Download Test bank Solutions for Economics 8th Edition William Boyes ISBN

1. Chapter 1—Economics: The World Around You Question MC #1
According to the text, over their lifetimes college-educated people earn
*a. nearly twice as much as people without college degrees.
b. nearly 10 times as much as people without college degrees.
c. more than people with limited college but less than those with
just a high school degree.
d. more than people with a high school degree but no more than
those with two years of college.
e. more than those without a college degree for the first ten
years of working, but after that the two are nearly the same.
2. Chapter 1—Economics: The World Around You Question MC #2
According to the text, the objective of economics is
*a. to understand why the real world is what it is.
b. to understand money.
c. to understand the stock market.
d. to understand scarcity.
e. to understand greed.
3. Chapter 1—Economics: The World Around You Question MC #3
According to the text, there are some fundamental regularities of human
behavior. One such regularity is
*a. that people behave in ways that make themselves happier.
b. that people behave in ways that make those around them
miserable.
c. that people care about others.
d. that people are fundamentally selfish.
e. that people are generous to a fault.
4. Chapter 1—Economics: The World Around You Question MC #4
According to the text, the divorce rate of high school graduates is
a. the same as that of college students.
b. one third lower than that of college students.
*c. twice as high as that of college students.
d. three times that of college students
e. half that of college students.
5. Chapter 1—Economics: The World Around You Question MC #5
In the United States, before the 2006-2009 stock market collapse, the
return on the money spent to earn a bachelor's degree is
a. 3 percent.
b. 5 percent.
c. 7 percent.
d. 10 percent.
*e. 12 percent.
6. Chapter 1—Economics: The World Around You Question MC #6
Earning a bachelor's degree in economics is good preparation for a
career in
a. business.
b. banking.
c. education.
d. the non-profit sector.
*e. all of these areas, and more.
7. Chapter 1—Economics: The World Around You Question MC #7
Even though the public often hears of economists' disagreements,
economists agree on a wide variety of topics. Particularly, economists
tend to agree on
a. the role of fiscal policy in the economy.
b. the role of monetary policy in the economy.
c. the best method of providing health care in the United States.
*d. the logic of economics.
e. the latest verdict in the Microsoft anti-trust trial.
8. Chapter 1—Economics: The World Around You Question MC #8
Which of the following statements is true?
a. One definition of economics provided in the text is that
economics is the study of unintended consequences.
b. Although there is wide agreement concerning the logic of
economics, economists often disagree about the results of that
logic.
c. In studying the world, economists recognize that every action
has costs.
d. If the United States spends more on war, it must give up some
domestic spending.
*e. All of these choices.
9. Chapter 1—Economics: The World Around You Question MC #9
Which of the following issues was of most concern in the 2008 campaign
for the US Presidency?
a. Health care.
b. National security.
*c. Economics.
d. Foreign policy.
e. Religion.
10. Chapter 1—Economics: The World Around You Question MC #10
By the statement "people have unlimited wants," the author of the text
means
*a. people always want more goods and services than they have or
can purchase with their incomes.
b. people always have a desire to have more money.
c. people always strive to be the best they can be.
d. people always give 110 percent.
e. None of these; the text actually refers to needs, not wants.
11. Chapter 1—Economics: The World Around You Question MC #11
Scarcity
a. ensures that people become satisfied with less than they want.
b. exists only during a recession.
c. exists only in some countries.
d. affects only poor people.
*e. requires people to make choices.
12. Chapter 1—Economics: The World Around You Question MC #12
Which of the following statements is true?
a. Goods are scarcer for the poor than for the rich.
b. Goods are scarce neither for the poor nor for the rich.
*c. Goods are scarce for both the poor and the rich.
d. Goods are scarce for the poor but not for the rich.
e. Goods are scarce for the rich but not for the poor.
13. Chapter 1—Economics: The World Around You Question MC #13
An economic bad is
a. an item that cannot command a price.
b. a faulty product.
*c. an item people would pay to have less of.
d. an item that commands a very high price.
e. high unemployment.
14. Chapter 1—Economics: The World Around You Question MC #14
Economics is
*a. concerned with the problem of scarce resources combined with
unlimited wants.
b. the study of how to make money in the stock market.
c. highly theoretical and has little practical application.
d. primarily concerned with day-to-day business decision making.
e. a decision-making process involving individuals and firms
rather than governments.
15. Chapter 1—Economics: The World Around You Question MC #15
To say that something is scarce means that
a. it is no longer available in stores.
b. it must be conserved at any cost.
c. even the government cannot supply it.
d. sufficient amounts of it are available only at full employment
and inflated prices.
*e. not enough of it is available to satisfy people's wants at a
zero price.
16. Chapter 1—Economics: The World Around You Question MC #16
A positive (nonzero) price for a good means
*a. the good is scarce.
b. there is a shortage.
c. the good is in surplus.
d. only the wealthy will purchase the good.
e. there is enough of the good to satisfy people's wants.
17. Chapter 1—Economics: The World Around You Question MC #17
A free good is a good that
a. people do not need.
b. people do not want.
c. is of poor quality.
*d. is not scarce.
e. is inherited.
18. Chapter 1—Economics: The World Around You Question MC #18
The basic economic problem is
a. inflation.
b. unemployment.
c. poverty.
*d. scarcity.
e. lack of money.
19. Chapter 1—Economics: The World Around You Question MC #19
The Economic Insight in the text referred to "free" air. What was the
point of the insight?
a. Air is a free good.
b. There is no scarcity of air.
c. Air is unlimited.
*d. Quality, breathable air is not free.
e. There is a cost to air.
20. Chapter 1—Economics: The World Around You Question MC #20
When some goods are used to produce other goods, those goods that are
used in the production process are called
a. money.
b. economic bads.
c. unskilled workers.
*d. factors of production.
e. capital rents.
21. Chapter 1—Economics: The World Around You Question MC #21
In economics, which of the following is not considered capital?
a. Offices and warehouses
*b. Stocks and bonds
c. Machinery
d. Factories
e. Equipment
22. Chapter 1—Economics: The World Around You Question MC #22
Economists refer to financial capital and physical capital. Financial
capital is
*a. the money used to purchase physical capital.
b. the assets that are backed by stocks and bonds.
c. the accounting value of physical capital not paid for by debt.
d. the economic value of physical capital not paid for by debt.
e. the same as net income.
23. Chapter 1—Economics: The World Around You Question MC #23
An economy's resources
*a. are limited in quantity.
b. are always efficiently utilized.
c. consist of land, labor, capital, and money.
d. are unrelated to its standard of living.
e. are unlimited when we use the latest technology.
24. Chapter 1—Economics: The World Around You Question MC #24
Each of the following is a factor of production except
a. entrepreneurial ability.
b. a farmer.
c. water.
*d. the government.
e. machinery in a factory.
25. Chapter 1—Economics: The World Around You Question MC #25
For the use of their resources, owners of capital receive
a. profit.
*b. interest.
c. wages.
d. rent.
e. gifts.
26. Chapter 1—Economics: The World Around You Question MC #26
For the use of their resources, owners of labor receive
a. profit.
b. interest.
*c. wages.
d. rent.
e. gifts.
27. Chapter 1—Economics: The World Around You Question MC #27
Labor resources (input) include
a. skilled workers, but not unskilled workers.
b. unskilled workers, but not skilled workers.
c. robots.
*d. education and training of workers.
e. coffee breaks.
28. Chapter 1—Economics: The World Around You Question MC #28
A skilled worker is an example of
a. scarcity.
b. entrepreneurial ability.
*c. labor resources.
d. capital resources.
e. both labor and capital resources.
29. Chapter 1—Economics: The World Around You Question MC #29
The hardware and software used to design and maintain a webpage for a
business are examples of
*a. capital.
b. scarcity.
c. enterprise.
d. entrepreneurial ability.
e. output.
30. Chapter 1—Economics: The World Around You Question MC #30
Choices must be made because of unlimited
a. resources.
b. income.
*c. wants.
d. time.
e. availability of goods.
31. Chapter 1—Economics: The World Around You Question MC #31
According to the text, which of the following is not true?
a. People do not have everything they want.
b. People do not have the time to do everything they want.
c. People do not have the money to purchase everything they want.
d. When people choose one good they must give up other things.
*e. People do not have to make choices if they don't want to.
32. Chapter 1—Economics: The World Around You Question MC #32
According to the text, rational self-interest
*a. is the term economists use to describe how people make
choices.
b. means that people have perfect information about choices.
c. means that people try to make themselves better off only when
the cost of doing so is small.
d. means that people are never fooled by crafty marketing.
e. means that people never act foolishly in the eyes of others.
33. Chapter 1—Economics: The World Around You Question MC #33
When people make choices that, at the time and with the information they
have at their disposal, will give them the greatest amount of
satisfaction, they are said to be
a. behaving irrationally.
b. applying econometric models to their everyday behavior.
c. living under a communist dictator.
*d. acting in their own rational self-interest.
e. showing no willingness to plan for the future.
34. Chapter 1—Economics: The World Around You Question MC #34
Rational behavior in economics assumes that individuals
*a. are motivated by self-interest.
b. do not make mistakes.
c. are selfish and will not help others.
d. will always buy the least expensive items when faced with
various choices.
e. do not make value judgments.
35. Chapter 1—Economics: The World Around You Question MC #35
Rational self-interest implies that
a. individuals are selfish.
b. individuals have studied economics.
c. all other variables are held constant.
d. individuals consider themselves better off when they take
actions that make others worse off.
*e. individuals make choices that provide them with the greatest
satisfaction.
36. Chapter 1—Economics: The World Around You Question MC #36
A person who chooses not to wear a seat belt when driving an automobile
a. should be put in prison.
*b. is exercising rational self-interest by choosing the option
that gives him or her the greatest satisfaction.
c. has a death wish.
d. should not be allowed to drive a car.
e. cannot possibly be exercising rational self-interest.
37. Chapter 1—Economics: The World Around You Question MC #37
Mother Teresa, a nun who lived in the bowels of poverty to aid the poor
and downtrodden,
a. did not have a selfish bone in her body.
b. was never self-interested.
*c. was always self-interested.
d. was never rationally self-interested.
e. was an exception to the economic view of humans.
38. Chapter 1—Economics: The World Around You Question MC #38
People who choose to do voluntary work
a. are not acting with rational self-interest.
*b. find it more satisfying than the alternatives.
c. are not concerned with their own satisfaction.
d. never look at the alternative options.
e. are beyond the scope of economics.
39. Chapter 1—Economics: The World Around You Question MC #39
The object of the "economic approach" or "economic thinking" is
a. to impose the value judgments of economists on the members of
society.
b. to quantify economic variables
c. to prove that low rates of unemployment are more important to
society than low rates of inflation.
d. to impose the political opinions of economists on influential
government officials.
*e. to use the principles of scarcity and rational self-interest
in a specific way to search out answers to questions about the
real world.
40. Chapter 1—Economics: The World Around You Question MC #40
The category of economics that contains statements about "what ought to
be" is known as
a. macroeconomics.
*b. normative economics.
c. objective economics.
d. microeconomics.
e. positive economics.
41. Chapter 1—Economics: The World Around You Question MC #41
Positive economics
a. always gives an optimistic outlook for the economy.
b. produces the best economic policies.
*c. deals with what it is.
d. deals with what ought to be.
e. is concerned with how people should behave.
42. Chapter 1—Economics: The World Around You Question MC #42
Which of the following is a positive statement?
a. Tariffs should be imposed on imported cars to increase domestic
employment.
b. Tariffs should be imposed on imported cars to put pressure on
other countries to open their markets to foreign competition.
*c. Unemployment in the United States falls when people purchase
domestically produced cars.
d. People should purchase U.S. cars if they wish to help the
economy.
e. Congress should protect the U.S. automobile industry from
foreign competition.
43. Chapter 1—Economics: The World Around You Question MC #43
A normative statement
a. concerns what is.
b. is always accurate.
*c. deals with values and opinions.
d. cannot be tested in the real world.
e. may also be objective.
44. Chapter 1—Economics: The World Around You Question MC #44
When a presidential candidate with a Ph.D. in economics makes a
statement about what should be done to balance the budget, he or she is
making a
*a. normative statement.
b. positive statement.
c. microeconomic statement.
d. statement of fact.
e. statement that is objective.
45. Chapter 1—Economics: The World Around You Question MC #45
"Inflation is a more serious problem than education." This statement is
an example of
a. microeconomics.
b. macroeconomics.
c. the fallacy of composition.
d. a positive statement.
*e. a normative statement.
46. Chapter 1—Economics: The World Around You Question MC #46
What problem is associated with assuming that what is appropriate for an
individual is appropriate for the economy?
a. Normative analysis
b. Interpretation of association as causation
c. Rational self-interest
*d. The fallacy of composition
e. Hypothesis testing
47. Chapter 1—Economics: The World Around You Question MC #47
"Since a household cannot afford to keep adding indefinitely to its
debt, a country cannot afford to do so either." This statement is an
example of
a. interpretation of association as causation.
b. ceteris paribus ("everything else held constant") analysis.
c. rational behavior.
*d. the fallacy of composition.
e. marginal analysis.
48. Chapter 1—Economics: The World Around You Question MC #48
"If a tax cut is good for me, it must be good for the whole economy."
This statement is an example of the pitfall called
a. the scientific method.
b. rational self-interest.
*c. the fallacy of composition.
d. interpretation of association as causation.
e. ceteris paribus.
49. Chapter 1—Economics: The World Around You Question MC #49
If a driver is able to avoid a traffic jam on the freeway by taking a
side street, that person is made better off. However, if we had assumed
everybody would be better off by taking the side street, which of the
following would be involved?
*a. The fallacy of composition
b. The scientific method
c. Ceteris paribus
d. Interpretation of association as causation
e. Normative analysis
50. Chapter 1—Economics: The World Around You Question MC #50
If unemployment rises when beer consumption rises, then the statement
"Rising unemployment is the result of increased beer consumption"
a. is an example of the fallacy of composition.
*b. is an example of the interpretation of association as
causation.
c. describes rational behavior.
d. describes marginal analysis.
e. describes a negative relationship.
51. Chapter 1—Economics: The World Around You Question MC #51
This past year, whenever you wore your college's colors, the football
team won. During the last two weeks you continued to wear the college
colors and bet a lot of money on your team, but your college's football
team lost both games. Your mistaken belief is a result of
a. the fallacy of composition.
b. ceteris paribus ("everything else held constant").
*c. the interpretation of association as causation.
d. the scientific method.
e. positive analysis.
52. Chapter 1—Economics: The World Around You Question MC #52
According to Super Bowl theorem, when NFC team won Super Bowl stock
market went up and when AFC team Super Bowl stock market went down. This
year if NFC team wins Super Bowl, you should buy stocks."
a. is an example of the fallacy of composition.
*b. is an example of the interpretation of association as
causation.
c. describes rational behavior.
d. describes marginal analysis.
e. describes a negative relationship.
53. Chapter 1—Economics: The World Around You Question MC #53
Macroeconomics is concerned with
a. normative issues.
b. individual entities such as firms and households.
c. the New England economy.
d. what ought to be rather than what is.
*e. the unemployment rate in the economy.
54. Chapter 1—Economics: The World Around You Question MC #54
According to the text, the study of economics is usually separated into
two general areas. These areas are
a. microeconomics and labor economics.
b. monetary policy and macroeconomics.
c. human behavior and scarcity.
*d. microeconomics and macroeconomics.
e. the firm and the consumer.
55. Chapter 1—Economics: The World Around You Question MC #55
Which of the following is a microeconomic concern?
a. Choices made by all consumers
b. The rate of unemployment in the country
*c. The individual firm's pricing decision.
d. The inflation rate in the country.
e. The trade deficit in the country.
56. Chapter 1—Economics: The World Around You Question MC #56
Which of the following is more of a microeconomic concept than a
macroeconomic concept?
a. The rate of economic growth
b. How the composition of output is determined in an economy
c. Concern over an entire economy's balance of payments
d. Concern over simultaneous high rates of inflation and of
unemployment
*e. Price determination in the resource market
57. Chapter 1—Economics: The World Around You Question MC #57
Macroeconomics is primarily concerned with
*a. aggregate economic activity.
b. unemployment in a particular firm or industry caused by
mechanization and automation.
c. how individual decision makers behave.
d. how to produce a particular good.
e. what goods a nation should produce in the world economy.
58. Chapter 1—Economics: The World Around You Question MC #58
Which of the following is a microeconomic concern?
a. How the Federal reserve conducts monetary policy during
recession.
b. The rate of unemployment in the country
c. The measure the banking industry uses to turn around.
d. The inflation rate the US faces.
*e. How an individual consumer responds the economic recession.
59. Chapter 1—Economics: The World Around You Question MC #59
According to the article in the text, the women comprised what percent
of college students in 2005?
a. 35 percent.
b. 40 percent.
c. 45 percent.
d. 50 percent.
*e. 55 percent.
60. Chapter 1—Economics: The World Around You Question MC #60
According to the article in the text, in the first year after
graduating, women on average working full-time make
a. the same as their male classmates.
b. 10 percent more than their male classmates.
c. 20 percent more than their male classmates.
d. 10 percent less than their male classmates.
*e. 20 percent less than their male classmates art history.
61. Chapter 1—Economics: The World Around You Question MC #61
According to the article, women make less than males because of
a. sex discrimination.
b. lower productivity
c. permission by the law.
*d. their development into candidates for the world of work with
15 percent less market value than men.
e. their less competitiveness.
62. Chapter 1—Economics: The World Around You Question MC #62
According to the article, the biggest choice a college student needs to
make is
*a. major.
b. friend.
c. party.
d. sport
e. all of these choices.
63. Chapter 1—Economics: The World Around You Question MC #63
According to the article, which college degree has highest cost?
a. History.
b. Liberal art study.
*c. Engineering.
d. Education.
e. Mathematics.
64. Chapter 1—Economics: The World Around You Question TF #1
According to the text, today only about 20 percent of l Americans aged
25 and older hold a college degree.
a. True
*b. False
65. Chapter 1—Economics: The World Around You Question TF #2
On average, college-educated workers in the United States earn 10 times
as much lifetime income as those without a college degree.
a. True
*b. False
66. Chapter 1—Economics: The World Around You Question TF #3
In the long run before 2006-2009 stock market collapse, money invested
in the stock market yields a higher return than a college education.
a. True
*b. False
67. Chapter 1—Economics: The World Around You Question TF #4
The difference in earnings between those with a medical degree and those
with a high school diploma is about $3.2 million, according to the U.S.
Census Bureau.
*a. True
b. False
68. Chapter 1—Economics: The World Around You Question TF #5
Economics ranks among the lowest-paid fields in the social sciences.
a. True
*b. False
69. Chapter 1—Economics: The World Around You Question TF #6
A bachelor's degree in economics is not limited in that it prepares one
only for a career in business.
*a. True
b. False
70. Chapter 1—Economics: The World Around You Question TF #7
Economics is useful because it contains a logic that helps to solve many
complex problems faced by society.
*a. True
b. False
71. Chapter 1—Economics: The World Around You Question TF #8
Economists are famous for their ability to agree with each other, both
in the logic of their approach to the subject and in their remedies to
specific social problems.
a. True
*b. False
72. Chapter 1—Economics: The World Around You Question TF #9
Economics can be defined as the study of intended consequences.
a. True
*b. False
73. Chapter 1—Economics: The World Around You Question TF #10
If scarcity does not exist we still need to study economics.
a. True
*b. False
74. Chapter 1—Economics: The World Around You Question TF #11
Scarcity is the result of an unfair distribution of income.
a. True
*b. False
75. Chapter 1—Economics: The World Around You Question TF #12
Economics is the study of the allocation of scarce resources and scarce
time, and of the ways in which people utilize those resources or that
time.
*a. True
b. False
76. Chapter 1—Economics: The World Around You Question TF #13
Bill Gates is the richest person in the world, so he does not have to
make choices.
a. True
*b. False
77. Chapter 1—Economics: The World Around You Question TF #14
The factors of production are ingredients used to produce inputs.
a. True
*b. False
78. Chapter 1—Economics: The World Around You Question TF #15
In economics the money you have is capital.
a. True
*b. False
79. Chapter 1—Economics: The World Around You Question TF #16
Labor (input) includes skilled workers, but not unskilled workers.
a. True
*b. False
80. Chapter 1—Economics: The World Around You Question TF #17
Choices must be made because of scarcity¾people do not have enough time
or money to get everything they want.
*a. True
b. False
81. Chapter 1—Economics: The World Around You Question TF #18
One can define economics as the study of how people choose to use their
scarce resources to attempt to satisfy their unlimited wants.
*a. True
b. False
82. Chapter 1—Economics: The World Around You Question TF #19
People make a choice in order to avoid scarcity problem.
a. True
*b. False
83. Chapter 1—Economics: The World Around You Question TF #20
When an individual is behaving according to "rational self-interest," he
or she is behaving out of greed.
a. True
*b. False
84. Chapter 1—Economics: The World Around You Question TF #21
A rational consumer always has perfect information.
a. True
*b. False
85. Chapter 1—Economics: The World Around You Question TF #22
A rational businessperson is concerned with his or her self-interest.
*a. True
b. False
86. Chapter 1—Economics: The World Around You Question TF #23
Rational self-interest is the same as selfishness.
a. True
*b. False
87. Chapter 1—Economics: The World Around You Question TF #24
Whether to have more or less government involvement in the overall
economy is essentially a political issue, and therefore, the techniques
of economic analysis are not applicable.
a. True
*b. False
88. Chapter 1—Economics: The World Around You Question TF #25
Positive economics is the study of how people and institutions should
behave.
a. True
*b. False
89. Chapter 1—Economics: The World Around You Question TF #26
"The government should tax health benefit to reduce budget deficit."
This is a positive statement.
a. True
*b. False
90. Chapter 1—Economics: The World Around You Question TF #27
"If a tax cut is good for me, it must be good for the whole economy."
This statement is an example of the pitfall called the interpretation of
association as causation.
a. True
*b. False
91. Chapter 1—Economics: The World Around You Question TF #28
This past year, whenever you wore your college's colors, the football
team won. During the last two weeks you continued to wear the college
colors and bet a lot of money on your team, but your college's football
team lost both games. Your mistaken belief is a result of the
interpretation of association as causation.
*a. True
b. False
92. Chapter 1—Economics: The World Around You Question TF #29
The fallacy of composition and the fallacy of ceteris paribus are two
commonly made errors in economic analysis.
a. True
*b. False
93. Chapter 1—Economics: The World Around You Question TF #30
You leave concert ten minutes before it ends you may avoid traffic jam.
If all audience act you do they also may avoid traffic jam. Your
mistaken belief is a result of the fallacy of composition.
*a. True
b. False
94. Chapter 1—Economics: The World Around You Question TF #31
Microeconomics is concerned primarily with the overall functioning of a
single economic system.
a. True
*b. False
95. Chapter 1—Economics: The World Around You Question TF #32
Macroeconomics is concerned primarily with aggregate sectors of the
economy, such as the consumer sector or the business sector.
*a. True
b. False
96. Chapter 1—Economics: The World Around You Question TF #33
Both microeconomic and macroeconomic theories deal with individual
entities in an economy.
a. True
*b. False
97. Chapter 1—Economics: The World Around You Question TF #34
According to the article in the text, on average, art education majors
have a higher pay after graduation than do engineering majors.
a. True
*b. False
98. Chapter 1—Economics: The World Around You Question TF #35
According to the article in the text, the main reason that women workers
make less than male workers is sex discrimination.
a. True
*b. False
99. Chapter 1—Economics: The World Around You Question TF #36
According to the article in the text, the most competitive workers the
women workers face are single and childless.
*a. True
b. False
100. Chapter 1—Economics: The World Around You Question TF #37
According to the article in the text, 25 percent more men than women go
to "highly selective" schools.
*a. True
b. False
101. Chapter 1—Economics: The World Around You Question TF #38
According to the article in the text, women are more willing to take
higher risks that often accompany higher-paying jobs.
a. True
*b. False
102. Chapter 1 Appendix—Working with Graphs Question MC #1
Which type of graph is most frequently used to explain economic
concepts?
*a. A line graph
b. A bar graph
c. A pie chart
d. Graphs with positive relationships
e. Graphs with negative relationships
103. Chapter 1 Appendix—Working with Graphs Question MC #2
A pie chart is less useful for explaining economic concepts than a line
graph or a bar graph because it
a. is more difficult to read.
b. is time-consuming to draw.
*c. does not show the relationship between variables.
d. shows the relationship between too many variables.
e. is merely a picture of a relationship between variables.
104. Chapter 1 Appendix—Working with Graphs Question MC #3
In a relationship between variables, the value of the dependent variable
is determined
a. before the value of the independent variable is determined.
*b. after the value of the independent variable is determined.
c. without regard to the value of the independent variable.
d. both before and after the value of the independent variable is
determined.
e. at the same time as the value of the independent variable is
determined.
105. Chapter 1 Appendix—Working with Graphs Question MC #4
If there is a strong inverse relationship between two variables, it can
safely be said that
a. as the value of the independent variable increases, the value
of the dependent variable also increases.
*b. as the value of the independent variable increases, the value
of the dependent variable decreases.
c. there is no relationship between the variables.
d. the value of one variable can change and it will have no affect
whatsoever on the value of the other variable.
e. the time value of money is not dependent on interest rates.
106. Chapter 1 Appendix—Working with Graphs Question MC #5
The text notes that people with a college degree earn more income than
people without a college degree. In this situation,
*a. the college degree is the independent variable, and income is
the dependent variable.
b. the college degree is the dependent variable, and income is the
independent variable.
c. the independent variable is the people without a college
degree, and the dependent variable the people with a college
degree.
d. the dependent variable is the people without a college degree,
and the independent variable the people with a college degree
e. there is no independent variable.
107. Chapter 1 Appendix—Working with Graphs Question MC #6
A direct relationship is one for which
a. there is no slope to the curve showing the relationship between
variables.
b. there is no dependent variable.
c. there is no independent variable.
*d. the dependent and independent variables change in the same
direction.
e. the dependent and independent variables change in opposite
directions.
108. Chapter 1 Appendix—Working with Graphs Question MC #7
Which of the following best illustrates a direct positive relationship
between two variables?
a. The price of gasoline increases 10 cents per gallon, and the
quantity of gasoline consumed falls by 5 percent.
b. Your boss gives you a large bonus, and the price of a hot lunch
in the cafeteria doubles.
*c. The price of automobiles increases, and manufacturers of
automobiles increase their production of automobiles.
d. A heavy rainstorm drenches the coast of California, and the
price of imported Italian shoes is cut in half.
e. The Green Bay Packers win the Super Bowl, and the stock market
moves down 200 points.
109. Chapter 1 Appendix—Working with Graphs Question MC #8
If the number of personal computers purchased depends on the price, and
it is known that as the price of computers falls, the number of
computers purchased increases, it can be said that
*a. the number of personal computers purchased is the dependent
variable.
b. the number of personal computers purchased is the independent
variable.
c. both variables are independent.
d. both variables are dependent.
e. the slope of the line could be either positive or negative.
110. Chapter 1 Appendix—Working with Graphs Question MC #9
A relationship in which the value of the dependent variable increases as
the value of the independent variable decreases is
a. a positive relationship.
b. a direct relationship.
c. a ceteris paribus relationship.
*d. an inverse relationship.
e. a constant relationship.
111. Chapter 1 Appendix—Working with Graphs Question MC #10
Figure A1-1
nar001-1.jpg
The inverse relationship of two variables, X and Y, is shown in which
graph of Figure A1-1?
*a. A
b. C
c. D
d. B
e. None of these
112. Chapter 1 Appendix—Working with Graphs Question MC #11
Figure A1-1
nar001-1.jpg
The positive relationship of two variables, X and Y, is shown in which
graph of Figure A1-1?
*a. B
b. D
c. C
d. A
e. None of these
113. Chapter 1 Appendix—Working with Graphs Question MC #12
Figure A1-1
nar001-1.jpg
Refer to Figure A1-1. The graph shown in (C) indicates the relationship
of two variables, X and Y, is
a. positive.
b. negative.
c. that Y value is constant when X value changes.
*d. that X value is constant when Y value changes.
e. all of these choices.
114. Chapter 1 Appendix—Working with Graphs Question MC #13
Figure A1-2
nar002-1.jpg
The curve in Figure A1-2 represents a(n)
a. slope that is not constant.
b. negative slope.
c. inverse relationship.
d. positive slope.
*e. slope that is not constant and is positive.
115. Chapter 1 Appendix—Working with Graphs Question MC #14
Figure A1-2
nar002-1.jpg
The curve in Figure A1-2 is characterized by
a. negative slope with decreasing absolute value.
b. negative slope with increasing absolute value.
c. uniform slope.
*d. positive slope with decreasing absolute value.
e. positive slope with increasing absolute value.
116. Chapter 1 Appendix—Working with Graphs Question MC #15
Figure A1-2
nar002-1.jpg
The size of the change in the variable on the vertical axis that is
associated with a change in the variable on the horizontal axis is
a. a positive relationship.
b. an inverse relationship.
*c. the slope.
d. a direct relationship.
e. always constant.
117. Chapter 1 Appendix—Working with Graphs Question MC #16
Figure A1-3
nar003-1.jpg
Which of the following statements about Figure A1-3 is true?
a. The slope is constant everywhere along the curve.
b. Y is increasing at a decreasing rate.
c. The slope cannot be calculated because the curve is not a
straight line.
d. The slope is calculated by dividing the independent variable by
the dependent variable.
*e. The slope is nonconstant.
118. Chapter 1 Appendix—Working with Graphs Question MC #17
Figure A1-4
nar004-1.jpg
According to Figure A1-4, the slope of the line on the left is ____ and
the slope of the line on the right is ____.
*a. -1; -1
b. 1; 1
c. -2; -1
d. 2; 1
e. -4; -1
119. Chapter 1 Appendix—Working with Graphs Question MC #18
Figure A1-4
nar004-1.jpg
According to Figure A1-4, the shift from the left line to the right line
could have been the result of
a. a change in the price per PC.
b. a change in either the price per PC or the number of PCs
purchased.
*c. a change in a variable related to the price per PC and to the
number of PCs purchased but not shown on the graph.
d. a change in a variable unrelated to the price per PC and to the
number of PCs purchased but not shown on the graph.
e. a change in the slope.
120. Chapter 1 Appendix—Working with Graphs Question MC #19
Consider the equation of a straight line, Y = a + bX. Which of the
following statements is true?
a. X is the
b. Y is the
c. a is the
d. b is the
*e. If b is
121. Chapter 1
An increase in
Thus, at every
could be shown
dependent variable.
independent variable.
slope.
intercept.
negative, the line slopes downward.
Appendix—Working with Graphs Question MC #20
income would enable more people to purchase computers.
price more computers would be purchased. This effect
in a graph by
a. an outward shift in the demand curve for higher incomes.
*b. an outward shift in the demand curve for computers.
c. an inward shift in the demand curve for computers.
d. The effect cannot be shown in a graph.
e. A shift in the demand curve is impossible.
122. Chapter 1 Appendix—Working with Graphs Question MC #21
Which of the following statements is true?
a. The general equation of a straight line has the form Y = a + b
+ x.
b. The general equation of a straight line has the form Y = axbxX.
*c. The general equation of a straight line has the form Y = a +
bX, where Y is the dependent variable, X is the independent
variable, a defines the intercept, and b is the slope.
d. The general equation of a straight line has the form Y = a +
bX, where Y is the dependent variable, X is the independent
variable, a defines the intercept, and b is always negative.
e. Graphs and equations can never be used to illustrate the same
topics.
123. Chapter 1 Appendix—Working with Graphs Question MC #22
A relationship showing that income is positively related to consumption
can be described by a curve that
a. slopes upward.
b. is vertical.
c. is horizontal.
d. has a negative slope.
*e. has a positive slope.
124. Chapter 1 Appendix—Working with Graphs Question TF #1
If a line has a negative slope, the relationship between the independent
and dependent variables is inverse.
*a. True
b. False
125. Chapter 1 Appendix—Working with Graphs Question TF #2
We do not see pie charts in economics as often as line graphs or bar
graphs, because pie charts do not show the relationship between
variables.
*a. True
b. False
126. Chapter 1 Appendix—Working with Graphs Question TF #3
If the number of shirts that you buy is determined by how much each
shirt costs, then the price of a shirt is the dependent variable and the
number of shirts purchased is the independent variable.
a. True
*b. False
127. Chapter 1 Appendix—Working with Graphs Question TF #4
An inverse relationship can be illustrated by the relationship between
the number of birds a family cat eats and the number of birds in the
yard, ceteris paribus ("all else held constant").
