemployment rate and the structural
d. seasonal
e. cyclical
____ 23. An inflationary gap exists when AD and SRAS
a. fail to intersect.
b. intersect to the right of Natural Real GDP.
c. intersect to the left of Natural Real GDP.
d. both have a positive slope.
____ 24. A recessionary gap exists when AD and SRAS
a. fail to intersect.
b. intersect to the right of Natural Real GDP.
c. intersect to the left of Natural Real GDP.
d. both have a positive slope.
Exhibit 8-1
____ 25. Refer to Exhibit 8-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in
a(n)
a. inflationary gap.
b. recessionary gap.
c. unemployment gap.
d. high Real GDP gap.
e. none of the above
____ 26. Refer to Exhibit 8-1. The economy is currently producing Q1. If an economist believes the economy (itself)
can move to QN, then he believes that the
a. LRAS curve will shift leftward until it intersects the SRAS and AD curves at Q1.
b. AD curve will shift rightward and intersect the SRAS curve at point B.
c. SRAS curve will shift rightward and intersect the AD curve at point A.
d. economy will likely stay "stuck" in short-run equilibrium.
____ 27. Refer to Exhibit 8-1. The unemployment rate is lower at
a. Q1 than QN.
b. QN than Q1.
c. point A than point B.
d. point B than point A.
____ 28. Refer to Exhibit 8-1. The price level is
a. lower in short-run equilibrium than in long-run equilibrium.
b. lower in long-run equilibrium than in short-run equilibrium.
c. higher in long-run equilibrium than in short-run equilibrium.
d. lower when the economy is in a recessionary gap than when it is in long-run equilibrium.
____ 29. Refer to Exhibit 8-1. The economy is currently producing Q1. An economist who believes wages are flexible
in the downward direction would argue that
a. it is likely the economy will soon move to point B.
b. it is likely the economy will soon move to point A.
c. it is not likely the economy will move to point A on its own accord now or anytime soon.
d. Real GDP will soon take a downturn.
____ 30. When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual)
unemployment rate is __________ the natural rate of unemployment.
a. greater than; less than
b. greater than; greater than
c. less than; greater than
d. less than; less than
e. less than; equal to
____ 31. Which of the following statements is true?
a. If current Real GDP is greater than Natural Real GDP, the economy is in a recessionary
gap.
b. If current Real GDP is less than Natural Real GDP, the economy is in long-run
equilibrium.
c. Wages are flexible if the economy is self-regulating.
d. Wages rise but prices remain constant in long-run equilibrium.
e. All economists believe the economy is self-regulating.
____ 32. A person who believes the economy is self-regulating also believes that
a. when there is a surplus in the labor market, the wage rate falls, and when there is a
shortage in the labor market, the wage rate rises.
b. it is better if the economy is in an inflationary gap than a recessionary gap.
c. prices are flexible but wages are not.
d. the economy is always in long-run equilibrium.
e. the real balance effect does not operate in a recessionary gap.
____ 33. If total production is greater than total expenditures,
a. there will be an increase in saving.
b. there will be an increase in inventories.
c. firms will then increase production.
d. firms will then increase prices.
____ 34. The efficiency wage model contains the assumption that labor productivity __________ the wage rate, so that
a firm maximizing its profits __________ pay workers an above-market wage rate.
a. is independent of; may
b. is independent of; will never
c. depends on; may
d. depends on; will never
____ 35. Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that
something ought to be done quickly because the economy may not be able to restore itself to full
employment. Jones says that it is better to take a "hands-off" approach. Which of the following is most likely
to be true?
a. Smith and Jones are most likely both Keynesian economists with a few minor differences
of opinion.
b. Smith and Jones are most likely both classical economists with a few minor differences of
opinion.
c. Jones is likely to be a Keynesian economist and Smith is likely to be a classical economist.
d. Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist.
e. none of the above.