*a. True
b. False
128. Chapter 1 Appendix—Working with Graphs Question TF #5
A positively sloped line, curve, or function on a graph with X on the
horizontal axis and Y on the vertical axis indicates an inverse
relationship between variable X and variable Y.
a. True
*b. False
129. Chapter 1 Appendix—Working with Graphs Question TF #6
The equation of a straight line has the general form Y = a + bX, where Y
is the independent variable and X is the dependent variable.
a. True
*b. False
130. Chapter 1 Appendix—Working with Graphs Question TF #7
The relationship between sales of cold sodas and the temperature is
negative.
a. True
*b. False
131. Chapter 1 Appendix—Working with Graphs Question TF #8
Three types of graphs commonly used in economics are the line graph, the
bar graph, and the pie chart.
*a. True
b. False
132. Chapter 1 Appendix—Working with Graphs Question TF #9
The slope of a curve is the change in the variable measured on the
horizontal axis that corresponds to a change in the variable measured on
the vertical axis.
a. True
*b. False
133. Chapter 1 Appendix—Working with Graphs Question TF #10
Suppose the value of one variable rises while the value of another
variable rises, then the slope of the relationship between the two
variables must be between negative one and zero.
a. True
*b. False
134. Chapter 1 Study Guide—Economics: The World Around You Question M
Which of the following occupations does a bachelor's degree in economics
prepare you for?
*a. business
b. switchboard operation
c. journalism
d. international relations
e. all of these choices
135. Chapter 1 Study Guide—Economics: The World Around You Question 2
Microeconomics includes the study of
*a. how an individual firm decides the price of its product.
b. inflation in the United States.
c. how much output will be produced in the U.S. economy.
d. how many workers will be unemployed in the U.S. economy.
e. how the U.S. banking system works.
136. Chapter 1 Study Guide—Economics: The World Around You Question 3
Which of the following is part of macroeconomics rather than
microeconomics?
a. calculating the costs of producing automobiles
b. determining how consumers choose how many apples to buy
*c. measuring the unemployment rate
d. determining whether a market is a monopoly
e. measuring how makers of computer chips react to price changes
137. Chapter 1 Study Guide—Economics: The World Around You Question 4
If an individual decides to save more, he or she can save more.
Therefore, if the society as a whole decides to save more, it will be
able to save more. This mistaken reasoning is an example of
a. ceteris paribus.
*b. the fallacy of composition.
c. the interpretation of association as causation.
d. the scientific method.
e. irrational behavior.
138. Chapter 1 Study Guide—Economics: The World Around You Question 5
Tim has noticed that every time he washes his car in the morning, it
rains that afternoon. He has therefore decided to sell his services to
farmers in drought-stricken areas, since he believes he can cause it to
rain by washing his car. Tim's error is called
a. ceteris paribus.
b. the fallacy of composition.
*c. the interpretation of association as causation.
d. the scientific method.
e. selfish behavior.
139. Chapter 1 Study Guide—Economics: The World Around You Question 6
Which of the following is a normative statement?
a. Lower interest rates encourage people to borrow.
b. Higher prices for cigarettes discourage people from buying
cigarettes.
c. If the price of eggs fell, people would probably buy more eggs.
*d. There should be a higher tax on cigarettes, alcohol, and other
"sin" items to discourage people from buying these products.
e. A higher interest rate encourages people to save more.
140. Chapter 1 Study Guide—Economics: The World Around You Question 7
If an item is scarce,
a. it is not an economic good.
b. at a zero price the amount of the item that people want is less
than the amount that is available.
*c. there is not enough of the item to satisfy everyone who wants
it.
d. there is enough to satisfy wants even at a zero price.
e. it must be a resource as opposed to an input.
141. Chapter 1 Study Guide—Economics: The World Around You Question E
What are the two common mistakes in economics? Give a brief description
of each.
Correct Answer:
Fallacy of composition, association as causation
142. Chapter 1 Study Guide—Economics: The World Around You Question 8
Use economics to explain why people smoke even they know smoking is not
good to their health.
Correct Answer:
Rational self-interest
143. Chapter 1 Study Guide—Economics: The World Around You Question 9
Use economics to explain why you may make thirty plus thousand dollars a
year when you graduate and Tiger Woods can make tens of million dollars.
Correct Answer:
Demand and supply.
144. Chapter 2—Choice, Opportunity Costs, and Specialization Question
What do economists mean when they refer to the forgone opportunities or
forgone benefits of the next-best alternative?
a. The idea that you can watch TV while studying for your
economics exam at the same time
b. Quantifiable accounting costs
c. Forgone costs
*d. The highest-valued alternative that must be forgone when a
choice is made
e. All of these choices
145. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 2
In economics, the cost of any item or activity always includes
a. only the actual amount of money expended.
*b. the opportunity cost incurred in purchasing the item or
activity.
c. the amount of money expended plus the rate of inflation.
d. the sum total of the actual costs involved in the production of
the item or activity.
e. the accounting costs plus the rate of inflation.
146. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 3
Which of the following is the best definition of the concept of a
tradeoff, as discussed in the text?
a. The tuition you pay to attend college
b. The price of a movie ticket at prime time
c. Not having enough information available to make a rational
decision
*d. Giving up one good or activity in order to obtain some other
good or activity
e. Having your cake and eating it too
147. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 4
Which statement concerning opportunity costs is not true?
*a. Opportunity costs can always be expressed in money terms.
b. Every choice involves opportunity costs.
c. Opportunity costs are the highest-valued alternatives that must
be forgone when a choice is made.
d. The full cost of an activity includes the opportunity costs.
e. Economists refer to the forgone benefits of the next-best
alternative as opportunity costs.
148. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 5
A production possibilities curve shows that more of one type of good can
be produced only by
a. increasing the quantity of other types of goods that are
produced.
b. increasing the quantity of both types of goods that are
produced.
c. decreasing employment.
d. government intervention.
*e. decreasing the quantity of other types of goods that are
produced.
149. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 6
According to the textbook's discussion of the production possibilities
curve, a nation cannot produce as much of both defense goods and
nondefense goods as it wants. Thus, when a nation produces more defense
goods, by definition that nation
*a. must forgo the production of nondefense goods, ceteris
paribus.
b. does not have to forgo the production of nondefense goods since
resources are unlimited.
c. has to tolerate higher unemployment rates.
d. can produce more of both defense and nondefense goods only if
it can acquire more money.
e. must produce less of both defense and nondefense goods since
any nation's production possibilities curve represents only a
Utopian state.
150. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 7
Which economic concept is the closest parallel to the saying "There's no
free lunch"?
a. Specialization
b. Unlimited wants
c. Underutilization of resources
*d. Opportunity costs
e. Overutilization of resources
151. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 8
The city of Austin can buy roads or light rail. If 10 miles of roads
cost $1 million and 2 miles of light rail cost $10 million, what is the
city's opportunity cost of 1000 miles of roads?
*a. $100 million
b. 2 miles of light rail
c. 200 miles of light rail
d. $50 million
e. $1,000 million.
152. Chapter 2—Choice, Opportunity Costs, and Specialization Questi 9
Ronnie waits one hour in line to buy a ticket to a rock concert. The
opportunity cost of buying the $28 ticket
a. is Ronnie's best alternative use of the $28.
b. is Ronnie's best alternative use of the one hour it took to
wait in line.
c. is the value of the $28 to the ticket agent.
*d. is Ronnie's best alternative use of both the $28 and the one
hour spent in line.
e. cannot be measured because there is no opportunity cost
associated with consumption.
153. Chapter 2—Choice, Opportunity Costs, and Specialization Questi10
Which of the following examples best captures the definition of
opportunity cost?
a. Accepting payment for services rendered
*b. Going to the movies instead of studying for your economics
exam
c. Answering a question correctly on your economics exam
d. Scoring an eagle on the fifth hole during a golf tournament and
winning by one stroke
e. Leaving a 20 percent tip for great service at a fine restaurant
154. Chapter 2—Choice, Opportunity Costs, and Specialization Questi11
The opportunity cost of going to the movies is not always the same for
everyone because
a. wages are relatively equal across unskilled labor pools.
b. wages are different across geographic regions, and therefore
some people cannot afford the price of a movie ticket.
c. simply going to a movie involves no opportunity cost.
*d. people have different evaluations of alternatives.
e. people seldom have the information they need to understand what
an opportunity cost is.
155. Chapter 2—Choice, Opportunity Costs, and Specialization Questi12
When constructing a production possibility curve for an economy, we
assume which of the following is constant?
*a. The quantity of resources.
b. The government budget.
c. The quantity of goods produced.
d. The price level.
e. The money supply.
156. Chapter 2—Choice, Opportunity Costs, and Specialization Questi13
The total cost of attending college
a. includes only college-related expenses.
b. is the sum of the costs of tuition, books, and meals.
c. does not include other options that were sacrificed as a
consequence of the decision to attend college.
d. does not include the lost opportunity to travel.
*e. is the sum of college-related expenses and opportunity cost.
157. Chapter 2—Choice, Opportunity Costs, and Specialization Questi14
Nicky makes $25,000 a year as a sales clerk. He then decides to quit his
job to enter an MBA program full-time (assume Nicky doesn't work in the
summer or hold any part-time jobs). His tuition, books, living expenses,
and fees total $15,000 a year. Given this information, the annual total
cost of Nicky's MBA studies is
a. $10,000.
b. $25,000.
c. $15,000.
*d. $40,000.
e. $35,000.
158. Chapter 2—Choice, Opportunity Costs, and Specialization Questi15
Economists say that making choices involves comparing
a. just excess costs.
b. only capabilities.
c. society's wants.
d. marginal costs alone.
*e. marginal benefits and marginal costs.
159. Chapter 2—Choice, Opportunity Costs, and Specialization Questi16
Figure 2-1
nar001-1.jpg
The PPC in Figure 2-1 indicates a student who
a. is better at economics than English.
b. is better at English than economics.
*c. is equally proficient in economics and English.
d. prefers economics to English.
e. prefers English to economics.
160. Chapter 2—Choice, Opportunity Costs, and Specialization Questi17
The production possibilities curve illustrates
a. tradeoffs facing a society.
b. that more of one product can be produced if only a little more
of the other product is produced.
c. the maximum output that can be produced with a limited amount
of resources.
d. the opportunity cost of alternative choices.
*e. All of these choices.
161. Chapter 2—Choice, Opportunity Costs, and Specialization Questi18
A point lying outside a nation's production possibilities curve
*a. represents the use of more resources than are available.
b. represents the use of less resources than are available.
c. represents a state of high unemployment for that nation.
d. could easily be achieved if people would just work harder.
e. can never be achieved, even if more resources are obtained by
the nation.
162. Chapter 2—Choice, Opportunity Costs, and Specialization Questi19
Under what circumstances would a nation be operating inside its
production possibilities curve?
a. The nation has just realized a significant improvement in the
production process of a strategically important good.
b. The nation is suddenly employing a more highly skilled work
force.
*c. The nation is not utilizing its existing labor force
efficiently.
d. The nation is producing the maximum amount of output that it
can produce, given its limited resources.
e. The nation's capital stock doubles.
163. Chapter 2—Choice, Opportunity Costs, and Specialization Questi20
Figure 2-2
Production Possibilities Schedule
Choice
Capital (Investment) goods
A
0
B
1
C
2
D
3
E
4
Consumption Goods
10
9
7
4
0
According to the production possibilities schedule in Figure 2-2, if the
economy was initially producing combination B and then moved to
combination C,
a. the opportunity cost of the additional unit of capital goods is
7 units of consumption goods.
*b. the opportunity cost of the additional unit of capital goods
is 2 units of consumption goods.
c. the society has managed to produce more of both goods.
d. one unit of capital goods has to be forgone.
e. resources were not being used efficiently at combination C.
164. Chapter 2—Choice, Opportunity Costs, and Specialization Questi21
Figure 2-2
Production Possibilities Schedule
Choice
Capital (Investment) goods
A
0
B
1
C
2
D
3
E
4
Consumption Goods
10
9
7
4
0
According to the production possibilities schedule in Figure 2-2, a move
from choice C to choice D would
a. give rise to some unemployment.
b. be preferred by society.
*c. create a marginal opportunity cost of 3 units of consumption
goods.
d. be unobtainable.
e. not be tolerated by society.
165. Chapter 2—Choice, Opportunity Costs, and Specialization Questi22
When an economy is operating on its production possibilities curve, more
production of one good means less production of another because
*a. resources are limited.
b. resources are not perfectly adaptable to alternative uses.
c. wants are limited.
d. wants are unlimited.
e. some resources are not employed
166. Chapter 2—Choice, Opportunity Costs, and Specialization Questi23
It is possible for a nation to increase the production of defense goods
without sacrificing the production of nondefense goods if and only if
*a. the nation is producing at a point inside the production
possibilities curve.
b. the nation has a large pool of fully employed labor and very
low wage rates.
c. the nation has more natural resources available than competing
nations.
d. the nation is a democracy and has a stable political
environment.
e. the central bank of the nation does not implement sound
monetary policy.
167. Chapter 2—Choice, Opportunity Costs, and Specialization Questi24
Figure 2-3
nar003-1.jpg
In Figure 2-3, underutilization of resources is represented by point
a. A
b. B
c. C
d. D
*e. E
168. Chapter 2—Choice, Opportunity Costs, and Specialization Questi25
Figure 2-3
nar003-1.jpg
In Figure 2-3, full employment is shown with
*a. points A, B, and C.
b. point C.
c. point B.
d. point A.
e. None of these
169. Chapter 2—Choice, Opportunity Costs, and Specialization Questi26
A point lying outside the production possibilities curve of a certain
nation
a. angers politicians.
b. causes labor unrest.
*c. is not achievable at this time for this nation, given its
current resources.
d. is a sign of impending high unemployment.
e. means this nation has developed a new technology.
170. Chapter 2—Choice, Opportunity Costs, and Specialization Questi27
If a country is at a point inside the PPC, then
a. the people must be unhappy.
b. there are no technology advances.
*c. not all resources are being used efficiently and/or fully.
d. the country cannot produce more of one good with out giving up
some of another good.
e. the population is starving.
171. Chapter 2—Choice, Opportunity Costs, and Specialization Questi28
Figure 2-4
nar004-1.jpg
The production possibilities curve in Figure 2-4 shows that
a. an economy must have idle resources.
*b. there are alternative combinations of goods and services that
a nation can produce.
c. there are alternative minimum combinations of goods and
services that a nation can produce.
d. a nation can produce more of one product without sacrificing
some amount of another product.
e. resources are abundant if they are fully and efficiently used.
172. Chapter 2—Choice, Opportunity Costs, and Specialization Questi29
Figure 2-4
nar004-1.jpg
In Figure 2-4, movement from point H to point J along the PPC suggests
that
a. goods production will increase and services production will
decline.
*b. services production will increase and goods production will
decline.
c. goods production and services production will both decline.
d. goods production and services production will both increase.
e. the economy is experiencing unemployment.
173. Chapter 2—Choice, Opportunity Costs, and Specialization Questi30
Figure 2-4
nar004-1.jpg
Consider the PPC in Figure 2-4. Point K indicates
a. that the
b. that the
c. that the
d. that the
*e. a point
production of goods has expanded.
production of services has expanded.
production of goods has contracted.
production of services has contracted.
that is currently unattainable for this economy.
174. Chapter 2—Choice, Opportunity Costs, and Specialization Questi31
Figure 2-4
nar004-1.jpg
Refer to Figure 2-4. The economy described by the production
possibilities curve should operate at a combination represented by point
a. G.
b. H.
c. J.
d. K.
*e. Cannot be determined from the information given.
175. Chapter 2—Choice, Opportunity Costs, and Specialization Questi32
Figure 2-4
nar004-1.jpg
Consider the PPC in Figure 2-4. Point K is likely obtainable
a. if more workers unemployed.
b. if more money is available in the economy.
c. if economy chooses to consume more.
*d. workers have better education.
e. if economy imports more goods.
176. Chapter 2—Choice, Opportunity Costs, and Specialization Questi33
Which of the following is held constant when a PPC is constructed for
the economy?
a. The combination of goods produced
b. The price level
c. The marginal opportunity cost
*d. The amount of resources
e. The amount of goods produced
177. Chapter 2—Choice, Opportunity Costs, and Specialization Questi34
A point lying inside the PPC
a. illustrates resources being used to their fullest potential.
*b. indicates that resources are not being fully or efficiently
used.
c. is not an attainable combination.
d. represents an increase in resources.
e. requires more resources than are presently available.
178. Chapter 2—Choice, Opportunity Costs, and Specialization Questi35
Inefficient use of a nation's technological know-how would
a. shift a PPC outward.
b. be depicted as a point on a PPC.
c. be depicted as a point outside or above a PPC.
*d. be depicted as a point inside or below a PPC.
e. cause the economy's PPC to bow in.
179. Chapter 2—Choice, Opportunity Costs, and Specialization Questi36
Figure 2-5
nar005-1.jpg
An economy that produces only bread and petroleum jelly, operating on a
bowed-out PPC, now discovers a new source of oil. Assume oil is an input
only in the production of petroleum jelly. Which of the graphs in Figure
2-5 depicts the resulting shift of the PPC?
a. Figure A only
b. Figure B only
*c. Figure C only
d. Figures B and C are both possible
e. None of these
180. Chapter 2—Choice, Opportunity Costs, and Specialization Questi37
If a nation is producing at a point below its PPC, then
*a. it is operating at less than maximum efficiency.
b. it may not have enough resources.
c. it may not have enough technological know-how to produce on the
PPC.
d. it cannot increase the production of one product without
sacrificing another product.
e. it is not realizing its opportunity costs.
181. Chapter 2—Choice, Opportunity Costs, and Specialization Questi38
A point outside or above the PPC of a nation
a. will shift the PPC outward.
b. implies that this nation is not using all of its technological
know-how.
*c. is not attainable for this nation at the current time.
d. implies that there are unemployed resources in this nation.
e. implies that this nation is using its resources efficiently.
182. Chapter 2—Choice, Opportunity Costs, and Specialization Questi39
If a new labor-saving technology is discovered,
*a. points that were previously unattainable to society may now be
attainable.
b. the PPC remains unchanged.
c. the PPC shifts inward.
d. there is movement along the PPC.
e. society does not face a new set of tradeoffs.
183. Chapter 2—Choice, Opportunity Costs, and Specialization Questi40
An increase in technology will cause the production possibilities curve
to
a. shift to the left, or inward.
b. bow in.
*c. shift to the right, or outward.
d. become a straight line.
e. not change.
184. Chapter 2—Choice, Opportunity Costs, and Specialization Questi41
If a nation obtains more resources, points that were outside the
production possibilities curve prior to its gaining more resources
become
a. obsolete.
b. irrelevant.
*c. attainable.
d. extraneous.
e. harmful.
185. Chapter 2—Choice, Opportunity Costs, and Specialization Questi42
Which of the following will not cause a rightward shift in a nation's
production possibilities curve?
a.
b.
c.
d.
An increase
Advances in
An increase
An increase
in the quantity of the nation's resources
technology
in the general level of education
in the labor force
*e. A reduction in unemployment
186. Chapter 2—Choice, Opportunity Costs, and Specialization Questi43
At any point along a production possibilities curve, we assume that
*a. the economy's resources are fully and efficiently employed.
b. specialization occurs.
c. the economy's available resources steadily increase.
d. the economy's technological level steadily increases.
e. None of these occur.
187. Chapter 2—Choice, Opportunity Costs, and Specialization Questi44
Figure 2-6
nar006-1.jpg
Consider the economy described by the production possibilities curves in
Figure 2-6. Between 1980 and 1990, the economy most likely experienced
a. a decrease in resources associated with producing goods.
b. a decrease in resources associated with producing services.
c. an increase in resources associated with producing goods.
*d. an increase in resources associated with producing services.
e. an increase in resources associated with producing both goods
and services.
188. Chapter 2—Choice, Opportunity Costs, and Specialization Questi45
Figure 2-6
nar006-1.jpg
Consider the economy described by the production possibilities curves in
Figure 2-6. Which of the following statements is true?
a. The economy produced more goods in 1990 than in 1980.
b. The economy produced more services in 1990 than in 1980.
*c. The economy is capable of producing more services in 1990 than
in 1980.
d. If the economy produces only goods, it is capable of producing
more goods in 1990 than in 1980.
e. The economy is probably worse off in 1990 than it was in 1980.
189. Chapter 2—Choice, Opportunity Costs, and Specialization Questi46
An economy with unemployed resources can be represented by
a. a point on a PPC.
*b. a point inside a PPC.
c. a point outside a PPC.
d. the PPC's vertical intercept.
e. the PPC's horizontal intercept.
190. Chapter 2—Choice, Opportunity Costs, and Specialization Questi47
Economic growth can be illustrated
a. by a downward movement along the production possibilities
curve.
b. by an upward movement along the production possibilities curve.
c. by an inward shift of the production possibilities curve.
*d. by an outward shift of the production possibilities curve
e. by a movement toward the production possibilities curve.
191. Chapter 2—Choice, Opportunity Costs, and Specialization Questi48
Everything else held constant, which of the following will shift a
production possibilities curve inward?
a. A decrease in the employment of resources
b. An increase in the working-age population
c. An increase in unemployment
d. An increase in the availability of natural resources
*e. A decrease in the amount of capital available
192. Chapter 2—Choice, Opportunity Costs, and Specialization Questi49
Figure 2-7
nar007-1.jpg
Consider the PPC in Figure 2-7, describing a firm that can produce good
X and good Y. This figure indicates
a. that both types of products are equally important to society.
*b. that resources are perfectly adaptable to alternative uses.
c. that resources are less efficiently utilized when more of one
type of product is produced.
d. that greater production of one type means that smaller and
smaller amounts of other products must be forgone.
e. None of these
193. Chapter 2—Choice, Opportunity Costs, and Specialization Questi50
Figure 2-7
nar007-1.jpg
Consider Figure 2-7, which describes a firm that can produce good X and
good Y. Which of the following is true?
a. The firm must produce inside the boundary.
b. The firm must produce outside the boundary.
c. The firm should produce 10 units of X and 10 units of Y.
*d. The firm is able to produce 10 units of X or 10 units of Y.
e. The firm will produce 10 units of X or 10 units of Y.
194. Chapter 2—Choice, Opportunity Costs, and Specialization Questi51
Figure 2-7
nar007-1.jpg
Consider the PPC in Figure 2-7, which describes a firm that can produce
both good X and good Y. Which of the following is true?
a. The opportunity cost of one unit of good X is 10 units of good
Y.
*b. The opportunity cost of the first unit of good X is 1 unit of
good Y.
c. The opportunity cost of the ninth unit of good X is 9 units of
good Y.
d. The opportunity cost of the tenth unit of good X cannot be
determined from the information given.
e. The opportunity cost of the first unit of good X is 2 units of
good Y.
195. Chapter 2—Choice, Opportunity Costs, and Specialization Questi52
As an economy moves along a bowed-out production possibilities curve,
*a. the marginal opportunity costs of producing one good increase
with each successive increase of the other good.
b. the marginal opportunity costs of producing one good decrease
with each successive increase of the other good.
c. the marginal opportunity costs of producing one good stay the
same with each successive increase of the other good.
d. the marginal opportunity costs of producing one good become
irrelevant with each successive increase of the other good.
e. there is no such thing as a bowed-out production possibilities
curve.
196. Chapter 2—Choice, Opportunity Costs, and Specialization Questi53
A bowed-out PPC implies that producing more and more of one good will
bring about
*a. increasingly larger declines in the production of the other
good.
b. increasingly smaller declines in the production of the other
good.
c. a proportionate decrease in the production of the other good.
d. economic growth.
e. technological improvement.
197. Chapter 2—Choice, Opportunity Costs, and Specialization Questi54
Figure 2-8
Production Possibilities Schedule
Combination
Capital Goods
A
4
B
3
C
2
D
1
E
0
Consumer Goods
0
4
7
9
10
If the nation depicted in Figure 2-8 is producing at combination E, the
opportunity cost of the tenth unit of consumer goods was
a. 10 units of capital goods.
b. 6 units of capital goods.
*c. 1 unit of capital goods.
d. 4 units of capital goods.
e. no units of capital goods.
198. Chapter 2—Choice, Opportunity Costs, and Specialization Questi55
Figure 2-8
Production Possibilities Schedule
Combination
Capital Goods
A
4
B
3
C
2
D
1
E
0
Consumer Goods
0
4
7
9
10
If the nation depicted in Figure 2-8 produced 4 units of consumer goods
and 2 units of capital goods, then it
a. would be using all its resources.
b. would be using all its technological know-how.
*c. would have unemployed resources.
d. would be producing at maximum efficiency.
e. None of these; this nation is not currently able to produce
this combination.
199. Chapter 2—Choice, Opportunity Costs, and Specialization Questi56
Figure 2-8
Production Possibilities Schedule
Combination
Capital Goods
A
4
B
3
C
2
D
1
E
0
Consumer Goods
0
4
7
9
10
In Figure 2-8, a combination of 9 units of consumer goods and 5 units of
capital goods is
a. attainable if unemployed resources return to work.
b. attainable if inefficient use of technological know-how is
decreased.
*c. unattainable and beyond the production possibilities of this
nation.
d. unwanted because resources would become unemployed.
e. attainable without any new resources.
200. Chapter 2—Choice, Opportunity Costs, and Specialization Questi57
Figure 2-8
Production Possibilities Schedule
Combination
Capital Goods
A
4
B
3
C
2
D
1
E
0
Consumer Goods
0
4
7
9
10
Consider Figure 2-8. The PPC representing this schedule would be
a. bowed in.
*b. bowed out.
c. a negatively sloped straight line.
d. a positively sloped straight line.
e. bowed in if consumer goods are plotted on the horizontal axis
and bowed out if capital goods are plotted on the horizontal axis.
201. Chapter 2—Choice, Opportunity Costs, and Specialization Questi58
An economy's PPC illustrates
a. the difference between enterprise and entrepreneurship.
b. the difference between innovation and invention.
*c. the concepts of scarcity and opportunity cost.
d. the fact that real-world economies have no choices in terms of
production.
e. the extent to which an economy consumes what it produces.
202. Chapter 2—Choice, Opportunity Costs, and Specialization Questi59
During Cultural Revolution in the late 1960s and early 1970s,
a. China's PCC did not shift.
b. China's production moved along the PCC.
c. China's PCC shifted outward.
*d. China's PCC shifted inward.
e. China's economy operated at a point above PCC.
203. Chapter 2—Choice, Opportunity Costs, and Specialization Questi60
What accounts for specialization?
a. People specialize where opportunity costs are at a maximum.
*b. People specialize where their opportunity costs are lowest.
c. People do not specialize.
d. People specialize in the activity that pays the highest wage.
e. People specialize in the activity that they enjoy the most, no
matter what the salary is.
204. Chapter 2—Choice, Opportunity Costs, and Specialization Questi61
Few of us are jacks-of-all-trades. According to the discussion in the
textbook, how do we decide where to devote our energies?
*a. We decide to specialize in those activities that require us to
give up the smallest amount of other things.
b. We decide to specialize in those activities that require us to
give up the greatest amount of other things.
c. Only a true jack-of-all-trades can ever expect to be
successful.
d. We decide to specialize in those activities that require us to
give up absolutely nothing.
e. We must all strive to become jacks-of-all-trades.
205. Chapter 2—Choice, Opportunity Costs, and Specialization Questi62
By specializing in activities in which opportunity costs are lowest and
then trading, a country or individual will end up with
a. a huge deficit.
b. disgruntled workers.
c. high inflation.
*d. more than if each tried to produce everything.
e. politicians who could never get reelected because of resentful
constituents.
206. Chapter 2—Choice, Opportunity Costs, and Specialization Questi63
The amount of one good or service that must be forgone to obtain an
additional unit of another good is known as the
a. marginal benefit.
*b. marginal opportunity cost.
c. comparative advantage.
d. marginal expansion condition.
e. tradeoff quotient.
207. Chapter 2—Choice, Opportunity Costs, and Specialization Questi64
The most realistic shape of a production possibilities curve is
*a. a bowed-out curve.
b. a straight line.
c. a bowed-in curve.
d. a bent line.
e. a combination of bowed-out and straight curves.
208. Chapter 2—Choice, Opportunity Costs, and Specialization Questi65
Given the differences in opportunity costs within individual countries,
it makes sense for countries
a. to insist on protection against foreign competition through
legislation.
b. to force protectionism of the most important domestic
industries, using tariffs and quotas.
c. to devalue their currencies at least once a year.
*d. to specialize in activities in which opportunity costs are
lowest and then trade.
e. to specialize in activities in which opportunity costs are
highest and then avoid trade in order to manage trade deficit.
209. Chapter 2—Choice, Opportunity Costs, and Specialization Questi66
The choice of which area or activity to specialize in is made on the
basis of
a. average wages in a selected vocation.
*b. opportunity cost.
c. money spent out of pocket.
d. absolute cost.
e. whether or not a person is risk averse.
210. Chapter 2—Choice, Opportunity Costs, and Specialization Questi67
Figure 2-9
Production Possibilities Schedule
Country X
Choice
Coffee
A
200
B
160
C
120
D
80
E
40
F
0
Sugar
0
40
80
120
160
200
Country Y
Coffee
100
80
60
40
20
0
Sugar
0
30
60
90
120
150
In Figure 2-9, if trade were to occur, which of the following is true?
a. Country X should export coffee to country Y, but the two
countries should not exchange sugar.
*b. Country X should export coffee to country Y, and country Y
should export sugar to country X.
c. Country X should export sugar to country Y, and country Y
should export coffee to country X.
d. Country X should export sugar and coffee to country Y.
e. Country Y should export sugar and coffee to country X.
211. Chapter 2—Choice, Opportunity Costs, and Specialization Questi68
Figure 2-9
Production Possibilities Schedule
Country X
Choice
Coffee
A
200
B
160
C
120
D
80
E
40
F
0
Sugar
0
40
80
120
160
200
Country Y
Coffee
100
80
60
40
20
0
Sugar
0
30
60
90
120
150
In Figure 2-9, if trade were to occur, what is the most that country X
would be willing to pay for 1 unit of sugar?
*a. 1 unit of coffee
b. 3/2 units of coffee
c. 2/3 unit of coffee
d. 200 units of coffee
e. 1/2 unit of coffee
212. Chapter 2—Choice, Opportunity Costs, and Specialization Questi69
Figure 2-9
Production Possibilities Schedule
Country X
Choice
Coffee
A
200
B
160
C
120
D
80
E
40
F
0
Sugar
0
40
80
120
160
200
Country Y
Coffee
100
80
60
40
20
0
Sugar
0
30
60
90
120
150
In Figure 2-9, if trade were to occur, what is the least that country Y
would be willing to accept for 1 unit of sugar?
a. 1 unit of coffee
b. 3/2 units of coffee
*c. 2/3 unit of coffee
d. 200 units of coffee
e. 1/2 unit of coffee
213. Chapter 2—Choice, Opportunity Costs, and Specialization Questi70
Figure 2-9
Production Possibilities Schedule
Country X
Choice
Coffee
A
200
B
160
C
120
D
80
E
40
F
0
Sugar
0
40
80
120
160
200
Country Y
Coffee
100
80
60
40
20
0
Sugar
0
30
60
90
120
150
In Figure 2-9, assume that before specialization and trade, both
countries were producing at production possibility C. Now if each
country specializes according to comparative advantage, what will be the
gains from trade?
a. 20 units of sugar and 10 units of coffee
*b. 20 units of coffee and 10 units of sugar
c. 20 units of coffee
d. 10 units of sugar
e. 80 units of coffee and 90 units of sugar
214. Chapter 2—Choice, Opportunity Costs, and Specialization Questi71
Figure 2-10
Labor Hours Required to
Produce 1 Gallon of
Grape juice
Apple juice
In Maine
In New Hampshire
1 hour
5 hours
9 hours
6 hours
In Figure 2-10, Maine has an absolute advantage in producing
*a. both grape juice and apple juice.
b. only grape juice.
c. only apple juice.
d. neither good.
e. There is not enough information to say.
215. Chapter 2—Choice, Opportunity Costs, and Specialization Questi72
Figure 2-10
Labor Hours Required to
Produce 1 Gallon of
Grape juice
Apple juice
In Maine
In New Hampshire
1 hour
5 hours
9 hours
6 hours
The opportunity cost of producing 1 gallon of grape juice in Maine,
according to Figure 2-10, is
a. 5 gallons of apple juice.
*b. 1/5 gallon of apple juice.
c. 5 gallons of grape jelly.
d. 6 gallons of apple juice.
e. 1/8 gallon of apple juice.
216. Chapter 2—Choice, Opportunity Costs, and Specialization Questi73
Figure 2-10
Labor Hours Required to
Produce 1 Gallon of
Grape juice
Apple juice
In Maine
In New Hampshire
1 hour
5 hours
9 hours
6 hours
In Figure 2-10, New Hampshire has a comparative advantage in producing
a. neither good.
b. grape juice.
c. both apple and grape juice.