____ 36. Which of the following is consistent with the classical view of Say's law?
a. Saving increases by $2 billion and investment decreases by $2 billion.
b. Saving increases by $2 billion and consumption rises by $2 billion.
c. Saving increases by $2 billion, consumption decreases by $2 billion, and investment rises
by something less than $2 billion.
d. Saving decreases by $2 billion and consumption decreases by more than $2 billion.
e. none of the above
____ 37. According to Keynes, the private sector (by itself)
a. can always move the economy out of a recessionary gap.
b. cannot always move the economy out of a recessionary gap.
c. can never move the economy out of a recessionary gap.
d. can only move the economy out of a recessionary gap if the SRAS curve drops.
e. can only move the economy out of a recessionary gap if the SRAS curve rises.
____ 38. Suppose Congress decreases income taxes. This is an example of
a. expansionary fiscal policy.
b. expansionary monetary policy.
c. contractionary fiscal policy.
d. contractionary monetary policy.
____ 39. Suppose the economy is at a position below the institutional production possibilities frontier. In response to
this situation, Keynesian economists would propose that the government should __________ purchases,
which will cause the aggregate demand curve to shift to the __________, which, in turn, will correct this
__________ gap.
a. decrease; left; inflationary
b. increase; right; inflationary
c. decrease; right; inflationary
d. increase; right; recessionary
e. decrease; left; recessionary
____ 40. With complete crowding out, an increase in government spending
a. is completely offset by a reduction in private spending.
b. is matched by an increase in private spending.
c. results in an increase in aggregate supply.
d. results in an increase in aggregate demand.
Exhibit 10-2
____ 41. Refer to Exhibit 10-2. At point B, if we cut tax rates slightly, tax revenues
a. increase.
b. decrease.
c. will not change.
d. drop to zero.
____ 42. The economy is in a recessionary gap, wages are inflexible downward, and there is complete crowding out.
Which of the following is consistent with this state of affairs?
a. The economy will soon self-regulate and produce Natural Real GDP.
b. Expansionary fiscal policy will be effective at removing the economy from the
recessionary gap.
c. If expansionary fiscal policy is implemented, the AD curve will shift to the right, and
eventually the price level and Real GDP will rise.
d. b and c
e. none of the above
____ 43. If Smith believes the economy is self-regulating, then Smith
a. is less likely to advocate expansionary fiscal policy when the economy is in a recessionary
gap than Jones, who believes the economy is not self-regulating.
b. is more likely to advocate expansionary fiscal policy when the economy is in a
recessionary gap than Jones, who believes the economy is not self-regulating.
c. will believe that there is zero crowding out, too.
d. will believe that wages are inflexible downward, too.
e. b and d
____ 44. Barter is
a. the exchange of money for goods and then the exchange of those goods for money.
b. the exchange of money for money, or the exchange of money for stocks and bonds.
c. the exchange of goods and services for goods and services without the use of money.
d. any exchange, with or without the use of money, in which the participants negotiate (or
barter) the price of the goods to be exchanged.
____ 45. The actual change in the money supply as a result of an increase in excess reserves will be less than the
maximum change if banks
a. do not lend out all of their excess reserves.
b. borrow from the Federal Reserve.
c. sell some of their government securities to the Federal Reserve.
d. lend only their excess reserves.
____ 46. Suppose Bank A gains $10,000 in reserves that Bank B loses. If both banks are subject to the same required
reserve ratio and are currently holding zero excess reserves, then
a. the money supply rises.
b. the money supply falls.
c. the money supply remains constant.
d. checkable deposits fall.
____ 47. A bank has $10,000 in excess reserves and the required reserve ratio is 20 percent. This means the bank could
have __________ in checkable deposit liabilities and __________ in reserves.
a. $80,000, $10,000
b. $100,000, $20,000
c. $50,000, $25,000
d. $100,000, $30,000
____ 48. Inflation does the greatest harm to money's function as a
a. medium of exchange.
b. unit of account.
c. store of value.
d. liquid asset.
____ 49. Raising the required reserve ratio __________ the simple deposit multiplier and __________ the economy's
maximum potential money supply.
a. raises; raises
b. raises; lowers
c. lowers; raises
d. lowers; lowers
____ 50. Which of the following is not a component of M1?
a. currency held outside banks
b. traveler's checks
c. savings deposits
d. checkable deposits
____ 51. The Board of Governors of the Federal Reserve is comprised of
a. seven persons, each appointed to a seven-year term.
b. seven persons, each appointed to a fourteen-year term.
c. fourteen persons, each appointed to a seven-year term.
d. twelve persons, each appointed to a seven-year term.
e. twelve persons, each appointed to a fourteen-year term.