*d. apple juice.
e. There is not enough information to say.
217. Chapter 2—Choice, Opportunity Costs, and Specialization Questi74
Figure 2-10
Labor Hours Required to
Produce 1 Gallon of
Grape juice
Apple juice
In Maine
In New Hampshire
1 hour
5 hours
9 hours
6 hours
Refer to Figure 2-10. If the terms of trade were ____ gallon(s) of grape
juice for 1 gallon of apple juice, both New Hampshire and Maine would
gain from trade.
a. 6
*b. 3
c. 0.5
d. 0.25
e. 10
218. Chapter 2—Choice, Opportunity Costs, and Specialization Questi75
Figure 2-10
Labor Hours Required to
Produce 1 Gallon of
Grape juice
Apple juice
In Maine
In New Hampshire
1 hour
5 hours
9 hours
6 hours
According to Figure 2-10, the opportunity cost of producing 1 gallon of
grape juice in New Hampshire is ____ gallon(s) of apple juice.
a. 1.33
b. 5/6
*c. 1.5
d. 6
e. 2/3
219. Chapter 2—Choice, Opportunity Costs, and Specialization Questi76
Figure 2-11
nar011-1.jpg
Suppose that in Figure 2-11, points A and B represent pre-trade
positions. If each country specializes according to comparative
advantage, what are the potential gains to trade?
*a. 6 cans
b. 6 cans and 6 units of food
c. 6 units of food
d. 4 units of food
e. 12 cans
220. Chapter 2—Choice, Opportunity Costs, and Specialization Questi77
Figure 2-11
nar011-1.jpg
In Figure 2-11, if trade occurs, what is the most that Germany would be
willing to pay for 1 unit of food?
a. 1 can
*b. 2 cans
c. 1/2 can
d. 20 cans
e. 10 cans
221. Chapter 2—Choice, Opportunity Costs, and Specialization Questi78
Figure 2-11
nar011-1.jpg
In Figure 2-11, if trade occurs, what is the least Korea is willing to
accept for 1 unit of food?
*a. 1 can
b. 2 cans
c. 1/2 can
d. 20 cans
e. 10 cans
222. Chapter 2—Choice, Opportunity Costs, and Specialization Questi79
Which of the following is the best definition of comparative advantage?
a. The ability to produce a good or service at a higher
opportunity cost than someone else
b. The ability to sell more goods or services than anyone else,
regardless of the price
c. The ability to produce all goods and services better than
anyone else
*d. The ability to produce a good or service at a lower
opportunity cost than someone else
e. The inability to produce a good or service better than anyone
else
223. Chapter 2—Choice, Opportunity Costs, and Specialization Questi80
Should a world-class athlete such as golfer Tiger Woods mow his own
lawn?
a. Yes, because he can obviously do it faster than any gardener he
could hire.
b. Yes, because he can obviously do it cheaper than any gardener
he could hire.
c. Yes, because the gardener would be intimidated by the presence
of Tiger Woods.
d. No, because the gardener has a comparative advantage in playing
golf.
*e. No, because Tiger Woods has a comparative advantage in playing
golf.
224. Chapter 2—Choice, Opportunity Costs, and Specialization Questi81
Specialization and trade ensure that
*a. we are better off than we would be if we did everything
ourselves.
b. we are worse off than we would be if we did everything
ourselves.
c. unemployment rates will be higher.
d. resources will be used inefficiently.
e. an isolationist backlash will follow.
225. Chapter 2—Choice, Opportunity Costs, and Specialization Questi82
Which of the following best expresses the rule of specialization?
a. The individual, firm, or nation will specialize in production
of the good or service that has the lowest rate of taxation.
b. The individual, firm, or nation will never specialize in
production of the good or service that has the lowest opportunity
cost.
*c. The individual, firm, or nation will specialize in production
of the good or service that has the lowest opportunity cost.
d. The individual, firm, or nation will specialize in production
of the good or service that has the highest opportunity cost.
e. The individual, firm, or nation will not specialize in any good
or service, regardless of opportunity costs, to avoid becoming
dependent on other nations and preserve its self-sufficiency.
226. Chapter 2—Choice, Opportunity Costs, and Specialization Questi83
Comparative advantage is
*a. the ability to produce a good or service at a lower
opportunity cost than another incurs in producing it.
b. a person's willingness to work hard and be successful.
c. determined by a person's formal education level.
d. measured by a person's relative financial security.
e. always expressed in terms of dollars spent on one good versus
dollars spent on an alternative good.
227. Chapter 2—Choice, Opportunity Costs, and Specialization Questi84
Scenario 2-1
Alan and Brian work at a baseball and softball manufacturing plant. Alan
can produce either 10 baseballs or 4 softballs in an hour. Brian can
produce either 8 baseballs or 2 softballs in an hour.
According to Scenario 2-1, the opportunity cost for Brian to produce 1
softball is
*a. 4 baseballs.
b. less than the opportunity cost for Alan to produce 1 softball.
c. 1/4 baseball.
d. 2 1/2 baseballs.
e. 2/5 baseball.
228. Chapter 2—Choice, Opportunity Costs, and Specialization Questi85
Scenario 2-1
Alan and Brian work at a baseball and softball manufacturing plant. Alan
can produce either 10 baseballs or 4 softballs in an hour. Brian can
produce either 8 baseballs or 2 softballs in an hour.
According to Scenario 2-1, the opportunity cost for Alan to produce 1
baseball is
a. 1/4 softball.
*b. 2/5 softball.
c. less than the opportunity cost for Brian to produce 1 baseball.
d. 2 1/2 softballs.
e. 4 softballs.
229. Chapter 2—Choice, Opportunity Costs, and Specialization Questi86
Scenario 2-1
Alan and Brian work at a baseball and softball manufacturing plant. Alan
can produce either 10 baseballs or 4 softballs in an hour. Brian can
produce either 8 baseballs or 2 softballs in an hour.
According to Scenario 2-1, Brian has a comparative advantage over Alan
in the production of
a. softballs.
b. both softballs and baseballs.
c. neither softballs nor baseballs.
*d. baseballs.
e. softballs if he makes no more than 2 an hour
230. Chapter 2—Choice, Opportunity Costs, and Specialization Questi87
Figure 2-12
nar013-1.jpg
Use Figure 2-12 to answer the next question. Farmer X's production
possibilities curve is line AB, and Farmer Y's production possibilities
curve is AC. Given this information, which of the following is true?
a. Farmer X is better at producing soybeans than Farmer Y.
b. Farmer X has a comparative advantage in producing soybeans.
*c. Farmer X has a comparative advantage in producing wheat.
d. Farmer Y can produce soybeans better than Farmer Y.
e. Farmer X faces increasing opportunity costs when he produces
more and more soybeans.
231. Chapter 2—Choice, Opportunity Costs, and Specialization Questi88
Figure 2-13
Labor Cost per Unit (in hours)
Country A
Country B
Shoes
150
300
Bread
200
250
Consider economies A and B in Figure 2-13. One can correctly conclude
that
a. neither country has a comparative advantage in producing bread.
b. country A has a comparative advantage in producing both shoes
and bread.
c. country B has a comparative advantage in producing both shoes
and bread.
*d. country A has a comparative advantage in producing shoes, and
country B has a comparative advantage in producing bread.
e. country A has a comparative advantage in producing bread, and
country B has a comparative advantage in producing shoes.
232. Chapter 2—Choice, Opportunity Costs, and Specialization Questi89
Figure 2-13
Labor Cost per Unit (in hours)
Country A
Country B
Shoes
150
300
Bread
200
250
Consider economies A and B in Figure 2-13. Given their respective
comparative advantages in production, we should expect
a. country A to produce both shoes and bread and country B to
produce neither.
b. country A to buy both shoes and bread from country B.
c. country A to specialize in producing shoes and to buy bread
from country B.
*d. country A to specialize in the production of bread and to buy
shoes from country B.
e. each country to produce only for itself.
233. Chapter 2—Choice, Opportunity Costs, and Specialization Questi90
A market economy can develop because
a. government intervenes.
b. the public property rights exist.
*c. the private property rights exist.
d. everyone can have everything.
e. scarcity no longer exists.
234. Chapter 2—Choice, Opportunity Costs, and Specialization Questi91
According to the article in the text, if Venezuela's Chavez succeeds in
effecting land reform, Venezuela's PPC will
a. not change.
*b. shift inward.
c. shift outward.
d. not exist.
e. None of the above
235. Chapter 2—Choice, Opportunity Costs, and Specialization Questi92
Private property right means
a. government gives property to its citizens.
*b. ownership of the property.
c. government does not own property.
d. citizens have right to use property but not own it.
e. All of these choices.
236. Chapter 2—Choice, Opportunity Costs, and Specialization Questi93
Which of the following is the most important element in the market
economy?
a. Private property right.
*b. Government has no role in the economy.
c. Government is the biggest sector in the economy.
d. Religious freedom.
e. Freedom of speech and press.
237. Chapter 2—Choice, Opportunity Costs, and Specialization Questi94
According to economic analysis, in making a decision, individuals
compare the benefits expected from one option with the benefits expected
from other options.
*a. True
b. False
238. Chapter 2—Choice, Opportunity Costs, and Specialization Questi95
You work for your parent's business without pay, so your labor is free.
a. True
*b. False
239. Chapter 2—Choice, Opportunity Costs, and Specialization Questi96
The production possibility curve for an economy indicates all possible
combinations of three goods produced, given a constant amount of
resources.
a. True
*b. False
240. Chapter 2—Choice, Opportunity Costs, and Specialization Questi97
Story 2-1
Bob went to the movies with his friend James rather than studying or
going bowling with his sister. Bob had a test in math the next day.
According to Story 2-1, the opportunity cost of going bowling with his
sister is the fun of going to the movies with James.
*a. True
b. False
241. Chapter 2—Choice, Opportunity Costs, and Specialization Questi98
The opportunity cost of going to the movies is always the same for
everyone.
a. True
*b. False
242. Chapter 2—Choice, Opportunity Costs, and Specialization Questi99
If you have a choice of consuming two apples, three oranges, or one
candy bar, the opportunity cost of the two apples is the candy bar plus
the three oranges.
a. True
*b. False
243. Chapter 2—Choice, Opportunity Costs, and Specialization Quest100
An example of opportunity cost is the time you forgo to eat a "free
lunch."
*a. True
b. False
244. Chapter 2—Choice, Opportunity Costs, and Specialization Quest101
The total cost of attending college is the sum of the cost of tuition,
books, and meals.
a. True
*b. False
245. Chapter 2—Choice, Opportunity Costs, and Specialization Quest102
There is no cost of using your own savings in your business.
a. True
*b. False
246. Chapter 2—Choice, Opportunity Costs, and Specialization Quest103
Since we cannot tolerate waste so we must eliminate it.
a. True
*b. False
247. Chapter 2—Choice, Opportunity Costs, and Specialization Quest104
Given a production possibilities curve for defense goods and nondefense
goods, if a nation is producing at a point inside the PPC, then it is
possible to increase production of defense goods without sacrificing
production of nondefense goods.
*a. True
b. False
248. Chapter 2—Choice, Opportunity Costs, and Specialization Quest105
If a new labor-saving technology is discovered, the PPC shifts inward.
a. True
*b. False
249. Chapter 2—Choice, Opportunity Costs, and Specialization Quest106
A rightward shift of the PPC might be caused by an increase in the
general level of education.
*a. True
b. False
250. Chapter 2—Choice, Opportunity Costs, and Specialization Quest107
The construction of a PPC does not require that the economy's resources
be fully and efficiently employed.
a. True
*b. False
251. Chapter 2—Choice, Opportunity Costs, and Specialization Quest108
The construction of a PPC does not require that the amount of money in
the economy remain constant.
*a. True
b. False
252. Chapter 2—Choice, Opportunity Costs, and Specialization Quest109
Economically, it's possible to move a point on the PPC to another point.
*a. True
b. False
253. Chapter 2—Choice, Opportunity Costs, and Specialization Quest110
An economy's PPC illustrates the extent to which the economy consumes
what it produces.
a. True
*b. False
254. Chapter 2—Choice, Opportunity Costs, and Specialization Quest111
If the minimum working age is raised from 16 to 18, the PPC will shift
inward.
*a. True
b. False
255. Chapter 2—Choice, Opportunity Costs, and Specialization Quest112
If there is a technological advance that makes the production of
automobiles more efficient, a producer of automobiles and other goods
will move from a point on its PPC to a point outside its PPC, but a
shift of the PPC will not occur.
a. True
*b. False
256. Chapter 2—Choice, Opportunity Costs, and Specialization Quest113
Economic growth is represented by shifting PCC outward.
*a. True
b. False
257. Chapter 2—Choice, Opportunity Costs, and Specialization Quest114
The concepts of scarcity and law of increasing cost can not be derived
from PCC.
a. True
*b. False
258. Chapter 2—Choice, Opportunity Costs, and Specialization Quest115
The PPC does not indicate while producing more of one good it's not
necessary to produce less of another good.
a. True
*b. False
259. Chapter 2—Choice, Opportunity Costs, and Specialization Quest116
A specialist is a person who is capable of doing only one thing.
a. True
*b. False
260. Chapter 2—Choice, Opportunity Costs, and Specialization Quest117
Trade occurs because countries may produce more than they need.
a. True
*b. False
261. Chapter 2—Choice, Opportunity Costs, and Specialization Quest118
A bowed-out PPC indicates increasing marginal opportunity costs between
the goods or services produced.
*a. True
b. False
262. Chapter 2—Choice, Opportunity Costs, and Specialization Quest119
When specialized resources that are productive in the production of one
good are shifted to the production of another good in which they are
relatively less productive, the resulting production possibilities curve
of the goods tends to bow in.
a. True
*b. False
263. Chapter 2—Choice, Opportunity Costs, and Specialization Quest120
When a nation is operating on a bowed-out PPC, the production of more of
one product will bring about the production of less of another product
because resources are scarce.
*a. True
b. False
264. Chapter 2—Choice, Opportunity Costs, and Specialization Quest121
Figure 2-14
nar016-1.jpg
Refer to Figure 2-14. If beer becomes cheaper, the maximum amount of
beers that Fred can obtain will increase.
*a. True
b. False
265. Chapter 2—Choice, Opportunity Costs, and Specialization Quest122
Figure 2-14
nar016-1.jpg
Refer to Figure 2-14. If Fred gets 2 books and 30 beers, he is not using
all of his resources
*a. True
b. False
266. Chapter 2—Choice, Opportunity Costs, and Specialization Quest123
Figure 2-14
nar016-1.jpg
Refer to Figure 2-14. If Fred has 1 book and 45 beers, the marginal
opportunity cost of one more book is 40 beers.
a. True
*b. False
267. Chapter 2—Choice, Opportunity Costs, and Specialization Quest124
Figure 2-14
nar016-1.jpg
Refer to Figure 2-14. Fred could have either 40 beers and 2 books or 48
beers and 1 book.
a. True
*b. False
268. Chapter 2—Choice, Opportunity Costs, and Specialization Quest125
In order to get the most from their productive capabilities, nations and
individuals specialize in activities in which their opportunity costs
are lowest.
*a. True
b. False
269. Chapter 2—Choice, Opportunity Costs, and Specialization Quest126
International trade is a kind of zero-sum game.
a. True
*b. False
270. Chapter 2—Choice, Opportunity Costs, and Specialization Quest127
Since it is cheaper to produce goods in Mexico, US will not be able to
export goods to Mexico.
a. True
*b. False
271. Chapter 2—Choice, Opportunity Costs, and Specialization Quest128
The comparative advantage theory is based on using opportunity cost to
determine which country should produce what good for trade.
*a. True
b. False
272. Chapter 2—Choice, Opportunity Costs, and Specialization Quest129
Populations of ocean fish have declined sharply because of the existence
of private property rights.
a. True
*b. False
273. Chapter 2—Choice, Opportunity Costs, and Specialization Quest130
A resource-rich country can develop its economy rapidly without giving
its citizens private property right.
a. True
*b. False
274. Chapter 2—Choice, Opportunity Costs, and Specialization Quest131
George W. Bush has been classified as a president who strives to
maintain a budget surplus.
a. True
*b. False
275. Chapter 2—Choice, Opportunity Costs, and Specialization Quest132
In Argentina, the citizens having legal title to the land have higher
income and living standard compared to those without legal title to the
land.
*a. True
b. False
276. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializat
Figure SG2-1
Combination
A
B
C
D
E
F
G
Clothing
0
10
20
30
40
50
60
Food
110
105
95
80
60
35
0
According to Figure SG2-1, if the economy is currently producing at
point F, the opportunity cost of 10 additional units of clothing is
a. 25 units of food.
b. 5 units of food.
c. 10 units of food.
*d. 35 units of food.
e. 3.5 units of food.
277. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 2
Figure SG2-1
Combination
A
B
C
D
E
F
G
Clothing
0
10
20
30
40
50
60
Food
110
105
95
80
60
35
0
According to Figure SG2-1, a combination of 20 units of clothing and 80
units of food is
a. unattainable.
*b. inefficient.
c. possible by giving up 15 units of food.
d. possible if the economy obtains more resources.
e. possible if an improvement in technology makes the production
possibilities curve shift inward.
278. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 3
Figure SG2-1
Combination
A
B
C
D
E
F
G
Clothing
0
10
20
30
40
50
60
Food
110
105
95
80
60
35
0
According to Figure SG2-1, a combination of 50 units of clothing and 70
units of food
a. is inefficient.
b. is obtainable by giving up 35 units of food.
c. does not fully utilize resources.
*d. is unattainable.
e. is possible if an improvement in technology shifts the
production possibility curve inward.
279. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 4
Figure SG2-2
Combination
A
B
C
D
E
Alpha
Beef
0
25
50
75
100
Microchips
200
150
100
50
0
Beta
Beef
0
25
50
75
100
Microchips
300
225
150
75
0
According to Figure SG2-2, the opportunity cost of a microchip in Alpha
is ____ unit(s) of beef, and the opportunity cost of a microchip in Beta
is ____ unit(s) of beef. The opportunity cost of a unit of beef is ____
unit(s) of microchips in Alpha and ____ unit(s) of microchips in Beta.
a. 1/3; 1/2; 3; 2
b. 2; 3; 1/2; 1/3
*c. 1/2; 1/3; 2; 3
d. 3; 2; 1/3; 1/2
e. 1/2; 3; 1/3; 2
280. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 5
Figure SG2-2
Combination
A
B
C
D
E
Alpha
Beef
0
25
50
75
100
Microchips
200
150
100
50
0
Beta
Beef
0
25
50
75
100
Microchips
300
225
150
75
0
According to Figure SG2-2, Alpha has a comparative advantage in ____,
and Beta has a comparative advantage in ____. Alpha should produce ____,
and Beta should produce ____.
*a. beef; microchips; beef; microchips
b. beef; microchips; microchips; beef
c. microchips; beef; microchips; beef
d. microchips; beef; beef; microchips
e. There is no basis for specialization and trade between these
two countries, since Beta can produce just as much beef as Alpha
and more microchips.
281. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 6
Which of the following situations illustrates an opportunity cost?
a. Samantha really enjoys playing games with her friends.
b. Mike's college tuition payment just went up.
*c. Dan couldn't go to the movies because he spent all his money
buying new clothes.
d. Sue can never eat chocolate because she is very allergic to it.
e. Chris had to pay $50 to buy a concert ticket.
282. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 7
If the U.S. unemployment rate is 9 percent, this would be represented at
a point
a.
b.
c.
d.
outside the U.S. PPC.
on the U.S. PPC.
on the vertical axis.
on the horizontal axis.
*e. inside the U.S. PPC.
283. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 8
Draw a graph of a production possibilities curve. Indicate a point that
is inefficient and a point that is unattainable. What would happen to
this production possibilities curve if there were an increase in the
production of one of the goods?
Correct Answer:
Answers will vary.
284. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ 9
Roughly estimate your true cost of attending college.
Correct Answer:
Answers will vary.
285. Chapter 2 Study Guide—Choice, Opportunity Costs, and Specializ10
What are the benefits of trade?
Correct Answer:
Answers will vary.
286. Chapter 3—Markets, Demand and Supply, and the Price System Quest
If society's scarce resources are allocated using a government scheme,
which of the following is most likely to result?
a. Only those who circumvent the rules will prosper.
b. The government will always guarantee that no one will have to
do without.
*c. It provides an incentive either to be a member of government
and thus help determine the allocation rules or to perform
according to government dictates.
d. Under the government scheme, some will have to do without, but
the government guarantees that resource allocations are always
fair.
e. There are huge incentives to improve production and efficiency,
and the economy will grow rapidly.
287. Chapter 3—Markets, Demand and Supply, and the Price System Que 2
Which of the following statements is not true about a market system?
a. The market system provides incentives to acquire purchasing
ability.
b. The market system provides incentives for quantities of scarce
goods to increase.
c. The market system ensures that resources are allocated where
they are most highly valued.
*d. There are no incentives to improve production and efficiency,
and thus there is no reason for the economy to grow.
e. Since the market system creates the incentive for the amount
supplied to increase, economies grow and standards of living
improve.
288. Chapter 3—Markets, Demand and Supply, and the Price System Que 3
According to the text, of the allocation mechanisms discussed,
*a. none are fair in the sense that everyone gets the goods and
services.
b. all are fair in allocating scarce resources.
c. the market system is the only fair system.
d. only the government system is fair.
e. first-come-first-served is the most efficient allocation
mechanism.
289. Chapter 3—Markets, Demand and Supply, and the Price System Que 4
According to the text, of the allocation mechanisms discussed,
a. none leads to growth and rising standards of living.
b. only the random system leads to growth and rising standards of
living.
c. only the government system leads to growth and rising standards
of living.
*d. only the market system leads to growth and rising standards of
living.
e. only the first-come-first-serve system leads to growth and
rising standards of living.
290. Chapter 3—Markets, Demand and Supply, and the Price System Que 5
In which of the following countries economy is not market-oriented?
a. US.
b. India.
c. Russia.
*d. Cuba.
e. Brazil.
291. Chapter 3—Markets, Demand and Supply, and the Price System Que 6
The supermarket, the stock market, the market for foreign exchange, and
all other markets are similar in what way?
*a. Well-defined goods and services are exchanged.
b. A specific location is required for the transaction to occur.
c. Many different locations are required for the transaction to
occur.
d. Only poorly defined goods and services are exchanged.
e. Only goods are exchanged since services are traded elsewhere.
292. Chapter 3—Markets, Demand and Supply, and the Price System Que 7
A market
*a. makes possible the exchange of goods and services between
buyers and sellers.
b. consists only of a specialized place or service where goods and
services are exchanged.
c. consists only of a formally organized place where a welldefined commodity is traded.
d. consists only of a localized place or service that facilitates
the exchange of goods and services.
e. consists of both large and small places where poorly defined
commodities are traded.
293. Chapter 3—Markets, Demand and Supply, and the Price System Que 8
If fairness means that everyone gets what she or he wants, which one of
the following allocation approaches is "fair"?
a. Government determines who gets what.
b. First-come, first served system.
c. Lottery.
d. Market or price system.
*e. None of these choices.
294. Chapter 3—Markets, Demand and Supply, and the Price System Que 9
Under which of the following allocation system everyone has an equal
chance of winning?
a. Government determines who gets what.
b. First-come, first served system.
*c. Lottery.
d. Market or price system.
e. None of these choices.
295. Chapter 3—Markets, Demand and Supply, and the Price System Que10
The market system ensures that
*a. resources are allocated to where they are most highly valued.
b. resources are allocated to where they are least highly valued.
c. there are no incentives to increase the quantities of scarce
goods.
d. the government will always step in to solve any market failure.
e. lazy people will be rewarded
296. Chapter 3—Markets, Demand and Supply, and the Price System Que11
Which of the following allocation systems provides incentives to
increase quantities of goods?
*a. Government determines who get what.
b. First-come, first-served allocation scheme.
c. Market.
d. Lottery.
e. None of these choices.
297. Chapter 3—Markets, Demand and Supply, and the Price System Que12
Today, which of the following countries uses government scheme to
determine production and distribution of goods?
a. Government determines who get what.
b. Russia.
*c. North Korea.
d. South Korea.
e. Chile.
298. Chapter 3—Markets, Demand and Supply, and the Price System Que13
Which of the following is an example of a market?
a. The exchange of votes and benefits by voters and politicians
b. The exchange of shares of stock
c. Sales and purchases of illegal drugs
d. The exchange of a particular good at many different locations
*e. All of these choices
299. Chapter 3—Markets, Demand and Supply, and the Price System Que14
Markets
a. must
b. must
c. must
d. must
*e. can
be specialized.
be general.
consist of one buyer and one seller.
consist of many buyers and many sellers.
be organized either loosely or formally.
300. Chapter 3—Markets, Demand and Supply, and the Price System Que15
In general, the main purpose of markets is to
*a. facilitate the exchange of goods and services between buyers
and sellers.
b. provide a means for exposing illegal transactions.
c. provide a forum for exchange of political benefits.
d. provide a means for exchange via barter.
e. facilitate unrecorded transactions.
301. Chapter 3—Markets, Demand and Supply, and the Price System Que16
In which of the following cities, Big Mac is most expensive?
*a. New York.
b. Chicago.
c. Tokyo.
d. Moscow.
e. London
302. Chapter 3—Markets, Demand and Supply, and the Price System Que17
In economics, a market is defined to be
a. a conglomerate of grocery stores.
b. way too many buyers and not enough sellers
*c. a place or service that enables buyers and sellers to exchange
goods and services.
d. a place or service that enables sellers to extort outrageous
sums of money from unsuspecting buyers for their goods and
services.
e. illegal trade.
303. Chapter 3—Markets, Demand and Supply, and the Price System Que18
Barter is not involved in
a. the exchange of goods and services directly, without money.
b. a plumber fixing a leaky pipe for a lawyer in exchange for
legal services.
c. children trading marbles.
*d. the purchase of a used bicycle for $100.
e. any situation that requires a double coincidence of wants.
304. Chapter 3—Markets, Demand and Supply, and the Price System Que19
Which of the following is the best way to describe the term market as
used by economists?
a. A market is a busy grocery store.
b. A market includes only transactions involving multinational
corporations.
c. A market includes only transactions involving large franchise
operations.
d. A market includes only transactions involving the large
publicly traded corporations.
*e. A market arises when buyers and sellers exchange a welldefined good or service.
305. Chapter 3—Markets, Demand and Supply, and the Price System Que20
The reason why money makes it easier and less expensive to exchange
goods and services is that
*a. it does not require a double coincidence of wants.
b. the transaction costs of the exchange are much higher when
money is used.
c. money is very cheap today.
d. the rate of inflation can be extremely high.
e. none of these; it is not true that money makes it easier and
less expensive to exchange goods and services.
306. Chapter 3—Markets, Demand and Supply, and the Price System Que21
Barter involves all of the following except
a. the exchange of goods and services.
b. transaction costs.
c. double coincidence of wants.
*d. money.
e. None of these.
307. Chapter 3—Markets, Demand and Supply, and the Price System Que22
Figure 3-1
The law of demand is composed of the following five phrases:
1.
2.
3.
4.
5.
the quantity of a well-defined good or service
that people are willing and able to purchase
during a particular period of time
decreases as the price of that good or service rises and increases as the price falls,
everything else held constant
Refer to Figure 3-1. According to the text, Phrase 1 means
*a. that we are referring to the same item, not mixing different
items.
b. that a good or service that is not well defined will be a free
good.
c. that a good or service that is not well defined will be an
economic bad.
d. even if consumers think goods are identical, if economists
haven't called them well defined, there is no demand.
e. even if consumers think goods are identical, if economists
haven't called them well defined, there is no quantity.
308. Chapter 3—Markets, Demand and Supply, and the Price System Que23
Figure 3-1
The law of demand is composed of the following five phrases:
1.
2.
3.
4.
5.
the quantity of a well-defined good or service
that people are willing and able to purchase
during a particular period of time
decreases as the price of that good or service rises and increases as the price falls,
everything else held constant
Refer to Figure 3-1. According to the text, phrase 3 means
a. that demand is the same whether we are talking about a month or
a year.
*b. that demand may be different depending on whether we are
talking about a month or a year.
c. that if goods are produced in one month and sold in a different
month, they are not part of demand.
d. that if goods are not sold for a while and then are sold at a
discount sale several months later, they are not part of demand.
e. that my wants and ability to purchase will not change over
time.
309. Chapter 3—Markets, Demand and Supply, and the Price System Que24
Figure 3-1
The law of demand is composed of the following five phrases:
1.
2.
3.
4.
5.
the quantity of a well-defined good or service
that people are willing and able to purchase
during a particular period of time
decreases as the price of that good or service rises and increases as the price falls,
everything else held constant
Refer to Figure 3-1. According to the text, phrase 4 means that
*a. there is an inverse relationship between price and quantity
demanded.
b. there is a direct relationship between price and quantity
demanded.
c. there is a direct relationship between price and demand.
d. there is an inverse relationship between price and demand.
e. people will always be willing and able to purchase more of
anything if the price decreases.
310. Chapter 3—Markets, Demand and Supply, and the Price System Que25
According to the law of demand, if the price of compact disks decreased,
then, ceteris paribus,
a. the demand for compact disks would increase.
b. the quantity demanded of compact disks would decrease.
*c. the quantity demanded of compact disks would increase.
d. the demand for compact disks would decrease.
e. the quantity demanded of compact disks would not change.
311. Chapter 3—Markets, Demand and Supply, and the Price System Que26
The law of demand illustrates that
a. as price decreases, demand increases.
b. price changes are always in the same direction as demand
changes.
c. as price increases, quantity demanded increases.
d. as price decreases, quantity supplied increases.
*e. as price decreases, quantity demanded increases.
312. Chapter 3—Markets, Demand and Supply, and the Price System Que27
Demand for a good is a measure of the relationship between
a. the price of that good and the quantity demanded of a
complementary good.
b. the price of that good and the quantity demanded of a
substitute good.
c. the price of a particular good and the general educational
level across a region.
*d. the price of that good and the quantity demanded of that same
good when the determinants of demand do not change.
e. the price of that good and the general income level across a
region.
313. Chapter 3—Markets, Demand and Supply, and the Price System Que28
Which of the following is not held constant when constructing a demand
curve for good X?
a. Consumer income
b. Consumer tastes
*c. The price of good X
d. The prices of other goods
e. Consumer expectations
314. Chapter 3—Markets, Demand and Supply, and the Price System Que29
An individual demand schedule or curve shows the various quantities of a
good that a person
*a. wants and is able to purchase at alternative prices,
everything else the same.
b. has purchased at alternative prices, everything else the same.
c. is able to purchase at alternative prices, everything else the
same.
d. is able to purchase at alternative income levels, everything
else the same.
e. has purchased at alternative income levels, everything else the
same.
315. Chapter 3—Markets, Demand and Supply, and the Price System Que30
A table or list of the prices and the corresponding quantities demanded
of a particular good is called
a. a demand curve.
*b. a demand schedule.
c. a supply curve.
d. a supply schedule.
e. a production possibilities schedule.
316. Chapter 3—Markets, Demand and Supply, and the Price System Que31
Figure 3-2
Combination
A
B
C
D
E
Price per Access Hour to
Network Games
$5
4
3
2
1
Access Hours per Week
10
20
30
40
50
According to Figure 3-2,
a. there is a direct relationship between the price per access
hour to network games and the access hours per week
*b. there is an inverse relationship between the price per access
hour to network games and the access hours per week.
c. if the price is $4, then the quantity demanded is 10.
d. if the quantity demanded is 40, the price per access hour to
network games must be $2.
e. price is the dependent variable.
317. Chapter 3—Markets, Demand and Supply, and the Price System Que32
Figure 3-2
Combination
A
B
C
D
E
Price per Access Hour to
Network Games
$5
4
3
2
1
Access Hours per Week
10
20
30
40
50
According to Figure 3-2,
a. there is a direct relationship between the price per access
hour to network games and the access hours per week.
*b. price is the independent variable.
c. if the price is $4, then the quantity demanded is 10.
d. if the quantity demanded is 40, the price per access hour to
network games must be $3.
e. price is the dependent variable.
318. Chapter 3—Markets, Demand and Supply, and the Price System Que33
Figure 3-2
Combination
A
B
C
D
E
Price per Access Hour to
Network Games
$5
4
3
2
1
The table in Figure 3-2 is called
a. a demand curve.
*b. a demand schedule.
c. a supply curve.
Access Hours per Week
10
20
30
40
50
d. a supply relationship.
e. an equilibrium curve.
319. Chapter 3—Markets, Demand and Supply, and the Price System Que34
Which of the following is not constant along an individual consumer's
demand curve for Coke?
*a. The price of Coke
b. The price of Pepsi
c. The consumer's income
d. The consumer's tastes
e. All of these
320. Chapter 3—Markets, Demand and Supply, and the Price System Que35
All demand curves slope down because
*a. as the price of the good falls, the quantity demanded
increases.
b. incomes can decline quickly and significantly.
c. tastes and preferences change over time.
d. substitute goods are very often not readily available.
e. consumers often cannot afford complementary goods.
321. Chapter 3—Markets, Demand and Supply, and the Price System Que36
Figure 3-3
Price of game access Quantities of game access hours demanded
hour
Maria 1
Abdul 1
$14
20
20
$12
30
50
$10
40
70
$8
50
90
$6
60
110
1Maria, Abdul, and Jorgen are the only consumers.
Jorgen 1
15
17
24
36
58
According to Figure 3-3, the market quantity of game access hours
demanded at a price of $8 is
*a. 176.
b. 36.
c. 92.
d. 50.
e. 90.
322. Chapter 3—Markets, Demand and Supply, and the Price System Que37
Figure 3-3
Price of game access Quantities of game access hours demanded
hour
Maria 1
Abdul 1
$14
20
20
$12
30
50
$10
40
70
$8
50
90
$6
60
110
1Maria, Abdul, and Jorgen are the only consumers.
Jorgen 1
15
17
24
36
58
Refer to Figure 3-3. The market demand schedule is given by what
quantities corresponding to $14, 12, 10, 8, 6?
a. 228, 176, 134, 97, 65
b. 15, 17, 24, 36, 58
*c. 55, 97, 134, 176, 228
d. 20, 30, 40, 50, 60
e. 50, 80, 110, 140, 170
323. Chapter 3—Markets, Demand and Supply, and the Price System Que38
Figure 3-3
Price of game access Quantities of game access hours demanded
hour
Maria 1
Abdul 1
$14
20
20
$12
30
50
$10
40
70
$8
50
90
$6
60
110
1Maria, Abdul, and Jorgen are the only consumers.
Jorgen 1
15
17
24
36
58
Refer to Figure 3-3. If Maria and Jorgen were the only consumers in the
market, the market demand schedule would be given by what quantities
corresponding to $14, 12, 10, 8, 6?
a. 50, 80, 110, 140, 170.
b. 45, 67, 94, 126, 168.
c. 170, 140, 110, 80, 50.
*d. 35, 47, 64, 86, 118.
e. 30, 50, 70, 90, 110.
324. Chapter 3—Markets, Demand and Supply, and the Price System Que39
The market demand curve, with price on the vertical axis and quantity on
the horizontal axis, is determined by
*a. adding individual demand curves in a horizontal direction.
b. adding individual demand curves in a vertical direction.
c. subtracting the demand for the product from the supply of the
product.
d. adding the demand for the product and the supply of the
product.
e. subtracting supply from demand at each price.
325. Chapter 3—Markets, Demand and Supply, and the Price System Que40
A boycott of lettuce would, if effective, cause
a. an increase in the equilibrium quantity of lettuce bought and
sold.
b. an increase in the price of lettuce.
*c. a decrease in the demand for lettuce.
d. a decrease in the supply of lettuce.
e. a decrease in the demand for lettuce and in the supply of
lettuce.
326. Chapter 3—Markets, Demand and Supply, and the Price System Que41
A change in the quantity demanded of skis is a movement along the demand
curve for skis. In contrast, a change in demand for skis
a. is a movement along the demand curve for skis.
b. reflects a change in the price of skis.
c. is a movement along the demand curve for ski boots.
d. is not related to the price of a lift ticket.
*e. can be caused by an increase in the popularity of the sport.
327. Chapter 3—Markets, Demand and Supply, and the Price System Que42
Which of the following would not shift the demand curve for golf balls?
a. An increase in the price of golf clubs
b. A decrease in the popularity of golf
c. An increase in the number of golfers
d. An expected increase in the price of golf balls
*e. A decrease in the price of golf balls
328. Chapter 3—Markets, Demand and Supply, and the Price System Que43
Assume the demand for network game time is downward sloping. An increase
in price from $2 per hour to $3 per hour
a. could have been caused by an increase in supply.
b. will cause a larger quantity of game time access to be
demanded.
c. will cause demand for game time access to decrease.
d. could have been caused by fewer people paying network game.
*e. will cause a smaller quantity of game time access to be
demanded.
329. Chapter 3—Markets, Demand and Supply, and the Price System Que44
Which of the following will cause an increase in the quantity demanded
along a downward-sloping demand curve for ice cream cones at Baskin
Robbins chain stores?
a. Sizzling temperatures occur on a summer afternoon in Phoenix.
b. The price of yogurt that the chain sells increases 50 percent.
c. A new technology is discovered that allows Baskin Robbins to
make ice cream using new machinery at half the cost required with
the old machinery.
*d. Baskin Robbins advertises that the price of their ice cream
cones has been reduced by 25 percent.
e. The income level of ice cream consumers increases 25 percent.
330. Chapter 3—Markets, Demand and Supply, and the Price System Que45
When it is observed that as the price of Mercedes-Benz cars rises, the
quantity demanded also rises, what might one likely explanation be?
a. It is impossible for the quantity demanded of any good to rise
as its price increases.
b. Substitute goods have probably flooded the market.
c. People's incomes have declined significantly across all income
levels.
*d. As the price of the Mercedes-Benz goes up, ownership of it
becomes more prestigious.
e. The car is an inferior good.
331. Chapter 3—Markets, Demand and Supply, and the Price System Que46
Assume the price per pound of coffee goes from $6.00 to $12.00 overnight
due to devastating weather conditions that destroyed half of the coffee
crop. Which of the following is not likely to happen today?
*a. Movement down along the demand curve for coffee.
b. The demand curve for coffee makers shifts inward.
c. The demand curve for tea shifts outward.
d. The demand curve for Coffee Mate shifts inward.
e. Some people will be very sleepy in the mornings.
332. Chapter 3—Markets, Demand and Supply, and the Price System Que47
Which of the following might not cause a shift in the demand curve for
bacon?
a. The price of beef sausages doubles.
b. A popular talk show host claims that a direct link exists
between the consumption of bacon and cancer.
c. CNN announces that pork from certain regions of the country has
been tainted and is not safe for human consumption.
d. The price of "Leaner-Than-Cardboard-But-Slightly-Tastier
Strips," a highly successful and popular low-fat substitute for
bacon, is cut in half.
*e. The price of bacon at the supermarket is cut in half.
333. Chapter 3—Markets, Demand and Supply, and the Price System Que48
If the price of tennis rackets increases and causes the demand for
tennis balls to shift to the left, then
*a. tennis rackets and tennis balls are complements.
b. tennis rackets and tennis balls are substitutes.
c. tennis rackets and tennis balls are bads.
d. only tennis balls are bads.
e. tennis rackets and tennis balls are too expensive.
334. Chapter 3—Markets, Demand and Supply, and the Price System Que49
If the price of CD (compact disk) players is suddenly cut in half due to
a technological innovation, what is likely to happen to the demand for
the CDs?
a. There will be no direct impact.
*b. The demand curve for CDs will probably shift out.
c. There will be a movement upward along the demand curve for CDs.
d. There will be a movement downward along the demand curve for
CDs.
e. The demand curve for CDs will probably shift in.
335. Chapter 3—Markets, Demand and Supply, and the Price System Que50
Late last year, the price of good A dropped dramatically. Within one
week, the demand for good B almost doubled. This implies that goods A
and B are probably
*a. complementary goods.
b. substitute goods.
c. overpriced.
d. economic bads.
e. shifting to the right.
336. Chapter 3—Markets, Demand and Supply, and the Price System Que51
Assume that butter and margarine are substitute goods. Last week at a
local food store, when the price of butter increased sharply, the demand
for margarine immediately
a. disappeared.
b. remained unchanged.
c. moved back up along the original demand curve.
*d. shifted outward.
e. shifted inward.
337. Chapter 3—Markets, Demand and Supply, and the Price System Que52
If Mark's income increases he consumes more hamburger, other things held
constant. To Mark hamburger is
*a. a normal good.
b. an inferior good.
c. substitute good.
d. a complementary good.
e. none of these choices.
338. Chapter 3—Markets, Demand and Supply, and the Price System Que53
A rightward shift in the demand curve for popcorn could be the result of
a. a decrease in the number of buyers of popcorn.
b. a decrease in the price of potato chips (a substitute good).
c. an increase in the price of butter (a complementary good).
*d. an increase in income, if popcorn is a normal good.
e. an increase in the price of popcorn.
339. Chapter 3—Markets, Demand and Supply, and the Price System Que54
Other things held constant, when income increases people purchase less
at any given price. The good is called
a. normal good.
*b. inferior good.
c. substitute good.
d. complementary good.
e. none of these choices
340. Chapter 3—Markets, Demand and Supply, and the Price System Que55
According to the text, the price of hotel accommodations is higher in
Phoenix in the winter than in the summer, the price of beef is higher in
Japan than in the United States, and the price of the dollar in terms of
the Japanese yen is higher now than it was 10 years ago because
a. demand is higher.
b. supply is higher.
*c. demand and supply interact to determine the price.
d. quantity demanded is higher.
e. quantity supplied is higher.
341. Chapter 3—Markets, Demand and Supply, and the Price
It is sometimes said that Gucci clothes are outrageously
that the suppliers of these garments are ripping off all
Which of the following statements might an economist put
reaction to statements such as this?
System Que56
expensive and
consumers.
forth in
*a. The price of any good is determined by supply and demand.
b. This is merely one example of how the government fulfills its
role through its benevolent attempts to keep the gouging to a
minimum.
c. Since price is determined solely by the supplier of any good,
consumers are by definition subject to whatever price is set by
those suppliers.
d. Demand alone determines the price of a good, and it is
therefore impossible for consumers to be ripped off.
e. Suppliers unwilling to supply their product at reasonable
prices that consumers can afford to pay should be prohibited by
law from conducting business.
342. Chapter 3—Markets, Demand and Supply, and the Price System Que57
Figure 3-4
The law of supply is composed of the following five phrases:
1.
2.
3.
4.
5.
the quantity of a well-defined good or service
that producers are willing and able to offer for sale
during a particular period of time
increases as the price of that good or service rises and decreases as the price falls,
everything else held constant.
Refer to Figure 3-4. According to the text, phrase 1 means
*a. that we are referring to the same item, not mixing different
items.
b. that a good or service that is not well defined will be a free
good.
c. that a good or service that is not well defined will be an
economic bad.
d. even if producers think goods are identical, if economists
haven't called them well defined, there is no supply.
e. even if consumers think goods are identical, if economists
haven't called them well defined, there is no supply.
343. Chapter 3—Markets, Demand and Supply, and the Price System Que58
Figure 3-4
The law of supply is composed of the following five phrases:
1.
2.
3.
4.
5.
the quantity of a well-defined good or service
that producers are willing and able to offer for sale
during a particular period of time
increases as the price of that good or service rises and decreases as the price falls,
everything else held constant.
Refer to Figure 3-4. According to the text, phrase 3 means
a. that supply is the same whether we are talking about a month or
a year.
*b. that supply may be different depending on whether we are
talking about a month or a year.
c. that if goods are produced in one month and sold in a different
month, they are not part of supply.
d. that if goods are not sold for a while and then are sold at a
discount sale several months later, they are not part of supply.
e. that wants and ability to produce will not change over time.
344. Chapter 3—Markets, Demand and Supply, and the Price System Que59
Economists use the term supply to refer to
a. the downward-sloping line that relates consumer expenditures to
different output levels.
b. the upward-sloping line that relates consumer expenditures to
different output levels.
*c. a set of price and quantity-supplied combinations, everything
else held constant.
d. a particular quantity supplied at a specific price.
e. the amount producers are willing but not able to produce at
each price.
345. Chapter 3—Markets, Demand and Supply, and the Price System Que60
The quantity supplied is
*a. the amount sellers are willing and able to offer at a given
price, during a particular time period, everything else held
constant.
b. the amount sellers are willing and able to offer for sale at
all possible prices.
c. a set of price and quantity-supplied combinations, everything
else held constant.
d. a list of prices and the corresponding quantities supplied.
e. a downward-sloping line that relates expenditures to different
levels of output.
346. Chapter 3—Markets, Demand and Supply, and the Price System Que61
The law of supply illustrates that
a. as price increases, quantity supplied decreases.
b. demand must decrease to cause an increase in quantity supplied.
c. a change in price causes a change in supply.
*d. whatever affects price affects quantity supplied.
e. price changes are always in the same direction as supply
changes.
347. Chapter 3—Markets, Demand and Supply, and the Price System Que62
According to the law of supply, if the price of electric ranges
decreased, everything else held constant, then
a. the supply of electric ranges would decrease.
b. the demand for gas ranges would decrease.
c. the demand for electric ranges would increase.
d. the supply of electric ranges would increase.
*e. the quantity supplied of electric ranges would decrease.
348. Chapter 3—Markets, Demand and Supply, and the Price System Que63
The supply curve slopes upward because
*a. suppliers of a good or service are likely to increase the
quantity they are willing and able to supply as the price of the
good or service increases, everything else held constant.
b. suppliers of a good or service are likely to decrease the
quantity they are willing and able to supply as the price of the
good or service increases, everything else held constant.
c. suppliers of a good or service are not likely to change the
quantity they are willing and able to supply as the price of the
good or service increases, everything else held constant.
d. price doesn't matter.
e. resources are not scarce.
349. Chapter 3—Markets, Demand and Supply, and the Price System Que64
Figure 3-5
Quantities Supplied
Price per Loaf
Orobran 1
Holsum 1
$5
60
30
4
50
25
3
40
20
2
30
15
1
20
10
1Orobran, Holsum, and Deliteful are the only producers of bread.
Deliteful 1
12
9
6
3
0
According to Figure 3-5, the market supply of bread is given by what
quantities corresponding to $5, 4, 3, 2, 1?
*a. 102, 84, 66, 48, 30
b. 60, 50, 40, 30, 20
c. 30, 48, 66, 84, 102
d. 90, 75, 60, 45, 30
e. 30, 25, 20, 15, 10
350. Chapter 3—Markets, Demand and Supply, and the Price System Que65
Figure 3-5
Quantities Supplied
Price per Loaf
Orobran 1
Holsum 1
$5
60
30
4
50
25
3
40
20
2
30
15
1
20
10
1Orobran, Holsum, and Deliteful are the only producers of bread.
Deliteful 1
12
9
6
3
0
Refer to Figure 3-5. If Orobran decreased its bakers' salaries, it would
a. increase its quantity supplied.
b. increase its supply but the market supply would fall.
c. decrease its supply but the market supply would rise.
*d. increase its supply and the market supply would rise.
e. increase its quantity supplied, causing the market quantity
supplied to fall.
351. Chapter 3—Markets, Demand and Supply, and the Price System Que66
Which of the following would not affect the supply of automobiles?
a. An increase in the price of steel
b. An improvement in the technology of automobile manufacturing
*c. An increase in the price of automobiles
d. A decrease in the number of automobile producers
e. An increase in the productivity of workers
352. Chapter 3—Markets, Demand and Supply, and the Price System Que67
If producers obtain a lower price of resource to produce any given
quantity of good, we can conclude that
a. supply decreased.
b. demand decreased.
c. demand increased.
*d. supply increased.
e. both demand and supply increased.
353. Chapter 3—Markets, Demand and Supply, and the Price System Que68
If farmers believe that it is more profitable to produce wheat than
corn, we can expect
a. the price of wheat to rise.
b. the supply of corn to increase.
c. the quantity demanded of wheat to decrease.
d. the demand for wheat to increase.
*e. the supply of corn to decrease.
354. Chapter 3—Markets, Demand and Supply, and the Price System Que69
In terms of the supply side of the market, the initial consequences of a
violation of the "other things held constant" condition is likely to be
a. a movement along the supply curve.
b. a movement along the supply schedule.
*c. a shift of the supply curve.
d. a change in quantity supplied.
e. a change in quantity sold.
355. Chapter 3—Markets, Demand and Supply, and the Price System Que70
Assume the supply curve of sirloin steak is upward sloping. If the price
increases from $4.25 to $8.60 per pound,
a. the supply of sirloin steak will rise.
*b. a greater quantity of sirloin steak will be supplied.
c. a small quantity of sirloin steak will be supplied.
d. the demand for sirloin steak will decrease.
e. the supply of sirloin steak will decrease.
356. Chapter 3—Markets, Demand and Supply, and the Price System Que71
In which of the following statements are the terms demand, supply,
quantity demanded, and quantity supplied used correctly?
*a. Changes in demand and supply cause changes in the equilibrium
price.
b. If the demand rises, supply rises.
c. Oranges are cheaper in Florida, and therefore the demand is
greater in Florida.
d. When the quantity demanded exceeds supply, the equilibrium
price will rise.
e. All of these.
357. Chapter 3—Markets, Demand and Supply, and the Price System Que72
An increase in a product supply curve might be caused by
*a. some firms entering an industry.
b. an increase in the price of an input (resource).
c. an increase in the price of the product.
d. a decrease in consumer incomes.
e. some firms leaving an industry.
358. Chapter 3—Markets, Demand and Supply, and the Price System Que73
A market is in equilibrium when
a. equilibrium price equals equilibrium quantity.
b. the price is high.
c. the price is low.
d. government imposes price controls.
*e. the demand and supply curves intersect.
359. Chapter 3—Markets, Demand and Supply, and the Price System Que74
Which of the following can occur when a market is in equilibrium?
a. There is a shortage.
b. The quantity demanded is less than the quantity supplied.
*c. The quantity demanded and the quantity supplied are equal.
d. There is a surplus.
e. The quantity demanded is greater than the quantity supplied.
360. Chapter 3—Markets, Demand and Supply, and the Price System Que75
A price at which quantity demanded equals quantity supplied
a. could not possibly exist in the short run.
b. will cause a shift in demand.
c. is below the equilibrium price.
*d. is an equilibrium price.
e. is above the equilibrium price.
361. Chapter 3—Markets, Demand and Supply, and the Price System Que76
Figure 3-6
Price per Access Hour
$5
4
3
2
1
Quantity Demanded per Week Quantity Supplied per Week
30
102
48
84
66
66
84
48
102
30
In the market shown in Figure 3-6, equilibrium occurs at
a. $5, 72.
b. $4, 36.
*c. $3, 66.
d. $2, 36.
e. $1, 72.
362. Chapter 3—Markets, Demand and Supply, and the Price System Que77
Figure 3-6
Price per Access Hour
$5
4
3
2
1
Quantity Demanded per Week Quantity Supplied per Week
30
102
48
84
66
66
84
48
102
30
Beginning with equilibrium in Figure 3-6, an increase in price of $1
would
a. cause a shortage of 36.
*b. cause a surplus of 36.
c. cause a shortage of 72.
d. cause a surplus of 72.
e. lead to an increase in demand.
363. Chapter 3—Markets, Demand and Supply, and the Price System Que78
Figure 3-6
Price per Access Hour
$5
4
3
2
1
Quantity Demanded per Week Quantity Supplied per Week
30
102
48
84
66
66
84
48
102
30
Beginning with equilibrium in Figure 3-6, a decrease in price of $1
would
*a. cause a shortage of 36.
b. cause a surplus of 36.
c. cause a shortage of 72.
d. cause a surplus of 72.
e. lead to an increase in demand.
364. Chapter 3—Markets, Demand and Supply, and the Price System Que79
Disequilibrium does not exist when
a. there is a shortage.
b. there is a surplus.
c. the existing price is above the equilibrium price.
d. the existing price is below the equilibrium price.
*e. quantity demanded and quantity supplied are equal.
365. Chapter 3—Markets, Demand and Supply, and the Price System Que80
Which of the following statements is true of any market?
*a. The interaction of demand and supply determines the price and
quantity in that market.
b. There must be a supply of the item but not necessarily a demand
for the item.
c. Demand and supply are always equal for an item.
d. There must be a demand for the item but not necessarily a
supply of the item.
e. The market will always be in equilibrium.
366. Chapter 3—Markets, Demand and Supply, and the Price System Que81
From a point of equilibrium, which of the following conditions is most
likely to result in a surplus?
a. Demand shifts to the right.
*b. The government keeps the price greater than the equilibrium
price.
c. Supply shifts to the left.
d. The government keeps the price below the equilibrium price.
e. The quantity demanded is greater than the quantity supplied.
367. Chapter 3—Markets, Demand and Supply, and the Price System Que82
If price is below equilibrium,
a. demand is too low for equilibrium.
b. the income and substitution effects will cause the price to
rise.
*c. quantity demanded exceeds quantity supplied, and a shortage
exists.
d. demand will increase.
e. quantity supplied exceeds quantity demanded, and a shortage
exists.
368. Chapter 3—Markets, Demand and Supply, and the Price System Que83
A shortage in tickets for an NBA basketball game
*a. occurs when the quantity supplied is smaller than the quantity
demanded at a given price.
b. occurs when the quantity supplied is greater than the quantity
demanded at a given price.
c. occurs when the price of the tickets is too high.
d. is exactly the same thing as scarcity in tickets for an NBA
basketball game.
e. implies that equilibrium has been achieved.
369. Chapter 3—Markets, Demand and Supply, and the Price System Que84
Figure 3-7
nar007-1.jpg
Consider the market described by the demand and supply curves in Figure
3-7. Which of the following is true if the current market price is $40
per unit?
a. The quantity sold is 400 units.
b. There is a shortage of 200 units.
*c. The quantity demanded is 200 units.
d. The quantity supplied is 200 units.
e. There is an excess demand of 200.
370. Chapter 3—Markets, Demand and Supply, and the Price System Que85
Figure 3-7
nar007-1.jpg
Assume that the market described by the demand and supply curves in
Figure 3-7 is originally in equilibrium. What is the most likely
consequence of a government-imposed price ceiling of $10 per unit?
a. Supply will increase.
b. Demand will increase.
*c. Quantity supplied will decrease.
d. There will be a surplus of the good.
e. There will be no consequence at all.
371. Chapter 3—Markets, Demand and Supply, and the Price System Que86
An equilibrium in a market results when the market
a. produces a surplus.
*b. produces at output in which the price consumers are willing to
pay exactly equals the price producers are willing to accept.
c. produces an output in which the demand curve lies above the
supply curve.
d. results in a product that can be purchased at many different
prices.
e. produces an output in which the supply curve lies above the
demand curve.
372. Chapter 3—Markets, Demand and Supply, and the Price System Que87
Figure 3-8
Price
$45
50
55
60
65
70
Quantity Demanded
350
300
250
200
150
100
Quantity Supplied
0
5
50
100
150
200
In Figure 3-8, which is the equilibrium price?
a. $45
b. $70
c. $60
*d. $65
e. $50
373. Chapter 3—Markets, Demand and Supply, and the Price System Que88
Figure 3-8
Price
$45
50
55
60
65
70
Quantity Demanded
350
300
250
200
150
100
Quantity Supplied
0
5
50
100
150
200
Refer to Figure 3-8. If a price ceiling of $55 is imposed,
a. a shortage will result equal to 250 units.
*b. a shortage will result equal to 200 units.
c. a surplus will result equal to 200 units.
d. the price will be forced to the equilibrium price before the
ceiling.
e. the price will be above the equilibrium price.
374. Chapter 3—Markets, Demand and Supply, and the Price System Que89
Figure 3-8
Price
$45
50
55
60
65
70
Quantity Demanded
350
300
250
200
150
100
Quantity Supplied
0
5
50
100
150
200
Refer to Figure 3-8. If a price floor of $50 is imposed, which of the
following will not be true?
a. At a price of $50, a shortage will result equal to 295 units.
b. At a price of $50, quantity supplied will equal 5 units.
c. Equilibrium price will not be attainable.
d. At a price of $50, market forces will work to increase the
price.
*e. The price floor will have no effect.
375. Chapter 3—Markets, Demand and Supply, and the Price System Que90
Figure 3-8
Price
$45
50
55
60
65
70
Quantity Demanded
350
300
250
200
150
100
Quantity Supplied
0
5
50
100
150
200
Refer to Figure 3-8. If a price floor of $70 is imposed,
a. a shortage will result equal to 100 units.
b. a shortage will result equal to 200 units.
c. the price will move to its equilibrium level.
d. producers will not supply the market.
*e. a surplus will result equal to 100 units.
376. Chapter 3—Markets, Demand and Supply, and the Price System Que91
Figure 3-8
Price
$45
50
55
60
65
Quantity Demanded
350
300
250
200
150
Quantity Supplied
0
5
50
100
150
70
100
200
Refer to Figure 3-8. At a price of $45,
*a. we would expect the price to rise because of a shortage equal
to 350 units.
b. we would expect the amount purchased to fall because of a
surplus equal to 350 units.
c. none of the commodity is demanded.
d. we would expect the price to fall because of a shortage equal
to 350 units.
e. 350 units of the commodity are supplied.
377. Chapter 3—Markets, Demand and Supply, and the Price System Que92
Figure 3-9
nar009-1.jpg
In Figure 3-9, quantity supplied exceeds quantity demanded at
a. $4.
b. $7.
*c. $10.
d. $5.
e. $2.
378. Chapter 3—Markets, Demand and Supply, and the Price System Que93
Figure 3-9
nar009-1.jpg
In Figure 3-9, when the price is set at $10, there is
a. a shortage.
*b. a surplus.
c. equilibrium.
d. excess quantity demanded of 6 units.
e. excess quantity supplied of 3 units.
379. Chapter 3—Markets, Demand and Supply, and the Price System Que94
Figure 3-9
nar009-1.jpg
In Figure 3-9, when quantity is limited to 19 units, what is the highest
price consumers are willing to pay?
a. $5
*b. $10
c. $7
d. $4
e. $12
380. Chapter 3—Markets, Demand and Supply, and the Price System Que95
Figure 3-9
nar009-1.jpg
In Figure 3-9, when the price is set at $5, there is
*a. a shortage.
b. a surplus.
c. excess quantity supplied of 4 units.
d. equilibrium.
e. excess quantity demanded of 2 units.
381. Chapter 3—Markets, Demand and Supply, and the Price System Que96
Figure 3-9
nar009-1.jpg
In Figure 3-9, quantity demanded exceeds quantity supplied at
*a. $5.
b. $10.
c. $12.
d. $15.
e. $7.
382. Chapter 3—Markets, Demand and Supply, and the Price System Que97
Figure 3-9
nar009-1.jpg
In Figure 3-9, if price falls from $7 to $5,
a. demand will increase.
*b. quantity demanded will increase.
c. there will be a surplus of 4 units.
d. supply will decrease.
e. quantity supplied will increase.
383. Chapter 3—Markets, Demand and Supply, and the Price System Que98
Figure 3-9
nar009-1.jpg
In Figure 3-9, equilibrium price and quantity are
*a. $7 and 22 units, respectively.
b. $10 and 19 units, respectively.
c. $10 and 25 units, respectively.
d. $5 and 20 units, respectively.
e. $5 and 24 units, respectively.
384. Chapter 3—Markets, Demand and Supply, and the Price System Que99
Figure 3-10
nar010-1.jpg
In Figure 3-10, which of the following is true if D1 and S1 are the
original supply and demand curves and D2 is the new demand curve?
a. Supply has increased.
b. Demand has increased.
c. The original equilibrium quantity was 57.
*d. Demand has decreased.
e. The new equilibrium quantity is 66.
385. Chapter 3—Markets, Demand and Supply, and the Price System Qu100
Figure 3-10
nar010-1.jpg
In Figure 3-10, which of the following is true if D1 and S1 are the
original supply and demand curves and D2 is a new demand curve?
a. At the original price of $3, a shortage of 18 DVDs results when
demand changes.
*b. At the original price of $3, a surplus of 18 DVDs results when
demand changes.
c. At the original price of $3, a scarcity of 18 DVDs results when
demand changes.
d. At the original price of $3, no DVDs would be rented following
the demand change.
e. At the original price of $3, the new demand causes price to
decrease and supply to decrease.
386. Chapter 3—Markets, Demand and Supply, and the Price System Qu101
Figure 3-10
nar010-1.jpg
In Figure 3-10, which of the following is true if D2 and S1 are the
original supply and demand curves and D1 is the new demand curve?
*a. At the original price of $2.50, a shortage of 18 DVDs results
when demand changes
b. At the original price of $2.50 a surplus of 18 DVDs results
when demand changes
c. At the original price of $2.50, a scarcity of 18 DVDs results
when demand changes
d. At the original price of $2.50, no DVDs would be rented
following the demand change
e. At the original price of $2.50, the new demand causes price to
increase and supply to increase
387. Chapter 3—Markets, Demand and Supply, and the Price System Qu102
Figure 3-11
nar011-1.jpg
In Figure 3-11, the initial demand curve is D1 and the supply curve is
S1. Which of the following conditions would be most likely to change
equilibrium from point A to point D?
a. An increase in income
b. A decrease in the price of good X
*c. An increase in the price of a complementary good
d. Lower productivity
e. An increase in the price of a substitute good
388. Chapter 3—Markets, Demand and Supply, and the Price System Qu103
Figure 3-11
nar011-1.jpg
In Figure 3-11, the initial demand curve is D1 and the supply curve is
S1. The most likely result of pessimistic producer expectations is
a. a move from equilibrium A to equilibrium D.
b. a move from equilibrium A to equilibrium E.
c. a move from equilibrium A to equilibrium F.
d. a move from equilibrium B to equilibrium A.
*e. a move from equilibrium A to equilibrium B.
389. Chapter 3—Markets, Demand and Supply, and the Price System Qu104
Figure 3-11
nar011-1.jpg
In Figure 3-11, the initial demand curve is D1 and the supply curve is
S1. If the price of a substitute good increases, what is the most likely
result?
*a. Demand will shift to D2.
b. Equilibrium will move from A to E.
c. Equilibrium will move from A to C.
d. Equilibrium will move from A to D.
e. Demand will shift to D3.
390. Chapter 3—Markets, Demand and Supply, and the Price System Qu105
Figure 3-11
nar011-1.jpg
In Figure 3-11, the initial demand curve is D1 and the supply curve is
S1. If consumers become optimistic about their future economic wellbeing, the most likely consequence is
a. a shift from S1 to S2.
*b. a shift from D1 to D2.
c. a shift from D1 to D3.
d. a shift from D3 to D1.
e. a shift from D2 to D1.
391. Chapter 3—Markets, Demand and Supply, and the Price System Qu106
Assume that at the current market price of $4 per unit of a good, you
are willing and able to buy 20 units. Last year at a price of $4 per
unit, you would have purchased 30 units. What is most likely to have
happened over the last year?
a. Demand has increased.
*b. Demand has decreased.
c. Supply has increased.
d. Supply has decreased.
e. Quantity supplied has decreased.
392. Chapter 3—Markets, Demand and Supply, and the Price System Qu107
More digital cameras are being sold today than one year ago, and the
selling price has increased. This could have been caused by
a. a decrease in supply.
*b. an increase in demand.
c. a decrease in demand.
d. an increase in supply.
e. an exception to the law of demand.
393. Chapter 3—Markets, Demand and Supply, and the Price System Qu108
Changes in equilibrium due to supply shifts
a. are disruptive to the economy and rarely occur without
government intervention.
b. affect only the price of a good or service.
c. affect only the quantity supplied of a good or service.
*d. affect both the price and the quantity sold of a good or
service.
e. have been outlawed in some states.
394. Chapter 3—Markets, Demand and Supply, and the Price System Qu109
If demand decreases but supply increases, we can say that
a. equilibrium price will rise, but equilibrium quantity is
indeterminate.
b. equilibrium quantity will decrease, but equilibrium quantity is
indeterminate.
c. we require more information to determine the movement in price
and quantity.
*d. equilibrium price will decrease, but equilibrium quantity is
indeterminate.
e. equilibrium quantity will rise, but equilibrium price is
indeterminate.
395. Chapter 3—Markets, Demand and Supply, and the Price System Qu110
If both demand and supply decreases, then
a. equilibrium price must decrease, but equilibrium quantity may
rise, fall, or remain unchanged.
b. equilibrium price and quantity must both go down.
*c. equilibrium quantity must decrease, but equilibrium price may
rise, fall, or remain unchanged.
d. equilibrium price and quantity must both go up.
e. None of these.
396. Chapter 3—Markets, Demand and Supply, and the Price System Qu111
If demand moves to the right as supply moves to the right, then
a. equilibrium price must increase, but equilibrium quantity may
rise, fall, or remain unchanged.
b. equilibrium price and quantity must both go down.
*c. equilibrium quantity must rise, but equilibrium price may
rise, fall, or remain unchanged.
d. equilibrium price and quantity must both go up.
e. None of these.
397. Chapter 3—Markets, Demand and Supply, and the Price System Qu112
Figure 3-12
nar012-1.jpg
Refer to Figure 3-12. Assume that D1 and S1 are the initial curves. The
shift in supply to S2 could have been the result of each of the
following except
a. a technological improvement.
b. optimistic producer expectations.
c. an increase in the number of producers.
*d. higher resource costs.
e. greater productivity.