____ 52. When the federal government incurs a budget deficit, it will
a. mint more coins and spend them.
b. create money "out of thin air."
c. impose a special tax on all income earners.
d. borrow money from the Federal Reserve System by issuing securities.
e. borrow money from the public by issuing securities.
____ 53. A commercial bank can receive a loan from another commercial bank in the
a. federal funds market.
b. bank loan market.
c. Fed market.
d. discount market.
____ 54. The discount rate is the interest rate
a. banks pay on certificates of deposit.
b. the Fed pays on reserves held by banks.
c. the Fed charges when it lends reserves to banks.
d. banks charge their loan customers.
e. on short-term Treasury securities.
____ 55. Open market purchases of government securities
a. are designed to increase trading on the stock exchange.
b. generally decrease the money supply.
c. always decrease the money supply.
d. cause bank reserves to increase.
e. all of the above
____ 56. Paper money is printed at the __________, but it is issued to commercial banks by the __________.
a. Bureau of Engraving and Printing; FOMC
b. U.S. Mint; 12 Federal Reserve District Banks
c. Federal Reserve building in Washington; D.C., U.S. Treasury
d. Bureau of Engraving and Printing; 12 Federal Reserve District Banks
e. none of the above
____ 57. The president of the __________ holds a permanent seat on the FOMC.
a. United States
b. Federal Reserve District Bank of New York
c. Federal Reserve District Bank of San Francisco
d. U.S. Senate banking committee
e. none of the above
____ 58. If the federal funds rate falls below the discount rate, banks will decrease their borrowings from __________
and __________ their borrowings from __________. It follows that when one bank borrows from
__________, reserves in the banking system __________.
a. other banks; increase; the Fed; another bank; remain unchanged
b. the Fed; decrease; other banks; another bank; remain unchanged
c. other banks; increase; the U.S. Treasury; the Treasury; increase
d. the Fed; increase; other banks; another bank; remain unchanged
e. none of the above
____ 59. Monetarists can be described as a group of macroeconomists who
a. emphasize the importance of the federal government's involvement in the economy to
dampen the harmful effects of the business cycle.
b. emphasize the importance of the money supply as a determinant of macroeconomic
activity.
c. tend to view government spending and taxation policy as the chief means of stabilizing the
economy.
d. feel that money should not be created in the private banking system, but only by
government.
____ 60. Which of the following is consistent with the equation of exchange?
a. Total spending must equal the total sales revenues of business firms.
b. The money supply multiplied by velocity must equal GDP.
c. The money supply multiplied by velocity must equal the price level times Real GDP.
d. a and b
e. a, b and c
____ 61. The expectations effect is the
a. increase in the real and nominal interest rates brought on by an expected increase in GDP.
b. increase in the nominal interest rate due to a higher expected inflation rate.
c. decrease in the real and nominal interest rates due to an expected increase in the supply of
loanable funds.
d. idea that people form their expectations of inflation by considering all available
information about past, present, and future inflation.
e. idea that people form their expectations of inflation by considering only information about
past inflation experience.
____ 62. If the simple quantity theory of money predicts well, what would we expect to see (in the real world)?
a. changes in the money supply strongly correlated with changes in interest rates
b. changes in the money supply strongly correlated with changes in inflation rates
c. changes in Real GDP strongly correlated with changes in the money supply
d. changes in velocity strongly correlated with changes in the money supply
e. none of the above
____ 63. When Milton Friedman said that inflation is always and everywhere a monetary phenomenon, he was
referring to
a. one-shot inflation
b. supply-induced inflation
c. continued inflation
d. hyperinflation (high rates of inflation)
e. all kinds of inflation
____ 64. The demand-for-money curve illustrates the __________ relationship between the quantity demanded of
money and __________.
a. inverse; the interest rate
b. direct; GDP.
c. direct; the interest rate
d. inverse; GDP
____ 65. If the interest rate increases, the opportunity cost of holding money __________, and the quantity demanded
of money __________.