398. Chapter 3—Markets, Demand and Supply, and the Price System Qu113
Figure 3-12
nar012-1.jpg
Refer to Figure 3-12. Assume that D1 and S1 are the initial curves. The
shift in demand to D2 is most likely to be the result of
a. an increase
b. an increase
c. an increase
d. pessimistic
*e. a shift in
in the number of consumers.
in expected income.
in the price of a substitute good.
producer expectations.
consumer tastes away from the product.
399. Chapter 3—Markets, Demand and Supply, and the Price System Qu114
If a technological improvement took place in the computer industry, we
would expect the equilibrium price of computers to
a. increase and the quantity of computers sold to increase.
*b. decrease and the quantity of computers sold to increase.
c. increase and the quantity of computers sold to decrease.
d. decrease and the quantity of computers sold to decrease.
e. increase and the quantity of computers sold to stay the same.
400. Chapter 3—Markets, Demand and Supply, and the Price System Qu115
Figure 3-13
nar013-1.jpg
In Figure 3-13, which graph represents what might happen if there were
an increase in the price of metal used in the production of bicycles?
a. A
b. B
*c. C
d. D
e. E
401. Chapter 3—Markets, Demand and Supply, and the Price System Qu116
Figure 3-14
nar014-1.jpg
Assume that the market described by the demand and supply curves in
Figure 3-14 is originally in equilibrium. What is the most likely
consequence of a government-imposed price ceiling at $10 per unit?
a. Supply will decrease.
b. Demand will increase.
*c. Quantity supplied will decrease.
d. There will be a surplus of the good.
e. There will be no consequence at all.
402. Chapter 3—Markets, Demand and Supply, and the Price System Qu117
Figure 3-15
Quantity Demanded
10
20
Price per Unit
$5
4
Quantity Supplied
50
40
30
40
50
3
2
1
30
20
10
Referring to Figure 3-15, if government imposes a price of $2,
a. the price will be above equilibrium.
b. the price will fall to $1 because producers will be forced to
incur losses.
c. demand will increase.
d. a surplus will result equal to 20 units.
*e. a shortage will result equal to 20 units.
403. Chapter 3—Markets, Demand and Supply, and the Price System Qu118
Figure 3-15
Quantity Demanded
10
20
30
40
50
Price per Unit
$5
4
3
2
1
Quantity Supplied
50
40
30
20
10
Referring to Figure 3-15, if government imposes a price ceiling of $4,
*a. the price ceiling will not have an effect.
b. the price will fall to $1 because producers will be forced to
incur losses.
c. demand will increase.
d. a surplus will result equal to 20 units.
e. a shortage will result equal to 20 units.
404. Chapter 3—Markets, Demand and Supply, and the Price System Qu119
Figure 3-15
Quantity Demanded
10
20
30
40
50
Price per Unit
$5
4
3
2
1
Quantity Supplied
50
40
30
20
10
Referring to Figure 3-15, if government imposes a price floor of $2,
*a. the price floor will not have an effect.
b. the price will fall to $1 because producers will be forced to
incur losses.
c. demand will increase.
d. a surplus will result equal to 20 units.
e. a shortage will result equal to 20 units.
405. Chapter 3—Markets, Demand and Supply, and the Price System Qu120
Which of the following is not an example of a price ceilings?
a. The government sets the price of housing in China below
equilibrium.
b. The former Soviet Union government set prices on food below
that prevailing in the free market.
c. In the 1970s, the Nixon administration imposed wage and price
controls, thereby keeping wages and prices from rising.
d. In the late 1970s, the U.S. government required gasoline to be
sold at a price per gallon that was below what would have
prevailed in a free market.
*e. The U.S. government requires that sugar be sold at a price
that exceeds the world price of sugar.
406. Chapter 3—Markets, Demand and Supply, and the Price System Qu121
A price ceiling
a. is not allowed.
*b. is a situation where the price is not allowed to increase
above a certain level.
c. is a situation where the price is not allowed to decrease below
a certain level.
d. creates a surplus of a good.
e. is sometimes necessary to help with the natural functioning of
the market mechanism.
407. Chapter 3—Markets, Demand and Supply, and the Price System Qu122
A price floor
a. is not allowed.
b. is a situation where the price is not allowed to increase above
a certain level.
*c. is a situation where the price is not allowed to decrease
below a certain level.
d. creates a shortage of a good.
e. is sometimes necessary to help with the natural functioning of
the market mechanism.
408. Chapter 3—Markets, Demand and Supply, and the Price System Qu123
Minimum wage law
a.
b.
c.
d.
makes employers hire more workers.
creates more jobs.
creates shortages in labor market.
increases government tax revenue.
*e. creates more unemployment.
409. Chapter 3—Markets, Demand and Supply, and the Price System Qu124
During the 1990s, many countries turned from government-run economies to
market economies, but one that did not do so is
*a. South Korea.
b. China.
c. Russia.
d. Romania.
e. Poland.
410. Chapter 3—Markets, Demand and Supply, and the Price System Qu125
When Russian government price controls were lifted during the 1990s, the
price of clothing
a. moved away from equilibrium.
b. did not change.
*c. moved toward equilibrium.
d. could not be determined.
e. None of the above.
411. Chapter 3—Markets, Demand and Supply, and the Price System Qu126
During the 1990s, some countries lifted price ceiling on eggs,
a. the demand for eggs in those countries increased.
b. the demand for eggs in those countries decreased.
c. the price of egg in those countries declined.
d. the price of egg in those countries remained constant.
*e. the price of egg in those countries immediately went up.
412. Chapter 3—Markets, Demand and Supply, and the Price System Qu127
In China, the government price ceiling for eggs causes
*a. a shortage of eggs.
b. a surplus of eggs.
c. quantity demanded of eggs to equal to quantity supplied of
eggs.
d. more farmers to raise chickens.
e. None of the above.
413. Chapter 3—Markets, Demand and Supply, and the Price System Qu128
According to the text, in countries where agriculture was a major
industry,
a. the transition occurred slowly.
*b. the transition occurred rapidly.
c. the transition did not occur.
d. the transition might or might not occur.
e. All of the above.
414. Chapter 3—Markets, Demand and Supply, and the Price System Qu129
In the article, Senator Maria Cantwell proposed giving the president the
power to tell gasoline retailers what they can charge at the pump. This
is an example of
a. a price floor.
*b. a price ceiling.
c. a fair price.
d. an equilibrium price.
e. None of the above.
415. Chapter 3—Markets, Demand and Supply, and the Price System Qu130
After Ronald Reagan lifted price caps on gas,
a. gas shortage continued.
b. gas surplus occurred.
*c. gas shortage ended.
d. gas surplus increased.
e. gas demand decreased.
416. Chapter 3—Markets, Demand and Supply, and the Price System Qu131
In July 2006, gas price skyrocketed. This proved that
a. oil companies have manipulated the energy market to gouge
consumers.
b. market demand and supply did not work anywhere in the economy.
c. market demand and supply did not work well in determining gas
price.
*d. market demand and supply work effectively.
e. government did not do its job to protect consumers.
417. Chapter 3—Markets, Demand and Supply, and the Price System Qu132
Which of the following statements is true?
a. Higher price encourages production.
*b. Higher price discourages production.
c. Higher price encourages consumption.
d. Consumers move to bigger houses when gas prices are high.
e. Consumers purchase more of the other goods when gas prices are
high.
418. Chapter 3—Markets, Demand and Supply, and the Price System Qu133
Merit system is fair to everyone for the distribution of goods and
resources.
a. True
*b. False
419. Chapter 3—Markets, Demand and Supply, and the Price System Qu134
Since everyone is given equal choice to receive goods the lottery
approach should be used in distributing goods.
a. True
*b. False
420. Chapter 3—Markets, Demand and Supply, and the Price System Qu135
First-come, first-served allocation scheme provides producers incentives
to increase production of goods.
a. True
*b. False
421. Chapter 3—Markets, Demand and Supply, and the Price System Qu136
Under government systems the living standard is higher than that under
the market system.
a. True
*b. False
422. Chapter 3—Markets, Demand and Supply, and the Price System Qu137
The exchange of goods and services without the use of money is called
"over-the-counter exchange."
a. True
*b. False
423. Chapter 3—Markets, Demand and Supply, and the Price System Qu138
A market is always a specific location or store.
a. True
*b. False
424. Chapter 3—Markets, Demand and Supply, and the Price System Qu139
If the same model car price difference between Boston and New York city
is $5,000, during a reasonable time period this price difference will be
reduced.
*a. True
b. False
425. Chapter 3—Markets, Demand and Supply, and the Price System Qu140
An example of the term double coincidence of wants is a gardener who
would like legal services and a lawyer who likes to do her own gardening
in order to relax.
a. True
*b. False
426. Chapter 3—Markets, Demand and Supply, and the Price System Qu141
An example of barter occurs when you do yard work for a friend in
exchange for that same friend repairing your car.
*a. True
b. False
427. Chapter 3—Markets, Demand and Supply, and
In the law of demand, the relationship between
determinants of demand is that ceteris paribus
held constant," and those things held constant
demand.
the Price System Qu142
ceteris paribus and the
means "everything else
are the determinants of
*a. True
b. False
428. Chapter 3—Markets, Demand and Supply, and the Price System Qu143
The demand curve for DVD will shift if there is a change in the price of
DVD.
a. True
*b. False
429. Chapter 3—Markets, Demand and Supply, and the Price System Qu144
When people's income increases, the quantity demanded for computer also
increases.
a. True
*b. False
430. Chapter 3—Markets, Demand and Supply, and the Price System Qu145
An individual demand schedule or curve shows the various quantities of a
good that a person is willing and able to purchase at alternative income
levels, everything else the same.
a. True
*b. False
431. Chapter 3—Markets, Demand and Supply, and the Price System Qu146
The demand schedule is a table showing that the quantity of a good
purchase decreases when the price of the good increases, everything else
held constant.
*a. True
b. False
432. Chapter 3—Markets, Demand and Supply, and the Price System Qu147
Demand curve shows a positive relationship between price of a good and
quantity demanded for the good, everything held constant.
a. True
*b. False
433. Chapter 3—Markets, Demand and Supply, and the Price System Qu148
The market demand curve is determined by adding the individual demand
curves in a horizontal direction.
*a. True
b. False
434. Chapter 3—Markets, Demand and Supply, and the Price System Qu149
A successful consumer boycott of lettuce is expected to cause a decrease
in the demand for lettuce.
*a. True
b. False
435. Chapter 3—Markets, Demand and Supply, and the Price System Qu150
If the price of a product decreases, then the demand curve shifts to the
right.
a. True
*b. False
436. Chapter 3—Markets, Demand and Supply, and the Price System Qu151
When economists say the demand for a product has increased, they mean
that consumers are willing and able to purchase more at any given price.
*a. True
b. False
437. Chapter 3—Markets, Demand and Supply, and the Price System Qu152
If the price of product X falls and this causes the demand for product Y
to shift to the right, then we can conclude that X and Y are
substitutes.
a. True
*b. False
438. Chapter 3—Markets, Demand and Supply, and the Price System Qu153
If the demand curve for product J shifts to the left as the price of
product K decreases, then J and K are substituted goods.
*a. True
b. False
439. Chapter 3—Markets, Demand and Supply, and the Price System Qu154
Inferior good is the good when price goes down people purchase less
because of its poor quality.
*a. True
b. False
440. Chapter 3—Markets, Demand and Supply, and the Price System Qu155
People purchase more today if they expect the price will go up.
*a. True
b. False
441. Chapter 3—Markets, Demand and Supply, and the Price System Qu156
Economists use the term supply to refer to the quantity of a good that
is supplied at various price levels (that is, a set of price and
quantity supplied combinations), everything else held constant.
*a. True
b. False
442. Chapter 3—Markets, Demand and Supply, and the Price System Qu157
The relationship between price of a good and the quantity supplied of
the corresponding good is always positive.
*a. True
b. False
443. Chapter 3—Markets, Demand and Supply, and the Price System Qu158
A supply curve is a graphical representation of a supply schedule.
*a. True
b. False
444. Chapter 3—Markets, Demand and Supply, and the Price System Qu159
A supply schedule is a table or list of the prices and the corresponding
quantities supplied of a good or service.
*a. True
b. False
445. Chapter 3—Markets, Demand and Supply, and the Price System Qu160
An increase in a product supply curve might be caused by an increase in
the price of the product.
a. True
*b. False
446. Chapter 3—Markets, Demand and Supply, and the Price System Qu161
If producers must obtain a higher price to produce any given quantity,
we can conclude that demand has increased.
a. True
*b. False
447. Chapter 3—Markets, Demand and Supply, and the Price System Qu162
Assume the supply of sirloin steak is upward sloping. If the price
increases from $4.25 to $8.60 per pound, a greater quantity of sirloin
steak will be supplied.
*a. True
b. False
448. Chapter 3—Markets, Demand and Supply, and the Price System Qu163
When the price of a good rises supply of the corresponding good
increases.
a. True
*b. False
449. Chapter 3—Markets, Demand and Supply, and the Price System Qu164
At the equilibrium price, there is no pressure on price to rise or fall.
*a. True
b. False
450. Chapter 3—Markets, Demand and Supply, and the Price System Qu165
When actual price is not equal to equilibrium price, the price will
always rise.
a. True
*b. False
451. Chapter 3—Markets, Demand and Supply, and the Price System Qu166
When a shortage exists in a market, the actual price is greater than the
equilibrium price.
a. True
*b. False
452. Chapter 3—Markets, Demand and Supply, and the Price System Qu167
When there is a surplus, the actual price decreases.
*a. True
b. False
453. Chapter 3—Markets, Demand and Supply, and the Price System Qu168
This month Fritter Firm finds that it has been able to sell 200 fritters
at a price of $1 per fritter. Last month, the firm was able to sell only
150 fritters at $1 per fritter. This change is most likely to be due to
an increase in supply.
a. True
*b. False
454. Chapter 3—Markets, Demand and Supply, and the Price System Qu169
More television sets are being sold today than one year ago, and the
selling price has increased. This could have been caused by an increase
in demand.
*a. True
b. False
455. Chapter 3—Markets, Demand and Supply, and the Price System Qu170
If demand increases and supply decreases, then we would expect the
equilibrium price to go up and the equilibrium quantity to remain
constant.
a. True
*b. False
456. Chapter 3—Markets, Demand and Supply, and the Price System Qu171
If a technological improvement took place in the computer industry, we
would expect to see the equilibrium price of computers decrease and the
quantity of computers sold increase.
*a. True
b. False
457. Chapter 3—Markets, Demand and Supply, and the Price System Qu172
If both demand and supply increase, then we would expect the equilibrium
price to go up and the equilibrium quantity to remain constant.
a. True
*b. False
458. Chapter 3—Markets, Demand and Supply, and the Price System Qu173
If demand moves to the right as supply moves to the right, then
equilibrium price must increase, but equilibrium quantity may rise,
fall, or remain unchanged.
a. True
*b. False
459. Chapter 3—Markets, Demand and Supply, and the Price System Qu174
A price floor exists when the price is not allowed to increase above a
certain level.
a. True
*b. False
460. Chapter 3—Markets, Demand and Supply, and the Price System Qu175
A price floor benefits consumers because they pay price below
equilibrium price.
a. True
*b. False
461. Chapter 3—Markets, Demand and Supply, and the Price System Qu176
A rent control (such as the one presented in the textbook, where tenants
get below-market rents) is a market restriction that may induce a
decrease in the supply curve.
*a. True
b. False
462. Chapter 3—Markets, Demand and Supply, and the Price System Qu177
The math and science teacher shortage in the US occurs because teacher
salary is above the equilibrium salary in the market.
a. True
*b. False
463. Chapter 3—Markets, Demand and Supply, and the Price System Qu178
When a price ceiling for shoes is lifted, shoe shortage becomes less
severe.
*a. True
b. False
464. Chapter 3—Markets, Demand and Supply, and the Price System Qu179
It takes years to complete the transition from a government-run to a
market-based economy.
*a. True
b. False
465. Chapter 3—Markets, Demand and Supply, and the Price System Qu180
Before 1990s communist countries set price ceilings on many necessity
good without causing shortage problem.
a. True
*b. False
466. Chapter 3—Markets, Demand and Supply, and the Price System Qu181
Every time the price of a product goes up sharply, it indicates that
producers are manipulating the market.
a. True
*b. False
467. Chapter 3—Markets, Demand and Supply, and the Price System Qu182
Some countries, such as the former Soviet Union, Cuba, and China,
imposed price controls on many goods for a long period of time without
corruption occurring.
a. True
*b. False
468. Chapter 3 Study Guide—Markets, Demand and Supply, and the Price
Which of the following statements is true?
a. The transaction costs of finding a double coincidence of wants
in order to barter are usually quite low.
*b. Money reduces transaction costs.
c. People base economic decisions only on transaction costs.
d. If all money prices doubled, relative prices would change.
e. A double coincidence of wants is necessary to conduct money
transactions.
469. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 2
Which of the following will not cause a decrease in the demand for
bananas?
a. Reports surface that bananas are infected with a deadly virus.
b. Consumers' incomes drop.
*c. The price of bananas rises.
d. A deadly virus kills monkeys in zoos across the United States.
e. Consumers expect the price of bananas to decrease in the
future.
470. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 3
Which of the following allocation schemes provides incentives for
quantities of scarce goods to increase?
a. first-come, first-served
b. government scheme
*c. market system
d. random allocation
e. allocation of the good by members of the clergy on the basis of
perceived need
471. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 4
A recent study analyzed the effects of the layoff of 8,000-plus
employees at Cessna, a major employer in Wichita. As a result of the
anticipated layoffs,
a. the demand for goods and services in Wichita will increase.
*b. the demand for goods and services in Wichita will decrease.
c. the demand for Boeing airplanes will decrease.
d. the demand for goods and services in Wichita will shift to the
right.
e. None of these choices.
472. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 5
Which of the following is not a determinant of supply?
a. Prices of resources
b. Technology and productivity
*c. Prices of complements
d. Expectations of producers
e. The number of producers
473. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 6
Which of the following will not cause an increase in the supply of milk?
a. An increase in the number of dairy farmers
b. A change in technology that reduces the cost of milking cows
c. A decrease in the price of cheese
*d. A decrease in the price of milk
e. A decrease in the price of cow feed
474. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 7
Prices above the equilibrium price cause
a. a shortage to develop and drive prices up.
b. a shortage to develop and drive prices down.
c. a surplus to develop and drive prices up.
*d. a surplus to develop and drive prices down.
e. an increase in supply.
475. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 8
Utility regulators in some states are considering forcing operators of
coal-fired generators to be responsible for cleaning up air and water
pollution resulting from the generators. Utilities in these states do
not currently pay the costs of the cleanup. If this law goes into
effect,
a. demand for electricity will increase, and price and quantity
will increase.
b. demand for electricity will decrease, and price and quantity
will decrease.
c. the supply of electricity will decrease, and price and quantity
will decrease.
d. the supply of electricity will increase, the price will
decrease, and the quantity will decrease.
*e. the supply of electricity will decrease, the price of
electricity will increase, and the quantity will decrease.
476. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric 9
Medical research from South Africa indicates that vitamin A may be
useful in treating measles. If the research can be substantiated,
a. the supply of vitamin A will increase, causing equilibrium
price and quantity to increase.
b. the supply of vitamin A will increase, causing equilibrium
price to fall and quantity to increase.
*c. the demand for vitamin A will increase, causing equilibrium
price and quantity to increase.
d. the demand for vitamin A will increase, causing equilibrium
price to rise and quantity to fall.
e. the supply of vitamin A will increase, causing equilibrium
price to rise and quantity to fall.
477. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric10
Figure SG3-1
Price
$0
1
2
3
4
5
6
Quantity Demanded
24
20
16
12
8
4
0
Quantity Supplied
0
2
4
6
8
10
12
In Figure SG3-1, the equilibrium price is
a. $1.
b. $2.
c. $3.
*d. $4.
e. $5.
478. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric11
Figure SG3-1
Price
$0
1
2
3
4
5
6
Quantity Demanded
24
20
16
12
8
4
0
Quantity Supplied
0
2
4
6
8
10
12
In Figure SG3-1, the equilibrium quantity is
a. 2.
b. 4.
c. 6.
*d. 8.
e. 10.
479. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric12
Figure SG3-1
Price
$0
1
2
3
4
5
6
Quantity Demanded
24
20
16
12
8
4
0
Quantity Supplied
0
2
4
6
8
10
12
In Figure SG3-1, if the price is $2, a ____ of ____ units will develop,
causing the price to ____.
*a. shortage; 12; increase
b. shortage; 12; decrease
c. surplus; 12; increase
d. surplus; 12; decrease
e. surplus; 19; decrease
480. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric13
Figure SG3-1
Price
$0
1
2
3
4
5
6
Quantity Demanded
24
20
16
12
8
4
0
Quantity Supplied
0
2
4
6
8
10
12
In Figure SG3-1, if the price is $5, a ____ of ____ units will develop,
causing the price to ____.
a. shortage; 6; increase
b. shortage; 6; decrease
c. surplus; 6; increase
*d. surplus; 6; decrease
e. shortage; 12; increase
481. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric14
What is the law of demand? What are the determinants of demand? What is
the difference between a change in demand and a change in quantity
demanded?
Correct Answer:
Answers will vary.
482. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric15
In 2009, gasoline price declined sharply. Does this mean the big oil
companies no longer could manipulate the gasoline market? Explain.
Correct Answer:
Answers will vary.
483. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric16
What is equilibrium? What is the difference between a surplus and a
shortage? Explain graphically.
Correct Answer:
Answers will vary.
484. Chapter 3 Study Guide—Markets, Demand and Supply, and the Pric17
For those new nations created after breakup of former Soviet Union, the
best way to see whether market system can work is watching how
government can effectively stabilize price through price interference.
Correct Answer:
Answers will vary.
485. Chapter 4—The Market System and the Private and Public Sectors Q
You decide to buy a new Toyota, so you go to a Toyota dealer and
exchange money for the car. According to the text, your expenditure for
the Toyota
a. is made in Japanese yen.
*b. creates additional expenditures and revenues.
c. must be translated into the Japanese currency before being
posted by the accountants.
d. is not counted as part of the national economy.
e. is registered only in some regional economic segment of the
United States.
486. Chapter 4—The Market System and the Private and Public Sectors 2
What are the major sectors that make up the U.S. economy?
a. Businesses and households
b. Government, households, and the international sector
c. Households, governments, and businesses
d. Consumers, producers, and world trade
*e. The international sector, households, businesses, and
government
487. Chapter 4—The Market System and the Private and Public Sectors 3
According to the text, the point on its PPC that a society will choose
will be determined by
a. producers in a market system.
b. consumers in a market system.
c. the government.
*d. demand and supply.
e. the desires of producers and consumers.
488. Chapter 4—The Market System and the Private and Public Sectors 4
What is produced in a market system is determined ultimately by
a. producers.
*b. consumers.
c. the government.
d. resource owners.
e. the desires of producers and consumers.
489. Chapter 4—The Market System and the Private and Public Sectors 5
The term consumer sovereignty refers to
a. the fact that consumers' choices are limited to what the
producers decide to produce.
b. a situation in which the government decides what is produced.
*c. the idea that consumers ultimately determine what is produced.
d. the idea that consumers try to maximize their expenditures.
e. the idea that the desires of both producers and the government
ultimately determine what is produced.
490. Chapter 4—The Market System and the Private and Public Sectors 6
Consumers often do not know they want something until a firm introduces
it. This means that
a. in a market system, business firms ultimately determine what is
produced.
*b. in a market system, consumers ultimately determine what is
produced, because they will either purchase the item or not.
c. in a market system, entrepreneurs ultimately determine what is
produced, because they invent it.
d. in a market system, the government ultimately determines what
is produced, because the government is always in control through
taxation.
e. in a market system, stockholders ultimately determine what is
produced, because they must be able to make money or they won't
invest.
491. Chapter 4—The Market System and the Private and Public Sectors 7
The communication business has changed dramatically since the 1980s,
going from mobile phone to smartphone. The reason for this change is
that
a. the communication businesses get tired of producing the same
thing time after time.
*b. consumers wanted the changes and were willing and able to pay
for them.
c. businesses could make higher profits with the changes, because
they could rip off the customer.
d. consumers wanted the changes, and businesses had to respond
even though they lost money on the deal.
e. businesses wanted the changes and were willing and able to pay
for them.
492. Chapter 4—The Market System and the Private and Public Sectors 8
Resources that were once used in a failing business will, according to
the text,
a. be used in activities that are identical to the failed
business.
b. be used where they have less value and thus less cost.
*c. be used in activities where they are more highly valued.
d. be liquidated and not used again.
e. be written off to taxes.
493. Chapter 4—The Market System and the Private and Public Sectors 9
A change in consumer tastes from PDAs to smartphones does not lead to
which of the following?
a. An inward shift of the demand curve for PDAs
b. An outward shift of the demand curve for smartphone
c. An increase in the number of resources used in smartphone
d. A decrease in the number of resources used in PDAs
*e. A reduction in the value of resources used in smartphone
494. Chapter 4—The Market System and the Private and Public Sectors10
Figure 4-1
nar001-1.jpg
According to Figure 4-1, as represented by the shift from D1 to D2.
a. the demand for smartphones has risen.
b. the quantity of resources used in the production of smartphones
has risen.
c. consumer income may have risen.
*d. consumer tastes for smartphones may have declined.
e. consumer tastes for resources may have fallen.
495. Chapter 4—The Market System and the Private and Public Sectors11
Figure 4-1
nar001-1.jpg
According to Figure 4-1, the shift of demand from D1 to D2 illustrates
that
*a. when consumers change their preferences, the producers
respond.
b. when producers change their preferences, the consumers respond.
c. when consumers change their preferences, the change turns into
a fad.
d. when consumers change their preferences, the market responds by
increasing production of the item shown.
e. profits increase as demand decreases.
496. Chapter 4—The Market System and the Private and Public Sectors12
The market-clearing price is
a. below the equilibrium price.
*b. the equilibrium price.
c. the price at which consumer tastes are satisfied.
d. the same as the minimum price at which the product sells.
e. the price at which businesses are able to make a profit.
497. Chapter 4—The Market System and the Private and Public Sectors13
Competitive firms produce in the manner that ____ costs and ____
profits.
a. minimizes, minimizes
b. maximizes, maximizes
c. eliminates, maximizes
d. maximizes, minimizes
*e. minimizes, maximizes
498. Chapter 4—The Market System and the Private and Public Sectors14
According to the text, Adam Smith described the flow of resources in a
market economy as an invisible hand that reaches out and
a. guides people to do good.
b. guides people to do what is best.
c. guides resources to their lowest-valued use.
*d. guides resources to their highest-valued use.
e. guides resources because of the incentive to earn a normal
profit.
499. Chapter 4—The Market System and the Private and Public Sectors15
In a market system, resources tend to flow from
*a. lower-valued uses to higher-valued uses.
b. higher-valued uses to lower-valued uses.
c. producing goods and services that consumers want to producing
goods and services that businesses want.
d. higher-valued uses to lower-valued uses according to consumer
sovereignty.
e. the production of goods to the production of services.
500. Chapter 4—The Market System and the Private and Public Sectors16
According to the text, in a market system, firms produce the goods and
services and use the resources that enable them to
a. rip off the consumer.
b. provide what the consumer wants below cost.
c. produce what the government wants.
*d. earn the highest possible profit.
e. earn a normal profit.
501. Chapter 4—The Market System and the Private and Public Sectors17
According to the text, the process of new products and new firms
replacing existing products and firms is called
*a. creative destruction.
b. substitution.
c. replacement.
d. new construction.
e. innovation.
502. Chapter 4—The Market System and the Private and Public Sectors18
According to the text, in a market system, as firms seek to produce
goods and services in the least-cost manner and earn the highest
possible profits,
*a. consumers not only get the goods and services they want but
get them at the lowest possible price.
b. consumers get the goods and services they want but at a price
that is higher than what they want to pay.
c. consumers do not always get the goods and services they want
but do purchase things at the lowest possible price.
d. consumers have to pay higher and higher prices.
e. consumers must earn more money in order to purchase the goods
and services.
503. Chapter 4—The Market System and the Private and Public Sectors19
A consumer's ability to purchase goods and services depends on
a. his or her keen appreciation of fine work.
b. his or her ability to shop.
c. his or her business connections.
*d. the size of his or her money income.
e. how the goods are produced.
504. Chapter 4—The Market System and the Private and Public Sectors20
Income is obtained by
*a. selling the services of the resources that people own.
b. selling goods and services.
c. producing goods and services.
d. acquiring an education.
e. obtaining government subsidies.
505. Chapter 4—The Market System and the Private and Public Sectors21
Which of the following receives profits as a source of income?
a. A laborer
b. A landowner
c. An owner of capital
*d. An entrepreneur
e. A government employee
506. Chapter 4—The Market System and the Private and Public Sectors22
In his book The Wealth of Nations, Adam Smith states that the
fundamental explanation of human behavior is
a. the need to reproduce.
b. the need to make war.
c. the desire to dominate more countries.
*d. the rational pursuit of self-interest.
e. the intrinsic drive to self-advance.
507. Chapter 4—The Market System and the Private and Public Sectors23
A household is defined as
a. a person, regardless of where he or she lives.
b. an immediate family, regardless of where they live.
c. an extended family, regardless of where they live.
*d. one or more individuals living together in the same dwelling
unit.
e. unrelated individuals living in the same country.
508. Chapter 4—The Market System and the Private and Public Sectors24
Which of the following constitutes a household?
a. A divorced woman living alone and supporting herself
b. A husband and wife and their two children sharing a condo
c. An unmarried couple who live together, sharing both income and
expenses
d. A single woman renting an apartment
*e. All of these
509. Chapter 4—The Market System and the Private and Public Sectors25
Approximately how much was spent by the households in 2009 in the United
States?
a. $8 trillion.
b. $10 trillion.
*c. $12 trillion.
d. $14 trillion.
e. $15 trillion.
510. Chapter 4—The Market System and the Private and Public Sectors26
The household spending is called
a. payment.
b. expenditure.
c. income
d. national spending
*e. consumption.
511. Chapter 4—The Market System and the Private and Public Sectors27
The largest single component of total spending in the U.S. economy is
*a. consumption spending.
b. government spending.
c. producer spending.
d. business spending.
e. investment spending.
512. Chapter 4—The Market System and the Private and Public Sectors28
Between 1959 and 2002, household expenditures per year in the United
States
*a. rose.
b. rose and then fell.
c. did not rise at all.
d. decreased slightly.
e. rose from $500 million to more than $4 billion.
513. Chapter 4—The Market System and the Private and Public Sectors29
A business firm
a. is a company owned by its managers.
*b. is also called an enterprise.
c. is a company owned by two or more individuals.
d. is an organization run by the government.
e. is a business conducted at a single location only.
514. Chapter 4—The Market System and the Private and Public Sectors30
A partnership is
a. a business owned by shareholders whose liability for the firm's
losses includes their personal wealth.
b. a one-person operation that has many employees.
c. a business owned by two or more partners who share the firm's
profits but are not responsible for any losses.
*d. a business owned by two or more persons who share the firm's
profits and losses.
e. a business owned by shareholders whose liability for the firm's
losses is limited to the value of the stock they own.
515. Chapter 4—The Market System and the Private and Public Sectors31
A sole proprietorship is a business form in which
a. the owner is protected against failure of the firm to pay its
debt.
b. shareholders are the rightful owners of the company.
c. a government-issued charter has established its legal
existence.
*d. the owner has unlimited liability for the firm's debts and
enjoys unlimited rights to all the profits.
e. the owner is prohibited from selling shares of stock.
516. Chapter 4—The Market System and the Private and Public Sectors32
Which of the following is not a multinational corporation?
a. PepsiCo
b. Gillette Corporation
c. Microsoft
d. Ford Motor Company
*e. The United States government
517. Chapter 4—The Market System and the Private and Public Sectors33
Which of the following statements is most characteristic of the
corporate form of business?
a. Owners face unlimited liability.
b. Corporate earnings are not taxable.
c. A corporation is created by verbal agreement.
d. Owners are called partners.
*e. A corporation is a legal entity.
518. Chapter 4—The Market System and the Private and Public Sectors34
Which statement is true for the United States?
a. Most partnerships have revenue exceeding $75,000.
b. The large number of partnerships in the low-revenue category
accounts for most partnership revenues.
*c. There are more sole proprietorships than corporations.
d. Corporations generate less revenue than sole proprietorships,
even though there are more corporations than sole proprietorships.
e. There are more corporations than sole proprietorships.
519. Chapter 4—The Market System and the Private and Public Sectors35
According to the text, because the United States is the largest economy
in the world,
a. the 10 largest firms in the world are U.S. firms.
b. none of the 10 largest firms in the world are U.S. firms.
c. it is surprising that none of the 20 largest firms in the world
are U.S. firms.
d. it is surprising that the U.S. has fewer firms than any other
industrialized nation.
*e. more than half of the 10 largest firms in the world are U.S.
firms
520. Chapter 4—The Market System and the Private and Public Sectors36
Businesses are typically begun
a. as large sole proprietorships.
*b. as small sole proprietorships.
c. as small partnerships owned by more than two individuals.
d. as partnerships owned by two partners.
e. as small corporations.
521. Chapter 4—The Market System and the Private and Public Sectors37
Businesses survive in the long run only if
a. they are lucky.
b. they are large corporations.
*c. they yield a profit for the entrepreneur.
d. the cost of resources is low.
e. the government assists them.
522. Chapter 4—The Market System and the Private and Public Sectors38
Charles Hires was the first person to commercialize which of the
following products in 1875?
a. Tampons
b. Steam boats
c. Coca-Cola
*d. Root beer
e. Toothpaste
523. Chapter 4—The Market System and the Private and Public Sectors39
According to the text, foreign buyers and sellers
a. have almost no effect on U.S. buyers and sellers.
*b. have a significant effect on economic conditions in the United
States.
c. have a very small effect on economic conditions in the United
States.
d. have an effect on U.S. buyers and sellers by causing shortages.
e. have an effect on U.S. buyers and sellers through business
investment.
524. Chapter 4—The Market System and the Private and Public Sectors40
The World Bank classifies nations as less developed when they have
a. a low rate of savings.
b. a lack of infrastructure.
*c. a low per capita income.
d. a low rate of population growth.
e. an inequitable distribution of income.
525. Chapter 4—The Market System and the Private and Public Sectors41
A country is considered to be a low-income economy when its per capita
income is or less than
*a. $755.
b. $1,000.
c. $1,200.
d. $1,500.
e. $1,750.
526. Chapter 4—The Market System and the Private and Public Sectors42
United States trade is concentrated with which countries?
a. Eastern European countries
b. Western European countries
*c. Canada, Mexico, and the major industrial powers.
d. Asian countries
e. Less developed countries
527. Chapter 4—The Market System and the Private and Public Sectors43
Which of the following is not an example of a product the United States
would import from a less developed country?
a. Coffee
*b. Nuclear missiles
c. Iron ore
d. Bananas
e. Gold
528. Chapter 4—The Market System and the Private and Public Sectors44
A U.S. export occurs when
a. Kuwait sells oil to a U.S. oil company.
b. IBM purchases computer chips from Motorola.
*c. Germany buys Pontiacs from General Motors.
d. Pepsi-Cola sells soft drinks to a local retailer.
e. France imports leather shoes from Italy.
529. Chapter 4—The Market System and the Private and Public Sectors45
Which of the following countries has high-income but not considered as
an industrial country?
*a. Kuwait.
b. France.
c. India.
d. Brazil.
e. South Korea.
530. Chapter 4—The Market System and the Private and Public Sectors46
The main trading partners of the United States are
a. less developed nations.
*b. industrial countries.
c. Saudi Arabia and Mexico.
d. Communist countries.
e. still-developing nations.
531. Chapter 4—The Market System and the Private and Public Sectors47
When the value of imports exceeds the value of exports for a given
economy, that economy
a. is experiencing unemployment.
b. is experiencing stagnation.
c. is in macroeconomic disequilibrium.
*d. has an international trade deficit.
e. is unstable.
532. Chapter 4—The Market System and the Private and Public Sectors48
When the value of net exports is positive,
a. there is a trade deficit.
b. imports exceed exports.
*c. imports are less than exports.
d. exports equal imports.
e. None of these
533. Chapter 4—The Market System and the Private and Public Sectors49
Scenario 4-1
In a given year, country A exported $12 million worth
country B and $6 million worth of goods to country C;
$4 million worth of goods to country A and $7 million
country C; and country C exported $5 million worth of
and $2 million worth of goods to country B.
of goods to
country B exported
worth of goods to
goods to country A
According to Scenario 4-1, country A has net exports of
a. $18 million.
b. $14 million.
c. $13 million.
*d. $9 million.
e. $6 million.
534. Chapter 4—The Market System and the Private and Public Sectors50
Scenario 4-1
In a given year, country A exported $12 million worth
country B and $6 million worth of goods to country C;
$4 million worth of goods to country A and $7 million
country C; and country C exported $5 million worth of
and $2 million worth of goods to country B.
of goods to
country B exported
worth of goods to
goods to country A
According to Scenario 4-1, country C has net exports of
a. zero.
b. $13 million.
c. $6 million.
d. -$13 million.
*e. -$6 million.
535. Chapter 4—The Market System and the Private and Public Sectors51
Scenario 4-1
In a given year, country A exported $12 million worth
country B and $6 million worth of goods to country C;
$4 million worth of goods to country A and $7 million
country C; and country C exported $5 million worth of
and $2 million worth of goods to country B.
of goods to
country B exported
worth of goods to
goods to country A
According to Scenario 4-1, country B is running a ____ with country A
and a ____ with country C.
*a. trade deficit; trade surplus
b. trade surplus; trade surplus
c. trade surplus; trade deficit
d. trade deficit; trade deficit
e. balanced trade; trade deficit
536. Chapter 4—The Market System and the Private and Public Sectors52
A trade surplus occurs when
*a. a country's exports exceed its imports.
b. a country's imports exceed its exports.
c. a country imposes a price ceiling.
d. a country imposes a price floor.
e. the market is in disequilibrium.
537. Chapter 4—The Market System and the Private and Public Sectors53
Anytime economists refer to the public sector, they are talking about
a. private citizens only.
b. all sectors except the government.
*c. the government sector.
d. the general public.
e. public walkways.
538. Chapter 4—The Market System and the Private and Public Sectors54
Which of the following is not a service that the government usually
provides?
a. National defense
b. Education
c. Postal services
d. Police and fire protection
*e. Religious services
539. Chapter 4—The Market System and the Private and Public Sectors55
According to the text, which entity in the United States sets government
spending and taxes and passes laws related to economic conduct?
a. President
*b. Congress
c. Federal Reserve
d. Council of Economic Advisers
e. Treasury Department
540. Chapter 4—The Market System and the Private and Public Sectors56
In 1930, how many people were employed by federal, state, and local
government? Today how many people work for the governments?
a. 1 million; 10 million.
*b. 1 million; 15 million.
c. 2 million; 10 million.
d. 2 million; 18 million.
e. 3 million; 18 million.
541. Chapter 4—The Market System and the Private and Public Sectors57
In 1929, government spending constitutes less than ____ percent of total
spending in the economy. Today, it is about ____ percent.
a. 1 percent; 10 percent.
b. 1.5 percent; 12 percent
c. 2 percent; 18 percent.
d. 2 percent; 25 percent.
*e. 2.5 percent; 30 percent.
542. Chapter 4—The Market System and the Private and Public Sectors58
A budget surplus is
a. the excess that results when government revenue is less than
spending.
b. the shortage that results when government spending is greater
than revenue.
*c. the excess that results when government spending is less than
revenue.
d. the excess that results when tax revenue is greater than
anticipated in the budget proposal.
e. Both a and b
543. Chapter 4—The Market System and the Private and Public Sectors59
Which of the following statements is true?
a. Transfer payments are not a part of total government
expenditures.
b. Transfer payments involve the transfer of money
internationally.
c. Transfer payments are the transfer of money by the Federal
Reserve to people with low incomes.
*d. Transfer payments are income transferred from a citizen who is
earning income to a citizen who may not be earning income.
e. In 2002, transfer payments paid by all levels of government
were less than $500 billion.
544. Chapter 4—The Market System and the Private and Public Sectors60
In the 1950s and early 1960s, federal government spending was
a. smaller than state and local government spending.
b. larger than state and local government spending.
c. equal to state and local government spending.
*d. equal to federal government tax revenue
e. None of these choices.
545. Chapter 4—The Market System and the Private and Public Sectors61
In 2009 federal government budget deficit was
a. about $150 billion.
b. about $350 billion.
c. about $550 billion.
*d. about $850 billion.
e. more than $1 trillion.
546. Chapter 4—The Market System and the Private and Public Sectors62
Households interact with business firms by
a. buying resources from business firms.
b. paying business firms for capital.
c. selling commodities to business firms.
*d. providing their resource services in exchange for money
payments.
e. paying business firms for land.
547. Chapter 4—The Market System and the Private and Public Sectors63
Which of the following is not a financial intermediary?
a. Commercial bank
b. Credit union
*c. Department of Commerce
d. Savings and loan firms
e. Local agricultural bank
548. Chapter 4—The Market System and the Private and Public Sectors64
The circular flow of income model shows that
*a. consumers supply resources and demand products.
b. producers demand products and supply resources.
c. payments for resources and payments for goods and services flow
in the same direction.
d. businesses are only demanders and households are only
suppliers.
e. revenue flows to households when they buy goods and services.
549. Chapter 4—The Market System and the Private and Public Sectors65
The money that businesses pay for resources constitutes
a. the supply of resources.
*b. income to households.
c. part of the money market.
d. the resource market.
e. the market for goods and services.
550. Chapter 4—The Market System and the Private and Public Sectors66
The fact that income to one economic group constitutes expenditures for
another economic group is characteristic of
a. a planned economy.
b. scarcity of resources.
c. barter transactions.
*d. the circular flow of income model.
e. private production.
551. Chapter 4—The Market System and the Private and Public Sectors67
The circular flow of income model
a. shows the flow of output and income within one sector of the
economy.
*b. illustrates how different sectors of the economy are linked
together.
c. shows that income is rarely equal to output.
d. illustrates how business firms interact with one another.
e. shows how businesses sell their resource services to
households.
552. Chapter 4—The Market System and the Private and Public Sectors68
With the introduction of the government in the circular flow,
*a. the total value of private production no longer equals to the
value of household income.
b. the total value of private production still equals to the value
of household income.
c. the total government revenue will be larger than government
spending.
d. the total exports will be equal to total imports.
e. None of these choices.
553. Chapter 4—The Market System and the Private and Public Sectors69
The circular flow of income model with the introduction of the
government shows
a. the government sells goods and services to households.
b. the households receive money from government without return of
goods or services.
*c. the government buys goods and services from firms and resource
services from households.
d. no interaction between households and firms.
e. the government interference in the economy is harmful to the
economy.
554. Chapter 4—The Market System and the Private and Public Sectors70
Considering the circular flow of income model, if net exports
unexpectedly rose, the first effect would be that
a. households would try to save more.
*b. money received by the business sector for goods and services
would rise.
c. money received by the households for resource services would
rise.
d. the quantity of goods and services produced would rise.
e. the price of goods and services would rise.
555. Chapter 4—The Market System and the Private and Public Sectors71
The circular flow of income model for the private sector shows that
a. business firms are the revenue source for consumers.
*b. financial intermediaries use the deposits from households to
make loans to businesses.
c. factors of production are demanded only by the government.
d. net exports are always equal to zero.
e. the goods and services produced by business firms are sold
through resource markets.
556. Chapter 4—The Market System and the Private and Public Sectors72
When net exports are negative,
*a. there is a net flow of goods from firms in foreign countries
to the domestic country.
b. there is a net flow of money from foreign countries to the
firms of the domestic country.
c. there is a net flow of goods from the firms of the domestic
country to foreign countries.
d. there is a trade surplus.
e. exports exceed imports.
557. Chapter 4—The Market System and the Private and Public Sectors73
The major sectors that make up any national economy are households,
businesses, and world trade.
a. True
*b. False
558. Chapter 4—The Market
According to the text, an
sellers and could include
your home or something as
countries.
System and the Private and Public Sectors74
economy is made up of individual buyers and
something as small as the neighborhood around
large as an entire country or several
*a. True
b. False
559. Chapter 4—The Market System and the Private and Public Sectors75
The production of iPhone replaced by the production of iPod is called
creative destruction.
a. True
*b. False
560. Chapter 4—The Market System and the Private and Public Sectors76
In 1900 over 70 percent of US workforce was employed in agriculture.
Today, less than 3 percent are employed in agriculture.
a. True
*b. False
561. Chapter 4—The Market System and the Private and Public Sectors77
Household income is determined by the wages or salaries the household
makes.
a. True
*b. False
562. Chapter 4—The Market System and the Private and Public Sectors78
A household can consist of a family, but a family does not always
constitute a household.
*a. True
b. False
563. Chapter 4—The Market System and the Private and Public Sectors79
An unmarried couple holding joint title to their condominium constitutes
a household.
*a. True
b. False
564. Chapter 4—The Market System and the Private and Public Sectors80
Households sell resources to the business firms and spend income
received from the business to purchase goods produced by the business
firms.
*a. True
b. False
565. Chapter 4—The Market System and the Private and Public Sectors81
Household spending is called investment.
a. True
*b. False
566. Chapter 4—The Market System and the Private and Public Sectors82
In 2009, household spending represented the largest single component of
U.S. total spending.
*a. True
b. False
567. Chapter 4—The Market System and the Private and Public Sectors83
Investment expenditures by U.S. firms that have manufacturing plants in
foreign countries are not counted as part of U.S. national spending.
a. True
*b. False
568. Chapter 4—The Market System and the Private and Public Sectors84
A multinational firm is defined to be a business that exports its
products to foreign markets.
a. True
*b. False
569. Chapter 4—The Market System and the Private and Public Sectors85
A corporation is an economic entity that, unlike a person, cannot own
property and borrow money in its own name.
a. True
*b. False
570. Chapter 4—The Market System and the Private and Public Sectors86
The owners of a partnership type business firm must be individuals.
a. True
*b. False
571. Chapter 4—The Market System and the Private and Public Sectors87
The majority of U.S. businesses are organized in such a way that owners
receive all the profits and carry all the liability for company debts.
*a. True
b. False
572. Chapter 4—The Market System and the Private and Public Sectors88
In the United States, there are far more corporations than sole
proprietorships or partnerships.
a. True
*b. False
573. Chapter 4—The Market System and the Private and Public Sectors89
In 2003, all of the ten largest corporations in the world, measured by
sales, were U.S. firms.
a. True
*b. False
574. Chapter 4—The Market System and the Private and Public Sectors90
Assume that a company allocates $5,000 to purchase new office furniture
and computer equipment. In addition, $600 in idle cash is put in a
savings account. The firm's total investment expenditures amount to
$5,600.
a. True
*b. False
575. Chapter 4—The Market System and the Private and Public Sectors91
In economics, the term investment refers to business spending for
capital goods, not to a financial transaction such as buying bonds or
stocks.
*a. True
b. False
576. Chapter 4—The Market System and the Private and Public Sectors92
Industrial countries greatly outnumber developing countries.
a. True
*b. False
577. Chapter 4—The Market System and the Private and Public Sectors93
Most U.S. trade is concentrated with Mexico and less developed
countries.
a. True
*b. False
578. Chapter 4—The Market System and the Private and Public Sectors94
The United States is an exporter of agricultural products because it has
a comparative advantage in this sector.
*a. True
b. False
579. Chapter 4—The Market System and the Private and Public Sectors95
Per capita income is the criterion by which the World Bank classifies
nations into industrial countries and developing countries.
*a. True
b. False
580. Chapter 4—The Market System and the Private and Public Sectors96
A trade deficit occurs when total exports are less than total imports.
*a. True
b. False
581. Chapter 4—The Market System and the Private and Public Sectors97
The United States tends to import primary products such as agricultural
produce and minerals from the developing countries.
*a. True
b. False
582. Chapter 4—The Market System and the Private and Public Sectors98
Today, there are fewer than 50,000 rules and regulation created by the
government.
a. True
*b. False
583. Chapter 4—The Market System and the Private and Public Sectors99
The federal government spending today is greater than $1 trillion.
*a. True
b. False
584. Chapter 4—The Market System and the Private and Public Sector100
Since the U.S. economy is a market economy, so government sector does
not play any role in the economy.
*a. True
b. False
585. Chapter 4—The Market System and the Private and Public Sector101
The government imposes taxes as a means to finance public goods and
services, to redistribute income, and to correct for negative
externalities.
*a. True
b. False
586. Chapter 4—The Market System and the Private and Public Sector102
A balanced budget of the government occurs when federal spending is
approximately equal to federal revenue.
*a. True
b. False
587. Chapter 4—The Market System and the Private and Public Sector103
Over the past twenty years, federal government never had budget surplus.
a. True
*b. False
588. Chapter 4—The Market System and the Private and Public Sector104
Households supply their resources in the factor markets in exchange for
money, which is subsequently spent in the product markets.
*a. True
b. False
589. Chapter 4—The Market System and the Private and Public Sector105
The money that households save is borrowed by firms in the financial
market in order to buy new equipment and plants.
*a. True
b. False
590. Chapter 4—The Market System and the Private and Public Sector106
The circular flow of income model is built on the idea of equality
between national income and national expenditures.
*a. True
b. False
591. Chapter 4—The Market System and the Private and Public Sector107
If households and firms were the only two sectors in the economy, income
and output would be equal.
*a. True
b. False
592. Chapter 4—The Market System and the Private and Public Sector108
The circular flow of income model shows how the allocates resources and
distributes goods and services.
a. True
*b. False
593. Chapter 4—The Market System and the Private and Public Sector109
The circular flow of income model shows households only receive income
from firms but not government.
a. True
*b. False
594. Chapter 4—The Market System and the Private and Public Sector110
For the complete circular flow of income model to hold, it is required
that net exports always be zero.
a. True
*b. False
595. Chapter 4—The Market System and the Private and Public Sector111
Domestic firms may produce for foreign as well as domestic consumption.
*a. True
b. False
596. Chapter 4—The Market System and the Private and Public Sector112
Households purchase only the goods produced by their home country but
not by foreign countries.
a. True
*b. False
597. Chapter 4—The Market System and the Private and Public Sector113
In a market system, it is consumers who determine whether particular
magazines and newspapers exist, no matter how silly these may be.
*a. True
b. False
598. Chapter 4—The Market System and the Private and Public Sector114
In a market system, products are provided if they result in profits to
producers, or, in other words, if a customer is able and willing to pay
for them.
*a. True
b. False
599. Chapter 4 Study Guide—The Market System and the Private and Publ
Many fitness educators are advocating yoga as a way to improve fitness.
Special mats are used by participants. If these yoga mats catch on, the
____ them will ____, their price will ____, and ____ mats will be
produced.
a. demand for; increase; increase; more
*b. supply of; increase; increase; more
c. supply of; increase; decrease; more
d. demand for; increase; decrease; more
e. supply of; increase; decrease; fewer
600.
When
lose
What
Chapter 4 Study Guide—The Market System and the Private and Pu 2
technology or consumer tastes change, some industries shrink and
employment, and other industries expand and increase employment.
the phrase that economists use to describe this process?
a. eminent domain
*b. creative destruction
c. demand-driven change
d. supply-driven change
e. producer sovereignty
601. Chapter 4 Study Guide—The Market System and the Private and Pu 3
Household spending, or consumption, is the ____ component of total
spending in the economy.
*a. largest
b. second largest
c. third largest
d. fourth largest
e. smallest
602. Chapter 4 Study Guide—The Market System and the Private and Pu 4
In ____, the owners of the business are responsible for all the debts
incurred by the business and may have to pay these debts from their
personal wealth.
a. sole proprietorships only
b. partnerships only
c. corporations only
*d. sole proprietorships and partnerships only
e. sole proprietorships, partnerships, and corporations
603. Chapter 4 Study Guide—The Market System and the Private and Pu 5
A trade surplus occurs when
*a. net exports are positive.
b. net exports are negative.
c. a country buys more from other countries than it sells to other
countries
d. imports exceed exports.
e. industrial countries sell to less developed countries.
604. Chapter 4 Study Guide—The Market System and the Private and Pu 6
Since the 1970s, U.S. net exports have
a. been generally increasing.
b. stayed about the same.
*c. generally been decreasing.
d. negative for some years, but have been positive recently.
e. positive for most years, but have turned negative recently
605. Chapter 4 Study Guide—The Market System and the Private and Pu 7
Combined government spending on goods and services is larger than ____
but smaller than ____.
a. consumption; net exports
b. consumption; investment
c. net exports; investment
d. investment; net exports
*e. investment; consumption
606. Chapter 4 Study Guide—The Market System and the Private and Pu 8
____ own(s) the factors of production.
*a. Corporations
b. Partnerships
c. The international sector
d. State and local governments
e. Households
607. Chapter 4 Study Guide—The Market System and the Private and Pu 9
Carefully analyze the consequences of a sudden trade deficit in the
private-sector circular flow diagram. What role would financial
intermediaries have to play in order to restore equilibrium conditions?
Correct Answer:
Answers will vary.
608. Chapter 4 Study Guide—The Market System and the Private and Pu10
Assume that investment expenditures exceed total household saving, and
also assume that net exports are negative. How would household spending
have to adjust to ensure that the total domestic output value equals
total income?
Correct Answer:
Answers will vary.
609. Chapter 5—National Income Accounting Question MC #1
To understand economic problems, policymakers need
a. population statistics.
b. financial statistics.
c. educational statistics.
d. business statistics.
*e. real GDP statistics.
610. Chapter 5—National Income Accounting Question MC #2
National income accounting is
a. used by business firms to determine the level of profit during
a given year.
b. used by accountants to figure household tax obligations.
*c. a system of accounts designed to measure macroeconomic
activity.
d. a system of measures that indicates when an economy is
experiencing inflation.
e. a system of microeconomic measures that indicates equilibrium
conditions for individual markets.
611. Chapter 5—National Income Accounting Question MC #3
National income accounting can best be characterized as
*a. a set of rules to summarize economic activity over a given
period of time.
b. a system for comparing different political systems.
c. a microeconomic model used by the Federal Reserve.
d. a statistical measure of the income received by consumers as
opposed to businesses.
e. a standardized economic report written by politicians.
612. Chapter 5—National Income Accounting Question MC #4
Gross domestic product constitutes
a. the total quantitative output in an economy.
b. the current market value of all goods and services produced in
a given year.
c. the total spending in an economy.
d. the total monetary transactions in an economy.
*e. the current market value of all final goods and services
produced in a given year within a country's borders.
613. Chapter 5—National Income Accounting Question MC #5
GDP does not include
*a. vegetables grown and consumed by a nonfarm family.
b. the purchase of a new Porsche.
c. the sale of meat at the local grocery store.
d. the government purchase of an F-14 fighter plane.
e. payment to an accountant for preparation tax forms.
614. Chapter 5—National Income Accounting Question MC #6
Intermediate goods and services
a. are not included in calculating GDP using the value-added
method.
b. are goods and services produced in the last year but sold in
this year.
*c. are goods and services used as an input for the production of
final goods and services.
d. are goods and services purchased for ultimate consumption.
e. are goods and services produced this year but not yet sold.
615. Chapter 5—National Income Accounting Question MC #7
Value added can be determined by
a. summing the market values of all intermediate goods.
b. calculating the percentage change in GDP from one year to the
next.
c. adding the income of all consumers during the year.
*d. subtracting the cost of all inputs from the price of the
product at each stage of production.
e. dividing GDP by the GDP price deflator.
616. Chapter 5—National Income Accounting Question MC #8
Figure 5-1
The Production of a Corvette
Production Stage
Steal Co. sells the raw material
Motor Inc. sells the engine to GMC
Dealer buys car form GMC
Dealer sells car (retail)
Sales Value
$1,500
$2,350
$19,700
$36,000
According to Figure 5-1, the value added by the dealer is
a. $2,350.
*b. $16,300.
c. $19,700.
d. $36,000.
e. $59,550.
617. Chapter 5—National Income Accounting Question MC #9
Figure 5-1
The Production of a Corvette
Production Stage
Steal Co. sells the raw material
Motor Inc. sells the engine to GMC
Dealer buys car form GMC
Dealer sells car (retail)
Sales Value
$1,500
$2,350
$19,700
$36,000
According to Figure 5-1, the contribution to GDP from the production of
this car is
a. $2,350.
b. $16,300.
c. $19,700.
*d. $36,000.
e. $59,550.
618. Chapter 5—National Income Accounting Question MC #10
Which of the following must add to GDP?
a. the sale of a used car to an auto dealership
b. bartering lawn care services for car washes
c. a father staying home to care for his child
d. the sale of an illegal cable box
*e. payment for an SAT preparation class
619. Chapter 5—National Income Accounting Question MC #11
A soft-drink bottling company supplies six-packs of orange soda to
retailers for a price of $2 each. If the components in each six-pack
cost the bottling company $1.50, the value added to each six-pack by the
bottling company is
a. $2.00.
b. $1.50.
c. $1.25.
d. $1.00.
*e. $0.50.
620. Chapter 5—National Income Accounting Question MC #12
When calculating GDP, inventory levels are important to economists
because
a. they measure the level of underemployment.
b. they provide information about workers' attitudes.
c. we need to know them to fully understand foreign competition.
d. GDP cannot be calculated unless we know that inventories were
double-counted.
*e. we need to know them to calculate the total value of goods
produced but not sold in a year.
621. Chapter 5—National Income Accounting Question MC #13
What is the importance of not including intermediate goods when
calculating GDP?
a. Avoiding single product counting
b. Restricting GDP to important goods
c. Keeping the consumer price index constant
*d. Avoiding double counting
e. Restricting GDP to goods that can be priced
622. Chapter 5—National Income Accounting Question MC #14
Gross domestic product
a. is the equivalent of gross national product.
b. is different from gross national product because GDP includes
domestically owned resources in foreign countries.
*c. is different from gross national product in that GDP measures
only output produced domestically.
d. counts all income received by foreign citizens.
e. is gross national product plus domestic income from abroad.
623. Chapter 5—National Income Accounting Question MC #15
GDP can be calculated as
a. output only.
b. expenditures only.
c. income only.
d. output and income only.
*e. output, expenditures, and income.
624. Chapter 5—National Income Accounting Question MC #16
Inventory can be defined as
a. the stock of capital outstanding.
*b. the stock of unsold goods held by a firm.
c. the reservoir of inputs needed for production.
d. the system of accounts that uses double counting.
e. the characteristic that all successful inventions have.
625. Chapter 5—National Income Accounting Question MC #17
Looking at the 2008 U.S. GDP statistics, the fact that net exports were
negative means that
a. imports were greater than exports up to 2008.
b. exports were greater than imports up to 2008.
*c. imports were greater than exports in 2008.
d. exports were greater than imports in 2008.
e. exports were greater than imports since 2000.
626. Chapter 5—National Income Accounting Question MC #18
Gross domestic product is the sum total of
*a. consumption spending, investment spending, government
purchases, and net exports.
b. the value of output produced at all stages of production,
including intermediate goods.
c. consumption spending, saving, investment, and net exports.
d. consumption spending, saving, investment, government spending,
taxes, and net exports.
e. the value of all monetary transactions in the economy.
627. Chapter 5—National Income Accounting Question MC #19
Which of the following is true?
a. GDP = I + G + S + X
b. GDP - X = C + I + S
c. GDP = C + I + G - X
*d. GDP = I + C + G + X
e. X + I = GDP - C + G
628. Chapter 5—National Income Accounting Question MC #20
Consider GDP calculated as expenditures. GDP would increase if
*a. imports decreased.
b. consumption decreased.
c. exports decreased.
d. investment decreased.
e. government spending decreased.
629. Chapter 5—National Income Accounting Question MC #21
For a hypothetical economy in a given year, GDP equaled $1,190,
consumption equaled $782, government spending equaled $187, goods
exported equaled $98, and goods imported equaled $157. What was
investment equal to?
a. $148
b. -$34
*c. $280
d. $910
e. Cannot be determined from the information given.
630. Chapter 5—National Income Accounting Question MC #22
Figure 5-2
GDP Expenditures
Consumption Spending
Gross Investment
$1,640
$550
Government Purchases
Total Exports
GDP
$320
$280
$2,630
Net exports for the economy described in Figure 5-2 are
a. -$280.
b. -$160.
*c. +$120.
d. +$160.
e. Cannot be determined with the information given.
631. Chapter 5—National Income Accounting Question MC #23
Figure 5-2
GDP Expenditures
Consumption Spending
Gross Investment
Government Purchases
Total Exports
GDP
$1,640
$550
$320
$280
$2,630
Total imports for the economy described in Figure 5-2 are
a. $0.
b. $60.
c. $120.
*d. $160.
e. Cannot be determined with the information given.
632. Chapter 5—National Income Accounting Question MC #24
What is an indirect business tax?
*a. A tax that is collected by businesses for a government agency
b. A foreign tax that hits the country indirectly
c. A foreign tax collected by the local government
d. A local tax intended to tax different goods from the ones that
end up being taxed
e. A tax that affects only businesses that deal with indirect
goods
633. Chapter 5—National Income Accounting Question MC #25
Sales, excise, and income taxes are common taxes. Which of these taxes
is (are) considered indirect business taxes?
a. Only excise and income taxes
b. Only income taxes
c. Only income and sales taxes
*d. Only excise and sales taxes
e. Excise, sales, and income taxes are all forms of indirect
business taxes.
634. Chapter 5—National Income Accounting Question MC #26
The difference between gross and net investment is known as
a. net national product.
b. net exports.
*c. capital consumption allowance.
d. indirect business taxes.
e. national income.
635. Chapter 5—National Income Accounting Question MC #27
The largest component of the income approach to calculating GDP is
a. depreciation of capital goods.
b. profits earned by entrepreneurs.
c. interest income to capital owners.
*d. wages and salaries.
e. rental income to owners of land.
636. Chapter 5—National Income Accounting Question MC #28
In national income accounting, C + I + G + X always equals
a. net national product.
*b. rent, wages, interest, profit, capital consumption allowance,
and indirect business taxes.
c. total payments received by the factors of production.
d. profit, rent, interest, wages, and the capital consumption
allowance.
e. the value of final goods and services produced plus business
taxes.
637. Chapter 5—National Income Accounting Question MC #29
The difference between GNP and NNP equals
a. a statistical discrepancy.
*b. the capital consumption allowance.
c. the difference between government spending and transfer
payments.
d. the difference between the value of exports and the value of
imports.
e. the amount that inventory increases every year.
638. Chapter 5—National Income Accounting Question MC #30
NNP is equal to
a. GNP - X
*b. C + net investment + G + X
c. C + I + G + X - taxes
d. NI + taxes + depreciation
e. PI + depreciation
639. Chapter 5—National Income Accounting Question MC #31
The production of a new machine to replace one that is worn out is
a. an increase in inventories.
*b. part of gross investment.
c. a personal consumption expenditure.
d. not included in GNP.
e. not included in GDP.
640. Chapter 5—National Income Accounting Question MC #32
In comparing GDP and GNP for any single year,
a. GDP will always be larger.
b. GNP will always be larger.
*c. GNP will be larger if net factor income is positive.
d. GNP will be larger if capital consumption allowance is
positive.
e. GDP will be large if the statistical discrepancy is larger.
641. Chapter 5—National Income Accounting Question MC #33
National income is the sum of
a. personal income and personal tax payments.
*b. proprietors' income, rental income, compensation of employees,
corporate profits, and interest receipts net of indirect business
taxes and the capital consumption allowance.
c. wages, transfer payments, interest paid to businesses, and tax
revenue.
d. NNP and the capital consumption allowance.
e. consumption, investment, government spending, and net exports.
642. Chapter 5—National Income Accounting Question MC #34
Indirect business taxes are
a. included in DPI but excluded from NNP.
b. included in NNP but excluded from GNP.
c. included in all measures of national output.
d. included in national income (NI) but excluded from NNP.
*e. excluded from national income (NI).
643. Chapter 5—National Income Accounting Question MC #35
Figure 5-3
GNP Data
(Includes net factor income from abroad)
Consumption Spending
Net Investment
$2,420
$470
Government Spending
Capital Consumption Allowance
Exports
Imports
$350
$55
$740
$600
Refer to Figure 5-3. Net exports equals
a. -$140.
b. -$740.
c. -$1,340.
*d. $140.
e. $1,340
644. Chapter 5—National Income Accounting Question MC #36
Figure 5-3
GNP Data
(Includes net factor income from abroad)
Consumption Spending
Net Investment
Government Spending
Capital Consumption Allowance
Exports
Imports
$2,420
$470
$350
$55
$740
$600
Refer to Figure 5-3. Gross investment equals
a. $470.
b. $375.
c. $160.
*d. $525.
e. $60.
645. Chapter 5—National Income Accounting Question MC #37
Figure 5-3
GNP Data
(Includes net factor income from abroad)
Consumption Spending
Net Investment
Government Spending
Capital Consumption Allowance
Exports
Imports
$2,420
$470
$350
$55
$740
$600
For the economy described in Figure 5-3, GNP equals
*a. $3,435.
b. $3,490.
c. $3,380.
d. $4,635.
e. $4,690.