a. does not change; does not change
b. increases; also increases
c. decreases; increases
d. increases; decreases
e. decreases; also decreases
____ 66. Which best describes the Keynesian transmission mechanism when the money supply rises?
a. The interest rate rises; this in turn cuts back investment spending, which in turn raises total
expenditures and shifts the AD curve rightward.
b. The interest rate falls; this in turn stimulates investment spending, which in turn raises
total expenditures and shifts the AD curve leftward.
c. The interest rate falls; this in turn stimulates investment spending, which in turn raises
total expenditures and shifts the AD curve rightward.
d. The interest rate falls; this in turn stimulates investment spending, which in turn lowers
total expenditures and shifts the AD curve leftward.
____ 67. Suppose the money market is in the liquidity trap and the Fed increases the supply of money. Individuals
would rather hold __________ than __________ because they expect that bond prices can go no __________.
a. bonds; money; higher
b. bonds; money; lower
c. money; bonds; higher
d. money; bonds; lower
Interest Rate
Exhibit 14-2
i1
i2
S1
S2
A
B
D
C
Demand for Money Curve
Quantity of M oney
____ 68. Refer to Exhibit 14-2. A(n)__________ in the money supply from S1 to S2 would have a tendency to
__________ the amount of investment, assuming investment is sensitive to changes in the interest rate.
a. decrease, raise
b. decrease, lower
c. increase, raise
d. increase, lower
____ 69. Refer to Exhibit 14-2. A(n)__________ in the money supply from S1 to S2 would have a tendency to
__________ the opportunity cost of holding money.
a. increase; raise
b. increase; lower
c. decrease; raise
d. decrease; lower
____ 70. The quantity demanded of money is
a. inversely related to the interest rate.
b. directly related to the interest rate.
c. inversely related to the general price level.
d. inversely related to GDP.
e. a, c, and d
____ 71. The quantity supplied of money is assumed (in the textbook) to be
a. inversely related to the interest rate.
b. directly related to the interest rate.
c. independent of the interest rate.
d. largely determined by the Fed.
e. c and d
____ 72. According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment
is not interest insensitive), if the money supply rises, the interest rate __________, investment spending
__________ and the AD curve shifts to the __________.
a. falls; falls; left
b. rises; rises; right
c. falls; rises; left
d. falls; rises; right
e. rises; falls; right
____ 73. Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the
horizontal portion of the SRAS curve. If the money supply rises and the demand for money curve is
downward sloping and investment is interest __________, then Real GDP will __________.
a. sensitive; rise
b. insensitive; remain unchanged
c. sensitive; remain unchanged
d. insensitive; rise
e. a and b
____ 74. A.W. Phillips collected data on the rate of change in money wages and plotted it against unemployment rates
in the United Kingdom. The curve he fit to the data showed that
a. the rate of change of money wage rates and unemployment rates were inversely related.
b. the rate of change of money wage rates and unemployment rates were directly related.
c. the rate of change of money wage rates and unemployment rates were independent.
d. as money wage rates increased, the unemployment rate was cut in more than half.
____ 75. The short-run Phillips curve holds that
a. high inflation and high unemployment can occur together.
b. low inflation and low unemployment can occur together.
c. high inflation and low unemployment can occur together.
d. b and c
Exhibit 15-1
____ 76. Refer to Exhibit 15-1. Suppose the economy is currently at point A on the short-run Phillips curve, SRPC1.
What could get the economy to move to point B?
a. an increase in aggregate demand combined with an unchanged expected inflation rate
b. an increase in aggregate demand combined with a rise in the expected inflation rate
c. a rise in the expected inflation rate
d. a decrease in aggregate demand combined with an unchanged expected inflation rate
e. none of the above
Exhibit 15-2
____ 77. Refer to Exhibit 15-2. Suppose the economy starts at point A. Fed monetary policy shifts the AD curve to
AD2. A boom is likely if the economy operates under __________ assumptions, which include wage and
price __________.
a. new classical; flexibility
b. new classical; inflexibilities
c. new Keynesian; flexibility
d. new Keynesian; inflexibilities
____ 78. The difference between new classical theory and new Keynesian theory is that
a. in new classical theory wages are assumed to be flexible, and in new Keynesian theory
wages are assumed to be somewhat inflexible.
b. in new classical theory wages are assumed to be somewhat inflexible, and in new
Keynesian theory wages are assumed to be flexible.
c. adaptive expectations is the dominant expectations theory in new classical theory, and
rational expectations is the dominant expectations theory in new Keynesian theory.
d. in new Keynesian theory the short-run aggregate supply curve is vertical, and in new
classical theory the short-run aggregate supply curve is upward sloping.
____ 79. According to a new Keynesian theorist, a correctly anticipated increase in aggregate demand will
a. cause the price level to increase by a greater amount in the short run than what a new
classical rational expectations theorist would predict.
b. cause the price level to increase by a smaller amount in the short run than what a new
classical rational expectations theorist would predict.
c. cause the price level to increase by the same amount in the short run that a new classical
rational expectations theorist would predict.
d. leave the price level unchanged in the short run, but Real GDP will increase more than
what a new classical theorist would predict.
e. leave the price level unchanged in the short run, but Real GDP will increase less than what
a new classical theorist would predict.
Exhibit 15-3
____ 80. Refer to Exhibit 15-3. The economy is at point A. As the result of an unexpected increase in aggregate
demand, in the short run, the Friedman natural rate theory would predict
a. movement to point B.
b. movement to point C.
c. movement to point C'.
d. no movement from point A.
____ 81. If there is a stable downward-sloping Phillips curve, it follows that an economy can choose the combination
of
a. high unemployment and low inflation.
b. low unemployment and high inflation.
c. moderate unemployment and moderate inflation.
d. low inflation and low unemployment.
e. a, b, and c
____ 82. The expected inflation rate is equal to the actual inflation rate. According to the (Friedman) natural rate
theory, the economy is
a. in a recessionary gap.
b. in an inflationary gap.
c. at a point on the short-run Phillips curve, but not on the long-run Phillips curve.
d. biased toward producing a higher percentage of services than goods.
e. producing Natural Real GDP.
____ 83. Countries tend to specialize in the production of goods in which they have a comparative advantage because
a. government officials calculate opportunity costs and suggest to people what they ought to
produce.
b. people want to make a profit.
c. the Economic Development Office of the United Nations hires economic experts to
calculate the opportunity costs of different goods in different countries and then suggests
to countries what they ought to produce.
d. the World Trade Organization hires economic experts to calculate the opportunity costs of
different goods in different countries and then suggests to countries what they ought to
produce.
e. none of the above
____ 84. "Dumping" refers to
a. the sale of goods abroad at a price below their cost and below the price charged in the
domestic market.
b. unloading of foreign goods on domestic docks.
c. government actions to remedy "unfair" trade practices.
d. buying goods at low prices in foreign countries and selling them at high prices in the
United States.
____ 85. A tariff is a
a. tax imposed on domestic producers of export goods.
b. legal limit on the amount of a good that can be imported.
c. tax imposed on imported goods.
d. legal limit on the amount of a good that can be produced by foreign owners of a firm
located in a host country.
____ 86. A quota is
a. a tax imposed on imported goods.
b. a legal limit on the amount of a good that can be produced by foreign owners of a firm
located in a host country.
c. a legal limit on the amount of a good that can be imported.
d. an agreement between two countries in which the exporting country voluntarily agrees to
limit its exports to the importing country.
____ 87. Suppose that a tariff is imposed on imported cheese. This will have the effect of __________ the quantity
consumed of cheese, __________ consumers' surplus, and __________ the government's tariff revenues.
a. increasing; increasing; increasing
b. decreasing; decreasing; increasing
c. increasing; decreasing; decreasing
d. decreasing; increasing; increasing
e. decreasing; increasing; decreasing
____ 88. Evidence indicates that tariffs and quotas are
a. beneficial for producers in a protected industry, but not beneficial for the workers in the
industry.
b. beneficial for producers in a protected industry, but not beneficial for consumers.
c. beneficial for workers in a protected industry, but not beneficial for consumers.
d. not beneficial for the workers in a protected industry or for consumers.
e. b and c
Exhibit 18-6
____ 89. Refer to Exhibit 18-6. Which of the following is true?
a. A has a comparative advantage in both cheese and wine.
b. B has a comparative advantage in both cheese and wine.
c. A has a comparative advantage in cheese, and B has a comparative advantage in wine.
d. B has a comparative advantage in cheese, and A has a comparative advantage in wine.
e. none of the above
____ 90. The answer is: "The difference between the price buyers pay for a good and the maximum or highest price
they would have paid for the good." This is the definition for
a. taxes.
b. producers' surplus.
c. consumers' surplus.
d. the sum of producers' and consumers' surpluses.
e. the welfare triangle.