646. Chapter 5—National Income Accounting Question MC #38
Figure 5-3
GNP Data
(Includes net factor income from abroad)
Consumption Spending
Net Investment
Government Spending
Capital Consumption Allowance
Exports
Imports
$2,420
$470
$350
$55
$740
$600
For the economy described in Figure 5-3, NNP equals
a. $3,435.
b. $3,490.
*c. $3,380.
d. $4,635.
e. $4,690.
647. Chapter 5—National Income Accounting Question MC #39
GNP is equal to
*a. GDP plus net factor income from abroad or NNP plus capital
consumption allowance.
b. NNP plus net factor income from abroad or GDP plus capital
consumption allowance.
c. GDP plus capital consumption allowance or NNP minus the
statistical discrepancy.
d. NNP plus capital consumption allowance or GDP minus the
statistical discrepancy.
e. NI plus indirect business taxes or PI minus personal taxes.
648. Chapter 5—National Income Accounting Question MC #40
Personal income is equal to
a. national income plus business profits.
b. disposable personal income minus personal taxes.
c. national income minus transfer payments.
*d. national income plus welfare benefits minus corporate retained
earnings.
e. disposable personal income plus transfer payments.
649. Chapter 5—National Income Accounting Question MC #41
The difference between personal income (PI) and disposable personal
income (DPI) is
a. indirect business taxes.
*b. personal tax payments.
c. social security benefits.
d. undistributed corporate income.
e. welfare benefits.
650. Chapter 5—National Income Accounting Question MC #42
Which of the following national income accounts would be the smallest in
any year?
a. NNP
b. NI
*c. DPI
d. PI
e. GNP
651. Chapter 5—National Income Accounting Question MC #43
All of the following are considered national income accounts except
a. DPI.
b. NNP.
*c. CPI.
d. GNP.
e. NI.
652. Chapter 5—National Income Accounting Question MC #44
The GDP differs from the GNP because the GDP subtracts out
a. net exports.
*b. net factor income from abroad.
c. investment.
d. government spending.
e. consumption.
653. Chapter 5—National Income Accounting Question MC #45
Which of the following is correct with respect to current-dollar values?
a. They are real values.
*b. They are nominal values.
c. They are the same as base-year values.
d. They are equivalent to constant-dollar values.
e. They are dollar values adjusted for price level increases.
654. Chapter 5—National Income Accounting Question MC #46
Real GDP measures
a. personal income adjusted for taxes paid to the government.
b. national output adjusted for changes in the quality of
products.
*c. national output adjusted for price level changes.
d. nominal output adjusted for changes in national income because
of economic booms.
e. national output adjusted for unemployment.
655. Chapter 5—National Income Accounting Question MC #47
The market value of final goods and services is calculated as
a. price plus quantities of all intermediate goods.
b. quantities of all final goods.
c. quantity times price of all intermediate goods.
*d. quantity times price of all final goods.
e. prices of all goods produced within a given year.
656. Chapter 5—National Income Accounting Question MC #48
If the average price level decreased, which of the following would
happen as a result of this change?
*a. The CPI would decrease.
b. Real GDP would decrease.
c. Real GNP would decrease.
d. Real PI would decrease.
e. Nominal GDP would decrease.
657. Chapter 5—National Income Accounting Question MC #49
What is a consumer price index?
a. A measure of the price at which consumers sell their resources
*b. A measure of the average price level in an economy
c. A measure of the highest price at which consumers sell their
resources
d. A measure of the average price at which consumers sell their
resources
e. A measure of the average price dispersion of all final goods
658. Chapter 5—National Income Accounting Question MC #50
In the context of price indexes, the term COLAs stands for
a. Community Operated Living Arrangements.
b. Cost of Operations in a Law Firm.
c. Cost of Operating for Lesser Adjustments.
*d. Cost-of-Living Adjustments.
e. Cooperative Ordinance of Los Angeles.
659. Chapter 5—National Income Accounting Question MC #51
A price index can be defined as
a. a categorization of goods according to their price.
b. a measure of the value of output in some base year compared to
the value of output in a particular year.
*c. a measure of average price level in an economy.
d. a measure of the ratio of output in a particular year to the
value of output in some base year.
e. a catalogue of the prices of different products published by
the Federal Reserve.
660. Chapter 5—National Income Accounting Question MC #52
The price index for the current year is 180. This means that, on
average, prices in the current year are
a. $0.80 higher than prices in the base year.
b. $1.80 higher than prices in the base year.
c. 80 percent of prices in the base year.
d. 180 percent higher than prices in the base year.
*e. 80 percent higher than prices in the base year.
661. Chapter 5—National Income Accounting Question MC #53
The price index most commonly used in the United States is
*a. the CPI.
b. the PPF price index.
c. the PPI.
d. the WPI.
e. the COLA.
662. Chapter 5—National Income Accounting Question MC #54
COLAs are tied to
a. nominal GDP.
b. the implicit GDP deflator.
c. the PPI.
*d. the CPI.
e. NI.
663. Chapter 5—National Income Accounting Question MC #55
If the PPI increases, in the future we would expect to see
a. no change in the CPI.
*b. an increase in the CPI.
c. a decrease in the CPI.
d. a decrease in COLAs.
e. an increase in real GDP.
664. Chapter 5—National Income Accounting Question MC #56
The producer price index
*a. is a weighted average of producer price changes.
b. fluctuates less than the GDP price index.
c. is currently referred to as the wholesale price index.
d. indicates the current price of final goods and services.
e. is our most accurate measure of total economic output.
665. Chapter 5—National Income Accounting Question MC #57
Which of the following was generally true over the last 40 years?
a. The CPI and the GDPPI moved in the same direction with the PPI
moving in the opposite direction.
b. The CPI and the PPI moved in the same direction with the GDPPI
moving in the opposite direction.
c. The GDPPI and the PPI moved in the same direction with the CPI
moving in the opposite direction.
*d. The CPI, the GDPPI, and the PPI moved in the same direction
with somewhat more volatile movements of PPI.
e. The CPI, the GDPPI, and the PPI moved in the same direction
with somewhat more volatile movements of CPI.
666. Chapter 5—National Income Accounting Question MC #58
If real GDP increased by 2% and nominal GDP increased by 4%, which of
the following tool place?
*a. Output increased and the price level increased.
b. Output increased and the price level decreased.
c. Output decreased and the price level increased.
d. Output decreased and the price level decreased.
e. Output increased and the price level remained unchanged.
667. Chapter 5—National Income Accounting Question MC #59
If real GDP increased by 3.5% and nominal GDP increased by 3.5%, which
of the following tool place?
a. Output increased and the price level increased.
b. Output increased and the price level decreased.
c. Output decreased and the price level increased.
d. Output decreased and the price level decreased.
*e. Output increased and the price level remained unchanged.
668. Chapter 5—National Income Accounting Question MC #60
Which of the following statements is true?
a. Total expenditures > Total income > Total output value
b. Total expenditures > Total output value > Total income
c. Total output value > Total income > Total expenditures
d. Total income > Total expenditures > Total output value
*e. Total expenditures = Total income = Total output value
669. Chapter 5—National Income Accounting Question MC #61
The shadow economy is known by all of the following names except
a. the ghost economy.
*b. the underground economy.
c. the parallel economy.
d. the informal economy.
e. the formal economy.
670. Chapter 5—National Income Accounting Question MC #62
Which of the following is a major force behind the size and growth of
the shadow economy?
a. a decreasing burden of taxation
b. limited restrictions in the labor market
*c. social security payments
d. inflation
e. social
671. Chapter 5—National Income Accounting Question MC #63
The consumer price index (CPI) market basket changes
a. every year.
*b. every two years.
c. every five years.
d. every ten years.
e. every six months.
672. Chapter 5—National Income Accounting Question TF #1
National income accounting is a system of accounts that measures
macroeconomic activity.
*a. True
b. False
673. Chapter 5—National Income Accounting Question TF #2
National Income accounting measures the output of an entire economy as
well as the flow between sectors. In practice, it estimates the amount
of economic activity that occurs during a given period of time.
*a. True
b. False
674. Chapter 5—National Income Accounting Question TF #3
The most common measure of a nation's output and output growth is the
consumer price index.
a. True
*b. False
675. Chapter 5—National Income Accounting Question TF #4
Because it involves the use of money, the sale of a used car for cash is
counted as part of gross domestic product.
a. True
*b. False
676. Chapter 5—National Income Accounting Question TF #5
The output produced by domestically owned firms in foreign locations is
included in the U.S. GDP but not in the U.S. GNP.
a. True
*b. False
677. Chapter 5—National Income Accounting Question TF #6
The sale of live cattle to a slaughterhouse constitutes a final
transaction that is counted as part of gross domestic product.
a. True
*b. False
678. Chapter 5—National Income Accounting Question TF #7
Goods that are produced inside the U.S. borders add to the U.S. GDP but
services that are provided insider the U.S. borders do not.
a. True
*b. False
679. Chapter 5—National Income Accounting Question TF #8
If a fisherman buys fishing equipment for $1,500 to catch trout in the
river and he sells his catch to a nearby restaurant for $2,000 which the
restaurant serves to its customers generating total revenue of $4,260,
the total value added of the fish sold at the restaurant is equal to
$7,760.
a. True
*b. False
680. Chapter 5—National Income Accounting Question TF #9
If a fisherman buys fishing equipment for $1,500 to catch trout in the
river and he sells his catch to a nearby restaurant for $2,000 which the
restaurant serves to its customers generating total revenue of $4,260,
the value added by the fish restaurant amounts to $2,260.
*a. True
b. False
681. Chapter 5—National Income Accounting Question TF #10
Wheat produced in the U.S. but sold in Japan would not add to U.S. GDP.
a. True
*b. False
682. Chapter 5—National Income Accounting Question TF #11
By definition of GDP, total wage earnings and interest income must
always equal consumption and investment spending, government purchases,
and net exports.
a. True
*b. False
683. Chapter 5—National Income Accounting Question TF #12
GDP can only be calculated according to two different approaches: GDP as
output and GDP as income.
a. True
*b. False
684. Chapter 5—National Income Accounting Question TF #13
The capital consumption allowance is equal to the estimated value of
depreciation plus the value of accidental damage to capital stock.
*a. True
b. False
685. Chapter 5—National Income Accounting Question TF #14
GDP as income is equal to the sum of wages, interest rent, and profits,
less net factor income from abroad, plus capital consumption allowance
and indirect business taxes.
*a. True
b. False
686. Chapter 5—National Income Accounting Question TF #15
When using the income approach to GDP, one would exclude local and state
government purchases.
*a. True
b. False
687. Chapter 5—National Income Accounting Question TF #16
Figure 5-4
Excise Taxes Paid by Businesses
Gross Domestic Product
Sales Taxes Paid by Businesses
Capital Consumption Allowance
$26
$810
$130
$176
Imports
Receipts of Foreign Factor Income
Payments of Factor Income Abroad
Statistical Discrepancies
$220
$46
$51
$0
According to Figure 5-4, gross national product equals $805.
*a. True
b. False
688. Chapter 5—National Income Accounting Question TF #17
Figure 5-4
Excise Taxes Paid by Businesses
Gross Domestic Product
Sales Taxes Paid by Businesses
Capital Consumption Allowance
Imports
Receipts of Foreign Factor Income
Payments of Factor Income Abroad
Statistical Discrepancies
$26
$810
$130
$176
$220
$46
$51
$0
According to Figure 5-4, net national product is $629.
*a. True
b. False
689. Chapter 5—National Income Accounting Question TF #18
Figure 5-4
Excise Taxes Paid by Businesses
Gross Domestic Product
Sales Taxes Paid by Businesses
Capital Consumption Allowance
Imports
Receipts of Foreign Factor Income
Payments of Factor Income Abroad
Statistical Discrepancies
$26
$810
$130
$176
$220
$46
$51
$0
According to Figure 5-4, national income is $499.
a. True
*b. False
690. Chapter 5—National Income Accounting Question TF #19
Net national product equals GDP plus net investment.
a. True
*b. False
691. Chapter 5—National Income Accounting Question TF #20
If the prices of all goods and services never changed, nominal and real
GDP would always be the same.
*a. True
b. False
692. Chapter 5—National Income Accounting Question TF #21
If there is a rise in nominal GDP over a given year, then we know that
there is growth in actual output of goods and services.
a. True
*b. False
693. Chapter 5—National Income Accounting Question TF #22
Nominal GDP must always exceed real GDP.
a. True
*b. False
694. Chapter 5—National Income Accounting Question TF #23
Assume nominal GDP for year 1 is $150 and nominal GDP for year 2 is
$200. At the same time, real GDP in year 1 equals $130, and in year 2,
real GDP is $150. This implies that both the price level and the actual
quantities produced have risen from year 1 to year 2.
*a. True
b. False
695. Chapter 5—National Income Accounting Question TF #24
A base year is a year against which other years are measured.
*a. True
b. False
696. Chapter 5—National Income Accounting Question TF #25
CPI is a narrower measure of than the GDP price index.
*a. True
b. False
697. Chapter 5—National Income Accounting Question TF #26
In most industrialized countries, real GDP grew at a relatively slow
pace in the late 1990s and grew very quickly in the early 2000s.
a. True
*b. False
698. Chapter 5—National Income Accounting Question TF #27
Relative to the PPI, the consumer price index is a broader measure of
prices in the U.S. economy.
a. True
*b. False
699. Chapter 5—National Income Accounting Question TF #28
CPI represents each household's cost of living.
a. True
*b. False
700. Chapter 5—National Income Accounting Question TF #29
Labor unions typically rely on the consumer price index when cost-ofliving adjustments are negotiated as part of wage contracts.
*a. True
b. False
701. Chapter 5—National Income Accounting Question TF #30
The circular flow diagram shows the different sectors in the economy are
independent.
a. True
*b. False
702. Chapter 5—National Income Accounting Question TF #31
Estimating the size of the underground economy is a relatively easy task
for specialized economists.
a. True
*b. False
703. Chapter 5—National Income Accounting Question TF #32
The consumer price index (CPI) represents the cost of a fixed market
basket of goods purchased by a hypothetical average household.
*a. True
b. False
704. Chapter 5 Study Guide—National Income Accounting Question MC #1
To get disposable personal income from GNP, we must subtract all of the
following except
a. indirect business taxes.
*b. net factor income from abroad.
c. capital consumption allowance.
d. income earned but not received.
e. personal taxes.
705. Chapter 5 Study Guide—National Income Accounting Question MC #2
To get NNP from GNP, we subtract
*a. capital consumption allowance.
b. net factor income from abroad.
c. capital consumption allowance and indirect business taxes.
d. capital consumption allowance, indirect business taxes, and
personal taxes.
e. capital consumption allowance, indirect business taxes, net
transfer payments, and personal taxes.
706. Chapter 5 Study Guide—National Income Accounting Question MC #3
Which of the following is counted in the GDP?
a. The value of homemaker services
b. Estimated illegal drug transactions
c. The value of NFL players' help to the community
*d. The wages earned while working overtime
e. The sale of a used automatic dishwasher
707. Chapter 5 Study Guide—National Income Accounting Question MC #4
Nominal GDP
a. is real GDP divided by the price level.
b. measures output in constant prices.
c. decreases when the price level increases.
*d. measures output in terms of its current dollar value.
e. is real GDP divided by the consumer price index.
708. Chapter 5 Study Guide—National Income Accounting Question MC #5
A price index equal to 90 in a given year
*a. indicates that prices were lower than prices in the base year.
b. indicates that the year in question was a year previous to the
base year.
c. indicates that prices were 10 percent higher than prices in the
base year.
d. is inaccurate; price indexes cannot be lower than 100.
e. indicates that real GDP was lower than the GDP in the base
year.
709. Chapter 5 Study Guide—National Income Accounting Question ES #1
How is the official GDP statistic affected in the following situations:
(a) An addict engages in illegal drug sales. (b) A college professor
gets married and becomes a homemaker. (c) An autoworker becomes
unemployed and collects welfare payments from the government.
Correct Answer:
Answers will vary.
710. Chapter 5 Study Guide—National Income Accounting Question ES #2
Economists would argue that the consumer price index is a quite
imprecise measure of changes in the cost of living. Hence, labor
management contracts and government transfer programs that are based on
the CPI tend to result in incorrect inflation adjustments. State at
least two reasons for the CPI to be downward- or upward-biased.
Correct Answer:
Answers will vary.
711. Chapter 6—An Introduction to the Foreign Exchange Market and the
Foreign exchange constitutes
a. foreign stock market prices.
b. the balance of payments.
c. a trade agreement with foreign countries.
*d. money of foreign countries.
e. a trade commodity of foreign countries.
712. Chapter 6—An Introduction to the Foreign Exchange Market and t 2
Foreign exchange trading consists of to
a. trading goods and services of different countries.
b. exchanging communication services across countries.
c. buying and selling international gold holdings.
d. exchanging foreign bank deposits against domestic commodities.
*e. buying and selling foreign currency.
713. Chapter 6—An Introduction to the Foreign Exchange Market and t 3
Given the definition of the foreign exchange market, what is its
geographical location?
a. The New York Stock Exchange
b. The central banks around the world
*c. Anywhere monies of different countries are exchanged
d. The Internet
e. The consulates and embassies of the United States
714. Chapter 6—An Introduction to the Foreign Exchange Market and t 4
The foreign exchange market is
a. a place where domestic goods are bought and sold in a foreign
country.
b. a domestic market where foreign goods are bought and sold.
*c. a global market in which people trade one currency for
another.
d. located in New York City.
e. located in London.
715. Chapter 6—An Introduction to the Foreign Exchange Market and t 5
Foreign exchange rates are necessary to
a. compare the demand and supply of goods traded internationally.
b. balance imports and exports in the international market.
c. ensure cultural exchanges across nations.
*d. compare prices stated in foreign currency.
e. allow Americans to travel abroad.
716. Chapter 6—An Introduction to the Foreign Exchange Market and t 6
If the current exchange rate for dollars/pesos is $0.10, so that 10
pesos buy you a dollar, then how many dollars do you need to buy
something that costs 50 pesos?
a. $50
b. $0.50
*c. $5
d. $10
e. We would need to know the reciprocal exchange rate to answer
this question.
717. Chapter 6—An Introduction to the Foreign Exchange Market and t 7
If the exchange rate is $1 equal to 46 Indian rupees, then the U.S.
dollar price of one Indian rupee is
a. $1.02.
b. $0.97.
c. $1.97.
*d. $0.02.
e. $0.22.
718. Chapter 6—An Introduction to the Foreign Exchange Market and t 8
What is the price of one U.S. dollar if one Russian ruble (RUB) =
$0.1674?
a. RUB 0.05974
b. $5.794
*c. RUB 5.974
d. RUB 1.00
e. RUB 0.2985
719. Chapter 6—An Introduction to the Foreign Exchange Market and t 9
If one U.S. dollar = 11.76 Mexican pesos, then the reciprocal exchange
rate equals
a. $11.76.
b. Ps 3.92.
c. Ps 0.008.
d. Ps 0.085.
*e. $0.085.
720. Chapter 6—An Introduction to the Foreign Exchange Market and t10
Which of the following is not true regarding exchange rates published in
the Wall Street Journal?
a. The exchange rates quoted are the values at a specific time.
b. The exchange rates quoted are based on large trades.
*c. The smaller the quantity of foreign currency traded, the lower
the price.
d. The exchange rates quoted apply to wholesale banking.
e. During a given day, the exchange rates could have had different
values from those listed.
721. Chapter 6—An Introduction to the Foreign Exchange Market and t11
The demand for foreign currency in the United States is based on the
demand for
a. domestic goods and services.
b. domestic exports.
c. gold.
*d. foreign goods and services.
e. U.S. dollars.
722. Chapter 6—An Introduction to the Foreign Exchange Market and t12
If the current exchange rate $1 for 0.5 Great British pounds (GBP), how
many pounds would a British consumer need to buy a U.S. product that
costs $23.50?
*a. 11.75 GBP
b. 23.50 GBP
c. 27.50 GBP
d. 47.00 GBP
e. 50.00 GBP
723. Chapter 6—An Introduction to the Foreign Exchange Market and t13
If the U.S. dollar appreciated against the British pound, other things
equal, we would expect
a. the British demand for U.S. products to increase.
b. a reduction in trade between the United States and Britain.
c. the U.S. demand for British products to decrease.
*d. the U.S. demand for British products to increase.
e. an increase in trade between the United States and Britain.
724. Chapter 6—An Introduction to the Foreign Exchange Market and t14
A ____ in the value of a currency is called an appreciation of the
currency; a ____ in the value of a currency is called a depreciation of
the currency.
a. rise; rise
*b. rise; fall
c. fall; fall
d. fall; rise
e. Cannot tell with the information given.
725. Chapter 6—An Introduction to the Foreign Exchange Market and t15
A dress manufactured in Hagen, Germany, costs 195 euros. What is the
U.S. dollar value of the same dress if the exchange rate is $0.89 per
euro?
*a. $173.55
b. $165.43
c. $219.10
d. $187.61
e. $195.00
726. Chapter 6—An Introduction to the Foreign Exchange Market and t16
Appreciation of the dollar means that
a. the dollar is now cheaper in terms of other currencies.
b. demand for U.S. products will rise.
c. the general price level in the United States has increased.
*d. the dollar value is higher in terms of other currencies.
e. the price of U.S. exports will fall.
727. Chapter 6—An Introduction to the Foreign Exchange Market and t17
Depreciation of the dollar means that
a. the value of the dollar has increased in relation to other
currencies.
b. the prices of U.S. products to foreigners have risen.
c. foreign product prices are now lower for U.S. consumers.
*d. foreign product prices are now higher for U.S. consumers.
e. the United States will sell fewer products to foreigners.
728. Chapter 6—An Introduction to the Foreign Exchange Market and t18
A computer sells for $800 in the United States and for 600 British
pounds in England. Given an exchange rate of 0.65 British pound = $1,
how do the computer prices of these countries compare?
a. The computer sells for the same price in both countries.
b. The computer costs $923 more in the United States.
c. The computer costs $95 more in England.
*d. The computer costs $123 less in the United States.
e. The computer costs $123 less in England.
729. Chapter 6—An Introduction to the Foreign Exchange Market and t19
If the exchange rate moves from $0.09 = 1 peso to $0.10 = 1 peso, then
a. the peso has depreciated.
b. one dollar will buy more Mexican pesos than before.
c. the U.S. dollar has appreciated.
*d. the prices of U.S. imports from Mexico are higher.
e. Mexicans will demand fewer U.S. products, other things equal.
730. Chapter 6—An Introduction to the Foreign Exchange Market and t20
If the U.S. dollar depreciated against the Japanese yen. This means that
a. it takes more Japanese yen to buy one dollar.
*b. Japanese products are more expensive to U.S. residents.
c. the Japanese yen has also depreciated against the U.S. dollar.
d. U.S. imports from Japan are less expensive.
e. it takes fewer U.S. dollars to buy a given amount of Japanese
yen.
731. Chapter 6—An Introduction to the Foreign Exchange Market and t21
Suppose that in 2003 a sweater sold for $15 in the United States and for
€18 in Germany. The price of the sweater was the same in both countries
given an exchange rate of $1 = €1.2 How much will an American have to
pay in dollars for the German sweater after the exchange rate is
adjusted to $1 = €1.70? (Assume that the German sweater still costs
€18.)
a. $25.50
b. $18.00
*c. $10.59
d. $15.00
e. $30.60
732. Chapter 6—An Introduction to the Foreign Exchange Market and t22
If the dollar price of one euro was $1.59 in 2007 and $1.35 in 2009,
what happened to the value of the U.S. dollar from 2007 to 2009?
a. It did not change because exchange rates between the United
States and Europe are fixed.
b. It could buy the same amount of euros in 2007 and 2009.
c. It could buy fewer euros in 2007 than in 2009.
*d. It appreciated against the euro.
e. It depreciated against the euro.
733. Chapter 6—An Introduction to the Foreign Exchange Market and t23
Which of the following statements concerning the balance of payments is
not true?
a. The balance of payments is a record of a country's trade in
goods, services, and financial assets with the rest of the world.
b. The different accounts in the balance of payments distinguish
between private transactions and official transactions.
*c. The balance of payments can show a deficit or a surplus.
d. One of the accounts in the balance of payments records
transactions in merchandise.
e. Some banking transactions are recorded in the balance of
payments.
734. Chapter 6—An Introduction to the Foreign Exchange Market and t24
The balance of payments is based on
a. single-entry bookkeeping.
b. credit entries only.
*c. double-entry bookkeeping.
d. debit entries only.
e. a surplus accounting standard.
735. Chapter 6—An Introduction to the Foreign Exchange Market and t25
Double-entry bookkeeping means that for each transaction there is a
credit and a debit entry. ____ record activities that bring payments
into a country; ____ record activities that involve payments to the rest
of the world.
a. Debits; payables
b. Debits; credits
c. Payables; credits
d. Credits; payables
*e. Credits; debits
736. Chapter 6—An Introduction to the Foreign Exchange Market and t26
Debit entries in the balance of payments represent
a. activities whereby foreign exchange is gained.
*b. activities that involve payments to the rest of the world.
c. capital inflows.
d. U.S. exports.
e. foreign imports of U.S. products.
737. Chapter 6—An Introduction to the Foreign Exchange Market and t27
For a hypothetical economy in a given year, the merchandise account had
a net balance of -$254, the services account had a net balance of $76,
the unilateral transfers account had a net balance of -$84, and the
investment income account had a zero net balance. What is the value of
the current account?
a. -$414
b. -$246
c. $246
*d. -$262
e. $262
738. Chapter 6—An Introduction to the Foreign Exchange Market and t28
Which of the following is included in a nation's current account?
a. Purchases of foreign assets
b. Borrowing from abroad
c. Foreign purchases of U.S. financial assets
*d. Investment income receipts
e. Purchases of foreign real property
739. Chapter 6—An Introduction to the Foreign Exchange Market and t29
A negative balance in the merchandise account would be indicated by
a. exports that exceed imports.
*b. imports that exceed exports.
c. a current account deficit.
d. decreasing transfer payments.
e. a deficit balance on investment income.
740. Chapter 6—An Introduction to the Foreign Exchange Market and t30
The services account in the balance of payments includes
*a. a royalty receipt on a foreign patent.
b. income earned from investments in foreign countries.
c. foreign aid to less developed countries.
d. a merchandise import.
e. the purchase of foreign bonds.
741. Chapter 6—An Introduction to the Foreign Exchange Market and t31
What is a unilateral transfer?
a. A merchandise export
*b. A gift to foreigners
c. A royalty receipt on a foreign patent
d. A salary earned abroad
e. Collection on a foreign insurance policy
742. Chapter 6—An Introduction to the Foreign Exchange Market and t32
Interest payments on the portion of the national debt that has been
borrowed from abroad are recorded in the
a. capital account as a debit item.
b. capital account as a credit item.
*c. current account as a debit item.
d. current account as a credit item.
e. merchandise account as a debit item.
743. Chapter 6—An Introduction to the Foreign Exchange Market and t33
Which of the following would be recorded in the capital account?
a. Interest earned by a U.S. bank on a foreign loan
b. U.S. humanitarian aid for victims of war in Bosnia
c. Income received from abroad by a U.S. firm
*d. A loan received by the U.S. government from abroad
e. The purchase of a German car by an American
744. Chapter 6—An Introduction to the Foreign Exchange Market and t34
The financial account is
a. the amount of plant and equipment the United States owns
compared to other nations.
*b. a record of U.S. investments abroad and foreign investments in
the United States.
c. the amount of dollars held abroad.
d. the amount of foreign currency held domestically.
e. a record of the dollar amount of exported and imported
services.
745. Chapter 6—An Introduction to the Foreign Exchange Market and t35
A country that is running a current account deficit
a. exports more than it imports.
b. lends abroad money equal to the deficit.
*c. must borrow an amount sufficient to finance that deficit.
d. must invest abroad the amount of the deficit.
e. None of the above.
746. Chapter 6—An Introduction to the Foreign Exchange Market and t36
In which of the sub-accounts that add up to the current account would we
find the tourism dollars spent by foreigners in the United States?
a. Unilateral transfers
b. Statistical discrepancy
*c. Services
d. Merchandise
e. Investment income
747. Chapter 6—An Introduction to the Foreign Exchange Market and t37
A U.S. financial account deficit means that
*a. the dollar amount of U.S. investments abroad exceeds foreign
investments in the United States.
b. the dollar amount of foreign investments in the United States
exceeds U.S. investments abroad.
c. the dollar amount of exported goods exceeds that of imported
goods.
d. the dollar amount of imported goods exceeds that of exported
goods.
e. the dollar amount of U.S. gifts to foreigners exceeds the
amount of unilateral transfers Americans receive from abroad.
748. Chapter 6—An Introduction to the Foreign Exchange Market and t38
Figure 6-1
U.S. International Transactions in 2007
Merchandise Exports
Service Exports
Net Unilateral Transfers
Service Imports
Merchandise Imports
Net Investment Income
U.S. Purchases of Foreign Assets
Foreign Purchases of U.S. Assets
Statistical Discrepancy
Millions of Dollars
$1,138,384
$ 504,784
-$ 112,705
$ 375,215
$2,344,590
$ 88,776
$1,472,125
$2,129,512
$ 41,287
According to Figure 6-1, what was the merchandise balance for the United
States in 2007?
a. -$1,643,168
b. $1,643,168
c. -$657,387
*d. -$1,206,206
e. $1,206,206
749. Chapter 6—An Introduction to the Foreign Exchange Market and t39
Figure 6-1
U.S. International Transactions in 2007
Merchandise Exports
Service Exports
Net Unilateral Transfers
Service Imports
Merchandise Imports
Net Investment Income
U.S. Purchases of Foreign Assets
Foreign Purchases of U.S. Assets
Statistical Discrepancy
Millions of Dollars
$1,138,384
$ 504,784
-$ 112,705
$ 375,215
$2,344,590
$ 88,776
$1,472,125
$2,129,512
$ 41,287
According to Figure 6-1, the current account balance for the United
States in 2007 was
a. -$1,226,615
*b. -$1,189,342
c. $1,189,342
d. -$1,241,711
e. $1,241,711
750. Chapter 6—An Introduction to the Foreign Exchange Market and t40
Figure 6-1
U.S. International Transactions in 2007
Merchandise Exports
Service Exports
Net Unilateral Transfers
Service Imports
Merchandise Imports
Net Investment Income
U.S. Purchases of Foreign Assets
Foreign Purchases of U.S. Assets
Statistical Discrepancy
Millions of Dollars
$1,138,384
$ 504,784
-$ 112,705
$ 375,215
$2,344,590
$ 88,776
$1,472,125
$2,129,512
$ 41,287
According to Figure 6-1, the financial account balance for the United
States in 2007 was
a. -$1,206,206
b. $1,206,206
*c. +657,387
d. -657,387
e. $1,643,168
751. Chapter 6—An Introduction to the Foreign Exchange Market and t41
When a country runs a merchandise trade surplus, this implies that
a. there is a net surplus in the current account.
b. domestic imports exceed domestic exports.
c. there is a net inflow of capital into the country.
d. the unilateral transfers account has a negative balance.
*e. domestic exports exceed domestic imports.
752. Chapter 6—An Introduction to the Foreign Exchange Market and t42
The U.S. has experienced
a. a current account deficit since the mid-1960s.t
b. a current account surplus since the mid-1960s.
*c. a current account deficit since the mid-1990s.
d. a current account surplus since the mid-1990s.
e. neither surplus nor a deficit in the current account since
2000.
753. Chapter 6—An Introduction to the Foreign Exchange Market and t43
A country that is a net creditor
a. shows a deficit in its current account.
b. receives more tax revenue from its citizens than it returns in
transfer payments.
*c. lends more funds to foreigners than it borrows.
d. shows a surplus in its capital account.
e. sells more bonds to the rest of the world than it buys from the
rest of the world.
754. Chapter 6—An Introduction to the Foreign Exchange Market and t44
If a country has a deficit in its current account,
*a. it signals that the country is a net borrower from the rest of
the world.
b. it is also running a budget deficit.
c. it signals that the country is a net lender to the rest of the
world.
d. the net balance of the balance of payments is not zero.
e. it has a deficit in its capital account also.
755. Chapter 6—An Introduction to the Foreign Exchange Market and t45
The net debtor status of the United States is reflected in large
deficits in
a. the service account.
b. the investment income account.
c. the unilateral transfers account.
*d. the current account.
e. the merchandise account.
756. Chapter 6—An Introduction to the Foreign Exchange Market and t46
Foreign exchange is money denominated in foreign currencies.
*a. True
b. False
757. Chapter 6—An Introduction to the Foreign Exchange Market and t47
A U.S. fifty-dollar bill constitutes foreign exchange to an Australian
resident.
*a. True
b. False
758. Chapter 6—An Introduction to the Foreign Exchange Market and t48
The foreign exchange market is a global market in which foreign
currencies are bought and sold.