____ 91. Smith argues that American producers cannot compete with foreign producers because wages are lower in
foreign countries than in the United States. Smith is
a. advancing the foreign-export-subsidies argument for protectionism.
b. making the mistake of believing that high wages mean high costs.
c. advancing the anti-dumping argument for protectionism.
d. making the mistaking of believing that productivity is higher in foreign countries than in
the United States.
e. none of the above
____ 92. A country has a (an) __________ in the production of a good it produces at lower opportunity cost than
another country.
a. absolute advantage
b. specialization disadvantage
c. tariff-efficient advantage
d. infant-industry advantage
e. none of the above
____ 93. When exports of American goods increase, this __________ the demand for U.S. dollars and at the same time
__________ foreign currencies.
a. increases; increases the supply of
b. decreases; increases the supply of
c. increases; decreases the supply of
d. increases; increases the demand for
e. none of the above
____ 94. The Mexican demand for American goods leads to
a. the demand for Mexican pesos and the supply of U.S. dollars on the foreign exchange
market.
b. the demand for U.S. dollars and the demand for Mexican pesos on the foreign exchange
market.
c. the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange
market.
d. the demand for U.S. dollars and the supply of U.S. dollars on the foreign exchange market.
____ 95. If country A has a "merchandise trade deficit," then
a. producers in country A have sold more than they produced in a given year and therefore
will experience an increase in inventories.
b. consumers in country A have bought more products from their own nation than from other
countries.
c. consumers in country A have bought more products from other countries than from their
own nation.
d. consumers in country A have bought more of other countries' products than other
countries' consumers have bought of country A's products.
e. consumers in other countries have bought more of country A's products than country A's
consumers have bought of other countries' products.
Figure 3-2
____ 96. Refer to Figure 3-2. Ben has a comparative advantage in
a. cones and Jerry has a comparative advantage in ice cream.
b. ice cream and Jerry has a comparative advantage in cones.
c. neither good and Jerry has a comparative advantage in both goods.
d. both goods and Jerry has a comparative advantage in neither good.
For the following question(s), use the accompanying table.
Table 3-2
Labor Hours needed to make one
Quilt
Helen
50
Carolyn
90
Dress
10
45
Amount produced in 90 hours:
Quilts
Dresses
1.8
9
1
2
____ 97. Refer to Table 3-2. Helen has a comparative advantage in
a. quilts and Carolyn has an absolute advantage in neither good.
b. dresses and Carolyn has an absolute advantage in quilts.
c. quilts and Carolyn has an absolute advantage in dresses.
d. dresses and Carolyn has an absolute advantage in neither good.
Table 3-3
Montana
Missouri
Labor Hours Needed to Make
One:
Basket
Birdhouse
6
2
3
1.5
Amount Produced in 24 Hours:
Baskets
Birdhouses
4
12
8
16
____ 98. Refer to Table 3-3. If Montana and Missouri were to specialize and engage in trade that would benefit both
states, they would most likely base their decisions on the principle of
a. absolute advantage.
b. comparative advantage.
c. maximum opportunity cost.
d. zero-sum trade.
____ 99. If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then
a. Iowa has a comparative advantage in the production of corn.
b. Iowa has an absolute advantage in the production of corn.
c. Iowa should import corn from Oklahoma.
d. Oklahoma should produce just enough corn to satisfy its own residents’ demands.
____ 100. Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of
comparative advantage asserts that
a. the United States should produce more pork than what it requires and export some of it to
Mexico.
b. the United States should produce a moderate quantity of pork and import the remainder of
what it requires from Mexico.
c. the United States should refrain altogether from producing pork and import all of what it
requires from Mexico.
d. Mexico has nothing to gain from importing United States pork.
APMacroPracFINAL
Answer Section
MULTIPLE CHOICE
1. ANS:
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18. ANS:
LOC:
19. ANS:
LOC:
20. ANS:
LOC:
21. ANS:
LOC:
22. ANS:
B
PTS: 1
DIF:
Supply and demand
A
PTS: 1
DIF:
Supply and demand
C
PTS: 1
DIF:
Equilibrium
B
PTS: 1
DIF:
Supply and demand
D
PTS: 1
DIF:
Supply and demand
A
PTS: 1
DIF:
Unemployment and inflation
NOT:
D
PTS: 1
DIF:
Unemployment and inflation
C
PTS: 1
DIF:
Unemployment and inflation
A
PTS: 1
DIF:
Unemployment and inflation
A
PTS: 1
DIF:
Measuring the Economy
A
PTS: 1
DIF:
Measuring the Economy
B
PTS: 1
DIF:
Measuring the Economy
B
PTS: 1
DIF:
Measuring the Economy
B
PTS: 1
DIF:
Measuring the Economy
D
PTS: 1
DIF:
Measuring the Economy
D
PTS: 1
DIF:
Aggregate demand and aggregate supply
D
PTS: 1
DIF:
Aggregate demand and aggregate supply
B
PTS: 1
DIF:
Aggregate demand and aggregate supply
C
PTS: 1
DIF:
Aggregate demand and aggregate supply
C
PTS: 1
DIF:
Aggregate demand and aggregate supply
D
PTS: 1
DIF:
Aggregate demand and aggregate supply
C
PTS: 1
DIF:
Difficult
NAT: Analytic
Difficult
NAT: Analytic
Moderate
NAT: Analytic
Difficult
NAT: Analytic
Easy
NAT: Analytic
Moderate
NEW
Easy
NAT: Analytic
Easy
NAT: Analytic
Easy
NAT: Analytic
Easy
NAT: Analytic
Moderate
NAT: Analytic
Moderate
NAT: Analytic
Moderate
NAT: Analytic
Easy
NAT: Analytic
Moderate
NAT: Analytic
Easy
NAT: Analytic
Difficult
NAT: Analytic
Easy
NAT: Analytic
Moderate
NAT: Analytic
Moderate
NAT: Analytic
Moderate
NAT: Analytic
Easy
NAT: Analytic
NAT: Analytic
LOC:
23. ANS:
LOC:
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25. ANS:
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26. ANS:
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LOC:
42. ANS:
LOC:
43. ANS:
LOC:
44. ANS:
LOC:
45. ANS:
LOC:
46. ANS:
LOC:
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
C
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
C
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
A
PTS: 1
DIF: Moderate
Understanding and applying economic models
C
PTS: 1
DIF: Moderate
Understanding and applying economic models
A
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Easy
Understanding and applying economic models
C
PTS: 1
DIF: Moderate
Understanding and applying economic models
D
PTS: 1
DIF: Moderate
Understanding and applying economic models
E
PTS: 1
DIF: Moderate
Understanding and applying economic models
B
PTS: 1
DIF: Moderate
Understanding and applying economic models
A
PTS: 1
DIF: Easy
Monetary and fiscal policy
D
PTS: 1
DIF: Difficult
Monetary and fiscal policy
A
PTS: 1
DIF: Moderate
Monetary and fiscal policy
A
PTS: 1
DIF: Moderate
Monetary and fiscal policy
E
PTS: 1
DIF: Difficult
Monetary and fiscal policy
A
PTS: 1
DIF: Moderate
Monetary and fiscal policy
C
PTS: 1
DIF: Easy
The role of money
A
PTS: 1
DIF: Moderate
The role of money
C
PTS: 1
DIF: Moderate
The role of money
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
47. ANS:
LOC:
48. ANS:
LOC:
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LOC:
66. ANS:
LOC:
67. ANS:
LOC:
68. ANS:
LOC:
69. ANS:
LOC:
70. ANS:
LOC:
D
PTS: 1
DIF: Difficult
The role of money
C
PTS: 1
DIF: Moderate
The role of money
D
PTS: 1
DIF: Difficult
The role of money
C
PTS: 1
DIF: Easy
The role of money
B
PTS: 1
DIF: Easy
The role of government
E
PTS: 1
DIF: Moderate
The role of government
A
PTS: 1
DIF: Moderate
Monetary and fiscal policy
C
PTS: 1
DIF: Moderate
Monetary and fiscal policy
D
PTS: 1
DIF: Moderate
Monetary and fiscal policy
D
PTS: 1
DIF: Moderate
The role of government
B
PTS: 1
DIF: Moderate
The role of government
D
PTS: 1
DIF: Moderate
Monetary and fiscal policy
B
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
E
PTS: 1
DIF: Difficult
Understanding and Applying Economic Models
B
PTS: 1
DIF: Difficult
Understanding and Applying Economic Models
B
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
C
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
A
PTS: 1
DIF: Easy
Monetary and fiscal policy
D
PTS: 1
DIF: Moderate
Monetary and fiscal policy
C
PTS: 1
DIF: Moderate
Monetary and fiscal policy
C
PTS: 1
DIF: Difficult
Monetary and fiscal policy
C
PTS: 1
DIF: Moderate
Monetary and fiscal policy
B
PTS: 1
DIF: Moderate
Monetary and fiscal policy
A
PTS: 1
DIF: Moderate
Monetary and fiscal policy
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
71. ANS:
LOC:
72. ANS:
LOC:
73. ANS:
LOC:
74. ANS:
LOC:
75. ANS:
LOC:
76. ANS:
LOC:
77. ANS:
LOC:
78. ANS:
LOC:
79. ANS:
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81. ANS:
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LOC:
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LOC:
84. ANS:
LOC:
85. ANS:
LOC:
86. ANS:
LOC:
87. ANS:
LOC:
88. ANS:
LOC:
89. ANS:
LOC:
90. ANS:
LOC:
91. ANS:
LOC:
92. ANS:
LOC:
93. ANS:
LOC:
94. ANS:
LOC:
95. ANS:
E
PTS: 1
DIF: Easy
Monetary and fiscal policy
D
PTS: 1
DIF: Moderate
Monetary and fiscal policy
E
PTS: 1
DIF: Moderate
Monetary and fiscal policy
A
PTS: 1
DIF: Easy
Understanding and Applying Economic Models
C
PTS: 1
DIF: Easy
Understanding and Applying Economic Models
A
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
D
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
A
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
B
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
A
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
E
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
E
PTS: 1
DIF: Moderate
Understanding and Applying Economic Models
B
PTS: 1
DIF: Moderate
International trade and finance
A
PTS: 1
DIF: Easy
International trade and finance
C
PTS: 1
DIF: Easy
International trade and finance
C
PTS: 1
DIF: Easy
International trade and finance
B
PTS: 1
DIF: Difficult
International trade and finance
E
PTS: 1
DIF: Moderate
International trade and finance
C
PTS: 1
DIF: Moderate
International trade and finance
C
PTS: 1
DIF: Moderate
International trade and finance
B
PTS: 1
DIF: Moderate
International trade and finance
E
PTS: 1
DIF: Easy
International trade and finance
A
PTS: 1
DIF: Moderate
International trade and finance
C
PTS: 1
DIF: Moderate
International trade and finance
D
PTS: 1
DIF: Moderate
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
NAT: Analytic
LOC:
96. ANS:
TOP:
97. ANS:
TOP:
98. ANS:
TOP:
99. ANS:
TOP:
100. ANS:
TOP:
International trade and finance
A
PTS: 1
DIF: 2
Comparative advantage
MSC: Applicative
D
PTS: 1
DIF: 3
Absolute advantage | Comparative advantage
B
PTS: 1
DIF: 1
Comparative advantage | Trade
MSC: Interpretive
A
PTS: 1
DIF: 2
Opportunity cost | Comparative advantage
A
PTS: 1
DIF: 1
Trade | Comparative advantage
MSC: Interpretive
REF: 3-2
REF: 3-2
MSC: Applicative
REF: 3-2
REF: 3-2
MSC: Interpretive
REF: 3-3