*a. True
b. False
759. Chapter 6—An Introduction to the Foreign Exchange Market and t49
Most foreign exchange market transactions do not involve a movement of
currency but rather the buying and selling of bank deposits denominated
in foreign currency.
a. True
*b. False
760. Chapter 6—An Introduction to the Foreign Exchange Market and t50
Exchange rates allow for a comparison of the trade values of goods and
services across countries.
*a. True
b. False
761. Chapter 6—An Introduction to the Foreign Exchange Market and t51
The dollar price of one unit of foreign currency is an exchange rate.
*a. True
b. False
762. Chapter 6—An Introduction to the Foreign Exchange Market and t52
If you know that the exchange rate is such that $1 equals two Swiss
francs, then the dollar price of one Swiss franc must be $2.
a. True
*b. False
763. Chapter 6—An Introduction to the Foreign Exchange Market and t53
Suppose you are a U.S. importer purchasing coffee from Guatemala at a
dollar price of $10,000. If the bank charges $0.12 per quetzal, you
would have to buy 120,000 quetzals to settle the account with the
Guatemalan exporter.
a. True
*b. False
764. Chapter 6—An Introduction to the Foreign Exchange Market and t54
Assume the Wall Street Journal publishes a foreign exchange rate quote
of $0.75 Canadian dollars (CAD) per U.S. dollar. The next day, you go to
your local bank to exchange $1,600 for Canadian currency that you plan
to spend on a trip to Vancouver. You can expect to receive CAD $1,200 in
return.
a. True
*b. False
765. Chapter 6—An Introduction to the Foreign Exchange Market and t55
Foreign exchange trading overlaps in London and New York for four hours
each day.
*a. True
b. False
766. Chapter 6—An Introduction to the Foreign Exchange Market and t56
There is a short overlap of European trading with Asian trading.
*a. True
b. False
767. Chapter 6—An Introduction to the Foreign Exchange Market and t57
At the present time, in addition to the euro, euro-zone countries still
have their own national currencies.
a. True
*b. False
768. Chapter 6—An Introduction to the Foreign Exchange Market and t58
In the euro zone, each country can issue its own coins, and these coins
are not usable in the other euro countries.
a. True
*b. False
769. Chapter 6—An Introduction to the Foreign Exchange Market and t59
The United States is not the only country that calls its currency
dollars. Australia, Canada, and Singapore (among others) also call their
own currency dollars.
*a. True
b. False
770. Chapter 6—An Introduction to the Foreign Exchange Market and t60
If the British pound/U.S. dollar exchange rate adjusts from €0.78 per
dollar to €0.62 per dollar, then the British pound has depreciated by
€0.16.
a. True
*b. False
771. Chapter 6—An Introduction to the Foreign Exchange Market and t61
Other things equal, an increase in European demand for U.S. computers
would lead to an appreciation of the U.S. dollar relative to the euro.
*a. True
b. False
772. Chapter 6—An Introduction to the Foreign Exchange Market and t62
A depreciation of the Swiss franc relative to the British pound would
tend to increase Swiss exports to Great Britain.
*a. True
b. False
773. Chapter 6—An Introduction to the Foreign Exchange Market and t63
Suppose a bottle of Coca-Cola costs $1.30 in Los Angeles and £0.90 in
London. If the exchange rate is $0.60 per British pound, then Coca-Cola
will sell for the equivalent of £0.12 more in Los Angeles than in
London.
a. True
*b. False
774. Chapter 6—An Introduction to the Foreign Exchange Market and t64
Euro coins are issued by individual countries and must be spent in the
country in which they were issued.
a. True
*b. False
775. Chapter 6—An Introduction to the Foreign Exchange Market and t65
Balance of payments data are reported daily for most developed
countries.
a. True
*b. False
776. Chapter 6—An Introduction to the Foreign Exchange Market and t66
The summary measure of a country's current and capital accounts is
referred to as the balance of trade account.
a. True
*b. False
777. Chapter 6—An Introduction to the Foreign Exchange Market and t67
The balance of payments is based on double-entry bookkeeping in which
each transaction is recorded in the same account twice.
a. True
*b. False
778. Chapter 6—An Introduction to the Foreign Exchange Market and t68
Because the balance of payments always balances the sum of the credits
and debits on all accounts must always be equal.
*a. True
b. False
779. Chapter 6—An Introduction to the Foreign Exchange Market and t69
Assume that for a given year, unilateral transfers are +$190, net
investment income amounts to -$55, the merchandise account equals -$467,
and the services account has a net balance of -$270. Then for this
economy, the value of the current account is -$591.
*a. True
b. False
780. Chapter 6—An Introduction to the Foreign Exchange Market and t70
The balance on the merchandise account is frequently referred to as the
balance of trade.
*a. True
b. False
781. Chapter 6—An Introduction to the Foreign Exchange Market and t71
Merchandise imports are recorded as a debit in the current account.
*a. True
b. False
782. Chapter 6—An Introduction to the Foreign Exchange Market and t72
Suppose that a tourist travels to Paris and spends $100 on a sightseeing
tour through the city. He pays with a check drawn on a New York bank.
This transaction would be entered as a $100 credit to the U.S. current
account balance.
a. True
*b. False
783. Chapter 6—An Introduction to the Foreign Exchange Market and t73
Since the mid-1990s, the current account balance in the U.S. has been
positive.
a. True
*b. False
784. Chapter 6—An Introduction to the Foreign Exchange Market and t74
The financial account is where trade involving financial assets and
international investment is recorded.
*a. True
b. False
785. Chapter 6—An Introduction to the Foreign Exchange Market and t75
If the current account shows a balance of $1,560 while the financial
account balance is -$1,478, then the statistical discrepancy account
must have a balance of -$82.
*a. True
b. False
786. Chapter 6—An Introduction to the Foreign Exchange Market and t76
If a nation is incurring a current account deficit; it is either
reducing its holdings of foreign assets or increasing its liabilities to
foreigners.
*a. True
b. False
787. Chapter 6—An Introduction to the Foreign Exchange Market and t77
If there are no statistical discrepancies, then we know that a country
with a net surplus in its current account must run a net deficit in its
capital account.
*a. True
b. False
788. Chapter 6—An Introduction to the Foreign Exchange Market and t78
If a country has a net surplus in its current account, this indicates
that the country is a net borrower from the rest of the world.
a. True
*b. False
789. Chapter 6—An Introduction to the Foreign Exchange Market and t79
With regard to national income formulas, X = GDP + C + I + G.
a. True
*b. False
790. Chapter 6—An Introduction to the Foreign Exchange Market and t80
A current account deficit is consistent with domestic spending in excess
of domestic production.
*a. True
b. False
791. Chapter 6—An Introduction to the Foreign Exchange Market and t81
A weak pound would be expected to bring more British shoppers to France.
a. True
*b. False
792. Chapter 6—An Introduction to the Foreign Exchange Market and t82
The foreign exchange rate is one of the key variables to affect
international tourists.
*a. True
b. False
793. Chapter 6 Study Guide—An Introduction to the Foreign Exchange Ma
If one U.S. dollar sells for 90.00 yen, then the price of the Japanese
yen in terms of dollars is
*a. $.01111.
b. $.1111.
c. $1.1111.
d. $90.
e. $.90.
794. Chapter 6 Study Guide—An Introduction to the Foreign Exchange 2
Suppose a cassette recorder costs 226.44 Norwegian krone and the current
exchange rate between the U.S. dollar and the Norwegian krone is $.1590.
What is the price of the cassette recorder in U.S. dollars?
a. $1424.15
*b. $36.00
c. $181.15
d. $283.05
e. $212.99
795. Chapter 6 Study Guide—An Introduction to the Foreign Exchange 3
If export goods exceed import goods, the ____ account will show a ____.
a. merchandise; deficit
*b. merchandise; surplus
c. services; deficit
d. services; surplus
e. unilateral transfers; surplus
796. Chapter 6 Study Guide—An Introduction to the Foreign Exchange 4
Which account contains all of the activities involving goods and
services?
a. Merchandise
b. Services
c. Unilateral transfers
*d. Current
e. Capital
797. Chapter 6 Study Guide—An Introduction to the Foreign Exchange 5
Suppose that the exchange rate today between the U.S. dollar and the
Australian dollar is $.6985 (1 AUD$ = $.6985). If the exchange rate
tomorrow is $.6975, then the Australian dollar has ____ against the U.S.
dollar. Australian goods will be ____ in the United States.
a. appreciated; more expensive
b. appreciated; less expensive
c. depreciated; more expensive
*d. depreciated; less expensive
e. depreciated; the same price as before
798. Chapter 6 Study Guide—An Introduction to the Foreign Exchange 6
Classify the following transactions in the U.S. balance of payments
account, and calculate the final balance of the current account.
(a)
(b)
(c)
Mike travels to Munich, Germany, and spends $25 cash in a beer
garden.
General Motors sells $500,000 worth of Chevrolets to a French car
dealer.
U.S. charitable organizations donate $84,000 in humanitarian aid
to the government of Somalia.
Correct Answer:
$415, 975
799. Chapter 7—Unemployment and Inflation Question MC #1
The two most important aspects of business cycles are changes in
a. business profits and money supply.
*b. unemployment and inflation.
c. monopolies and the international sector.
d. the price system and the foreign exchange market.
e. inflation and fiscal policy.
800. Chapter 7—Unemployment and Inflation Question MC #2
A business cycle consists of
a. fluctuations in the level of corporate profits.
b. seasonal unemployment patterns.
*c. the ups and downs of real GDP.
d. changes in the long-term growth pattern of the CPI.
e. fluctuations in the general price level.
801. Chapter 7—Unemployment and Inflation Question MC #3
The period between a recession and an expansion is known as a(n)
a. boom.
b. recovery.
c. expansion.
*d. trough.
e. contraction.
802. Chapter 7—Unemployment and Inflation Question MC #4
The four phases of a business cycle, in order, are
*a. peak, recession, trough, expansion.
b. recession, trough, peak, expansion.
c. expansion, trough, recession, peak.
d. trough, recession, expansion, peak.
e. peak, expansion, trough, recession.
803. Chapter 7—Unemployment and Inflation Question MC #5
Figure 7-1
nar001-1.jpg
Refer to Figure 7-1. In year 4,
a. a recession is starting.
b. the economy is entering a contractionary phase.
c. a peak has been reached.
d. the economy is expanding at its long-run growth rate.
*e. a trough has been reached.
804. Chapter 7—Unemployment and Inflation Question MC #6
Figure 7-1
nar001-1.jpg
In Figure 7-1, a new contraction begins in
a. year 1.
*b. year 2.
c. year 3.
d. year 4.
e. year 5.
805. Chapter 7—Unemployment and Inflation Question MC #7
Figure 7-1
nar001-1.jpg
Refer to Figure 7-1. The contraction phase of the business cycle occurs
from
a. year 2 until year 3.
b. year 3 until year 5.
*c. year 2 until year 4.
d. year 1 until year 4.
e. year 3 until year 4.
806. Chapter 7—Unemployment and Inflation Question MC #8
Figure 7-1
nar001-1.jpg
Refer to Figure 7-1. In year 2,
*a. a peak has been reached.
b. a trough has been reached.
c. the economy is expanding above its long-run growth rate.
d. the economy is entering an expansionary phase.
e. the economy is in a recession.
807. Chapter 7—Unemployment and Inflation Question MC #9
Historically the duration of business cycles has
a. been very consistent.
*b. varied considerably.
c. increased somewhat over time.
d. decreased somewhat over time.
e. decreased substantially over time.
808. Chapter 7—Unemployment and Inflation Question MC #10
The Great Depression
*a. constituted a prolonged economic recession.
b. lasted for two years in the 1940s.
c. was characterized by both high unemployment and high inflation.
d. caused national output to fall by 10 percent.
e. was the only period in U.S. history when output decreased.
809. Chapter 7—Unemployment and Inflation Question MC #11
What is a common definition of what constitutes a recession?
*a. Two or more consecutive quarters of declining GDP
b. Six years of drought
c. A sharp decline in unemployment
d. A sharp decline in the balance of payments
e. Two consecutive crashes in the stock markets
810. Chapter 7—Unemployment and Inflation Question MC #12
A lagging indicator
a. changes before a recession starts.
b. goes down before a recession starts.
c. changes during a recession.
*d. changes after an expansion occurs.
e. does not change with fluctuations in economic activity.
811. Chapter 7—Unemployment and Inflation Question MC #13
Which of the following would be considered a coincident indicator?
a. Inflation rate for services
*b. Personal income
c. Inventory to sales ratio
d. Labor costs per unit of output
e. Unemployment claims
812. Chapter 7—Unemployment and Inflation Question MC #14
If stock market prices are a leading indicator, then economic activity
goes up
a. before stock market prices increase.
b. at the same time that stock market prices increase.
*c. after stock market prices increase.
d. before stock market prices decrease.
e. after stock market prices decrease.
813. Chapter 7—Unemployment and Inflation Question MC #15
Which of the following would be considered a lagging indicator?
a. Inflation rate for services
b. Personal income
c. Inventory to sales ratio
d. Labor costs per unit of output
*e. Unemployment claims
814. Chapter 7—Unemployment and Inflation Question MC #16
According to the time at which they move, the three types of indicators
classified by the Department of Commerce are
a. leading, contractionist, and passed indicators.
*b. leading, coincident, and lagging indicators.
c. primary, contractionist, and passed indicators.
d. optimal, contractionist, and passed indicators.
e. optimal, coincident, and lagging indicators.
815. Chapter 7—Unemployment and Inflation Question MC #17
The official unemployment rate is
a. the number of unemployed people divided by the number of
employed people.
b. the number of unemployed people divided by the total size of
the population.
c. the number of unemployed people divided by the size of the noninstitutionalized population.
*d. the number of unemployed people divided by the size of the
labor force.
e. the number of unemployed people divided by the size of the noninstitutionalized population, age 16 or older.
816. Chapter 7—Unemployment and Inflation Question MC #18
The Bureau of Labor Statistics defines a person as unemployed if he or
she does not
a. work full time.
*b. have a job but is actively seeking one.
c. earn a wage above the minimum wage rate.
d. earn enough income to be above the poverty level.
e. work as much as he or she desires.
817. Chapter 7—Unemployment and Inflation Question MC #19
Which of the following persons would be considered unemployed?
a. A house wife/husband
b. A 15-year-old looking for summer employment
c. A person who worked more than 20 hours in a family-owned
business
*d. A recent college graduate looking for her first job
e. A full-time student
818. Chapter 7—Unemployment and Inflation Question MC #20
Which of the following would be considered a member of the U.S. labor
force?
a. A carpenter who hasn't looked for work during
b. An inmate in a state prison who makes license
c. A person in a mental institution
d. A 14-year-old boy who mows lawns for money on
*e. An anthropologist whose search for a job has
the past year
plates
the weekends
been unsuccessful
819. Chapter 7—Unemployment and Inflation Question MC #21
Scenario 7-1
An independent firm recently predicted that in the year 2020, the total
number of residents in the United States will be 315.5 million, the
number of residents under 16 years of age will be 85 million, the number
of institutionalized adults will be 17 million, the number of adults not
actively looking for work will be 39 million, and the number of
unemployed will be 21.5 million.
Refer to the data in Scenario 7-1. What will be the size of the labor
force in the United States in the year 2020?
a. 153 million
b. 294 million
*c. 174.5 million
d. 198 million
e. 315.5 million
820. Chapter 7—Unemployment and Inflation Question MC #22
Scenario 7-1
An independent firm recently predicted that in the year 2020, the total
number of residents in the United States will be 315.5 million, the
number of residents under 16 years of age will be 85 million, the number
of institutionalized adults will be 17 million, the number of adults not
actively looking for work will be 39 million, and the number of
unemployed will be 21.5 million.
Refer to the data in Scenario 7-1. What is the predicted unemployment
rate in the United States for the year 2020?
a. 6.8 percent
b. 8.3 percent
c. 11.5 percent
*d. 12.3 percent
e. 16.5 percent
821. Chapter 7—Unemployment and Inflation Question MC #23
____ and ____ cause the official unemployment rate to underestimate true
unemployment, whereas ____ causes the official rate to overestimate the
true rate of unemployment.
a. Frictional unemployment; discouraged workers; the underground
economy
*b. Discouraged workers; underemployment; the underground economy
c. The underground economy; discouraged workers; underemployment
d. Underemployment; discouraged workers; structural unemployment
e. Frictional unemployment; structural unemployment; the
underground economy
822. Chapter 7—Unemployment and Inflation Question MC #24
Including discouraged workers in the labor market statistics would
a. reduce the labor force and increase the unemployment rate.
*b. increase the labor force and increase the unemployment rate.
c. increase the labor force and reduce the unemployment rate.
d. reduce the labor force and decrease the unemployment rate.
e. affect neither the size of the labor force nor the unemployment
rate.
823. Chapter 7—Unemployment and Inflation Question MC #25
Because there is no way to account for them, the official unemployment
rate does not include discouraged workers. What would happen to the
unemployment rate if, because of a program that gave them new hope, all
discouraged workers suddenly begin reporting themselves as ready to
work?
a. The official unemployment rate would remain unchanged.
*b. The number officially in the labor force would increase.
c. The number officially in the labor force would remain
unchanged.
d. The official unemployment rate would decrease.
e. One would need more specific information to answer this
question.
824. Chapter 7—Unemployment and Inflation Question MC #26
Which of the following is a shortcoming of the unemployment rate as a
true measure of unemployment?
a. The
b. The
c. The
idle
d. The
search
existence of unemployed workers
exclusion of institutionalized adults
exclusion of workers who are out of work and voluntarily
inclusion of those who cannot find work but continue to
*e. The exclusion of those who gave up looking for work
825. Chapter 7—Unemployment and Inflation Question MC #27
Which of the following statements about seasonal unemployment is true?
*a. It is likely to be associated with jobs that are affected by
changes in the weather.
b. It is likely to be affected by changes in consumer preferences.
c. It results primarily from downturns in economic activity.
d. It is the type of unemployment associated with discouraged
workers.
e. It is difficult to predict because it involves all kinds of
workers.
826. Chapter 7—Unemployment and Inflation Question MC #28
This type of unemployment arises as one of the worst effects of a
recession.
a. Seasonal unemployment
b. Static unemployment
*c. Cyclical unemployment
d. Frictional unemployment
e. Structural unemployment
827. Chapter 7—Unemployment and Inflation Question MC #29
When Karen Baker finished college, it was three months before she found
a good job. During this time between graduation and her first working
day, she was considered
a. cyclically unemployed.
*b. frictionally unemployed.
c. frequently unemployed.
d. structurally unemployed.
e. still employed.
828. Chapter 7—Unemployment and Inflation Question MC #30
Structural unemployment is the result of
a. business cycle fluctuations.
b. recurring changes in the hiring needs of certain industries.
c. short-term movement of workers between jobs.
d. job search for first-time job seekers.
*e. technological change or permanent changes in industry demand.
829. Chapter 7—Unemployment and Inflation Question MC #31
Which of the following people is structurally unemployed?
a. "I quit my job last week and will start a new one next week."
*b. "I lost my job because I was replaced by a robotic machine."
c. "I was laid off at the Ford plant because car sales are down
due to a recession."
d. "I quit looking for work after unsuccessfully trying to find a
job for two years."
e. "I quit my work at the farm after the harvest was over."
830. Chapter 7—Unemployment and Inflation Question MC #32
Which of the following is an example of cyclical unemployment?
a. A recent college graduate still looking for her first job
*b. A car salesman who loses his job because of a recession
c. A ski instructor who is out of work during the summer
d. An economics journalist who just quit her writing job in order
to begin a new career as a college professor next month
e. A worker displaced from his factory job because of greater
mechanization in the workplace
831. Chapter 7—Unemployment and Inflation Question MC #33
Potential GDP minus actual GDP
a. is the difference between the peak and the trough of a business
cycle.
b. is the difference between real and nominal GDP.
*c. is defined as the GDP gap.
d. measures the inflation rate.
e. measures the difference between the full employment rate and
the natural rate of unemployment.
832. Chapter 7—Unemployment and Inflation Question MC #34
Which of the following statements about the GDP gap is not true?
a. It widens during recessions and narrows during expansions.
b. When the GDP gap equals zero, the economy operates on its
production possibilities curve.
c. It is a measure of output lost as a result of unemployment.
*d. There are more goods and services available as the gap widens.
e. It is equal to potential real GDP minus actual real GDP.
833. Chapter 7—Unemployment and Inflation Question MC #35
Potential GDP is the real output level that
a. would be realized in the absence of structural unemployment.
b. would be realized in the absence of inefficient government
programs.
*c. is associated with the natural rate of unemployment.
d. is associated with full employment.
e. is associated with economic growth at zero percent annual
inflation.
834. Chapter 7—Unemployment and Inflation Question MC #36
Unemployment will decrease if
*a. actual GDP increases faster than potential GDP.
b. actual GDP increases at the same rate as potential GDP.
c. the GDP gap widens.
d. actual GDP increases less than potential GDP.
e. actual GDP decreases and potential GDP remains the same.
835. Chapter 7—Unemployment and Inflation Question MC #37
The natural rate of unemployment is the unemployment rate that would
exist in the absence of
a. structural unemployment.
b. underemployment.
*c. cyclical unemployment.
d. frictional unemployment.
e. seasonal unemployment.
836. Chapter 7—Unemployment and Inflation Question MC #38
The natural rate of unemployment will always be greater than zero
because of
*a. frictional unemployment.
b. cyclical unemployment.
c. the presence of recessions.
d. involuntary unemployment.
e. limited growth opportunities of the economy.
837. Chapter 7—Unemployment and Inflation Question MC #39
Which of the following do not explain why the unemployment rate is lower
for whites than for nonwhites?
a. Discrimination with regard to hiring practices
*b. Equal Opportunity Programs
c. Discrimination with regard to job opportunities
d. The quality of education in school with large minority
populations
e. The quality of education in school with limited minority
populations
838. Chapter 7—Unemployment and Inflation Question MC #40
General trends in the incidence of unemployment across different
demographic groups show which of the following groups to have the
highest unemployment rates in the country?
*a. Teenagers
b. Men
c. Nonwhites
d. Women
e. Whites
839. Chapter 7—Unemployment and Inflation Question MC #41
In the 1990s, the Danish government passed laws tightening eligibility
requirements for receiving unemployment benefits. What happened to
Danish unemployment rates as a result of this policy change?
a. The unemployment rate increased.
*b. The unemployment rate decreased.
c. More teenagers entered the labor force.
d. More women entered the labor force.
e. The natural rate of unemployment increased.
840. Chapter 7—Unemployment and Inflation Question MC #42
When government policies aim to protect workers from unemployment,
a. inflation will rise.
b. inflation will fall.
*c. a higher unemployment problem is created.
d. the unemployment problem is solved.
e. None of the above.
841. Chapter 7—Unemployment and Inflation Question MC #43
Inflation is defined as
a. any increase in the general price level.
*b. a sustained increase in the average price level.
c. a sustained increase in relative prices.
d. an increase in the prices of specific products.
e. a sudden increase in the weighted average of all prices.
842. Chapter 7—Unemployment and Inflation Question MC #44
In 2008, the inflation rate in the United States was 0.1 percent. This
means that
*a. the weighted average of all prices increased 0.1 percent over
the year.
b. the weighted average of all prices increased 0.1 percent over
the quarter.
c. the weighted average of all prices increased 0.1 percent in
December 2005.
d. food prices increased 0.1 percent over the year.
e. stock prices rose 0.1 percent over the year.
843. Chapter 7—Unemployment and Inflation Question MC #45
Figure 7-2
Price Data
1 Pair of Jeans
1 Pair of Shoes
2005
$50
$60
2009
$60
$78
Which of the following is true with respect to Figure 7-2?
a. The relative price of shoes in terms of jeans was 1.68 in 2005.
b. The absolute price of shoes declined from 2005 to 2009.
*c. The relative price of shoes rose from 2005 to 2009.
d. The relative price of shoes in terms of jeans was 2/3 in 2005.
e. The relative price of jeans rose between 2005 and 2009.
844. Chapter 7—Unemployment and Inflation Question MC #46
Figure 7-2
Price Data
1 Pair of Jeans
1 Pair of Shoes
2005
$50
$60
2009
$60
$78
In Figure 7-2, what was the price of a pair of shoes in relation to a
pair of jeans in 2005?
a. The relative price of shoes in terms of jeans was 0.83
*b. The relative price of shoes in terms of jeans was 1.2
c. The relative price of shoes in terms of jeans was 0.63
d. The relative price of shoes in terms of jeans was 1.58
e. The relative price of shoes in terms of jeans was 1.00
in
in
in
in
in
2005.
2005.
2005.
2005.
2005.
845. Chapter 7—Unemployment and Inflation Question MC #47
If a nominal interest rate is 6.75% and the expected rate of inflation
is 2.5%, what would the real interest equal?
a. 2.5%
*b. 4.25%
c. 6.75%
d. 9.25%
e. 9.75%
846. Chapter 7—Unemployment and Inflation Question MC #48
If the average price level was 0.64 in 1990, then the purchasing power
of one dollar in that year relative to the 2002 base year was
a. $6.64.
*b. $1.56.
c. $2.27.
d. $0.56.
e. $0.44.
847. Chapter 7—Unemployment and Inflation Question MC #49
If the average price level in 2002 was 1.25 relative to the base year in
1992, then
*a. a dollar in 2002 bought just 80 percent of the goods and
services that a dollar bought in 1992.
b. average prices were 80 percent higher in 2002 than in 1992.
c. a dollar in 2002 bought 25 percent more goods and services than
a dollar bought in 1992.
d. average prices were 125 percent higher in 2000 than in 1992.
e. purchasing power rose 25 percent between 1992 and 2002.
848. Chapter 7—Unemployment and Inflation Question MC #50
In which decade did the U.S. experience the most substantial inflation?
a. 1960s
*b. 1970s
c. 1980s
d. 1990s
e. 2000s
849. Chapter 7—Unemployment and Inflation Question MC #51
Cost-of-living raises protect
a. businesses from unexpected inflation.
*b. workers from unexpected inflation.
c. workers from expected inflation.
d. consumers from unexpected inflation.
e. consumers from expected inflation.
850. Chapter 7—Unemployment and Inflation Question MC #52
The real interest rate equals
a. the nominal interest rate plus the rate of expected inflation.
b. the nominal interest rate divided by the rate of expected
inflation.
c. the rate of expected inflation minus the nominal interest rate.
d. the nominal interest rate minus the rate of unexpected
inflation.
*e. the nominal interest rate minus the rate of expected
inflation.
851. Chapter 7—Unemployment and Inflation Question MC #53
If the nominal interest rate is less than the rate of inflation, the
real interest rate
*a. will be less than zero.
b. does not change.
c. will equal zero.
d. will be greater than zero.
e. this can never happen.
852. Chapter 7—Unemployment and Inflation Question MC #54
Variable interest rates
*a. protect lenders against the risks associated with unexpected
inflation.
b. protect debtors against the risks associated with expected
inflation.
c. shift the risk associated with inflation from the debtor to the
creditor.
d. eliminate all risk associated with inflation.
e. protect the government against increases in the federal budget
deficit.
853. Chapter 7—Unemployment and Inflation Question MC #55
The nominal interest rate
a. is not observed in the real world.
b. equals the inflation rate minus the real interest rate.
*c. equals the amount of expected inflation plus the real interest
rate.
d. determines the real return on an investment.
e. determines how high the actual inflation rate will be.
854. Chapter 7—Unemployment and Inflation Question MC #56
If the nominal interest rate is 12 percent and the real interest rate is
8 percent, then the expected inflation rate must equal
a. +1.5 percent.
b. +3 percent.
*c. +4 percent.
d. +8 percent.
e. +12 percent.
855. Chapter 7—Unemployment and Inflation Question MC #57
Inflation benefits people who
a. lend at fixed interest rates.
b. receive fixed incomes.
c. save at fixed interest rates.
*d. borrow at fixed interest rates.
e. borrow at variable interest rates.
856. Chapter 7—Unemployment and Inflation Question MC #58
When the economy is operating at full capacity, we might expect
a. cost-push inflation.
*b. demand-pull inflation.
c. profit-push inflation.
d. wage-push inflation.
e. no inflation at all.
857. Chapter 7—Unemployment and Inflation Question MC #59
Cost-push inflation is caused by
a. full employment of resources in the economy.
b. excessive government spending.
c. excess raw materials.
d. an increased amount of resources.
*e. increased costs of resources.
858. Chapter 7—Unemployment and Inflation Question MC #60
Which of the following could contribute to cost-push inflation?
a. Greater demand for exports
b. Lower income taxes
c. An increase in consumption demand
d. Higher government spending
*e. Higher wage demands by trade unions
859. Chapter 7—Unemployment and Inflation Question MC #61
Figure 7-3
nar004-1.jpg
In Figure 7-3, the increase in equilibrium prices could represent
a. cost-push inflation.
b. wage-push inflation.
*c. demand-pull inflation.
d. decreased supply.
e. decreased demand.
860. Chapter 7—Unemployment and Inflation Question MC #62
Annual inflation rates
a. are about the same across countries.
*b. are higher in developing countries than in industrial
countries.
c. are higher in industrial countries than in developing
countries.
d. are not linked to the monetary policy of a country.
e. remain relatively stable over time.
861. Chapter 7—Unemployment and Inflation Question MC #63
Hyperinflation
*a. causes the value of a currency to deteriorate so quickly that
people become reluctant to hold that currency.
b. is a situation in which people hoard currency.
c. is a simultaneous increase in inflation and decrease in the
quality of products.
d. occurred in the United States in the 1970s.
e. is a synonym for cost-push inflation.
862. Chapter 7—Unemployment and Inflation Question MC #64
The introduction of a new currency in developing countries is generally
a sign of
a. an economic depression.
b. a misguided political situation.
c. social instability.
*d. hyperinflation.
e. deflation.
863. Chapter 7—Unemployment and Inflation Question MC #65
Which of the following statements concerning inflation is not true?
a. In most cases, hyperinflation eventually makes a country's
currency worthless.
*b. The general price level in the United States has always had an
upward trend.
c. The inflation rate of industrial nations is much lower than the
inflation rate of developing nations.
d. Hyperinflation is an extremely high rate of inflation.
e. High rates of inflation are generally caused by rapid growth of
the money supply.
864. Chapter 7—Unemployment and Inflation Question MC #66
Which of the following are not reasons that senior citizens are more in
need of work in 2008 than in the past?
a. Decreasing Social Security benefits.
*b. Higher mortgage interest rates.
c. Increasing health care costs.
d. General decline in the stock market.
e. Lesser benefits from pension plans.
865. Chapter 7—Unemployment and Inflation Question TF #1
Changes in overall economic activity, as indicated by changes in tastes,
technology, and labor relations, are referred to as business cycles.
a. True
*b. False
866. Chapter 7—Unemployment and Inflation Question TF #2
In a business cycle, a peak marks the end of an expansion and the
beginning of a recession.
*a. True
b. False
867. Chapter 7—Unemployment and Inflation Question TF #3
During a period of economic expansion, we would expect increasing levels
of employment.
*a. True
b. False
868. Chapter 7—Unemployment and Inflation Question TF #4
The U.S. economy reached a peak in December of 2007.
*a. True
b. False
869. Chapter 7—Unemployment and Inflation Question TF #5
Recession is another name given to a period in which unemployment rises.
*a. True
b. False
870. Chapter 7—Unemployment and Inflation Question TF #6
Leading indicators are infallible; that is, we can always trust them to
predict the business cycle accurately.
a. True
*b. False
871. Chapter 7—Unemployment and Inflation Question TF #7
A coincident indicator will change before a recession starts.
a. True
*b. False
872. Chapter 7—Unemployment and Inflation Question TF #8
Personal income is considered to be a coincident economic indicator.
This implies that changes in personal income will occur simultaneously
with changes in economic activity.
*a. True
b. False
873. Chapter 7—Unemployment and Inflation Question TF #9
The official unemployment rate is calculated as the number of unemployed
divided by the official population number.
a. True
*b. False
874. Chapter 7—Unemployment and Inflation Question TF #10
An inmate in a state prison who makes license plates is considered
unemployed by the Bureau of Labor Statistics.
a. True
*b. False
875. Chapter 7—Unemployment and Inflation Question TF #11
Any individual who is not working would be considered unemployed.
a. True
*b. False
876. Chapter 7—Unemployment and Inflation Question TF #12
Discouraged workers are often people who are encouraged by the
government not to work.
a. True
*b. False
877. Chapter 7—Unemployment and Inflation Question TF #13
The effect of discouraged workers and underemployment is an unemployment
rate that understates actual unemployment.
*a. True
b. False
878. Chapter 7—Unemployment and Inflation Question TF #14
The effect of the underground economy is an unemployment rate that
understates actual employment.
a. True
*b. False
879. Chapter 7—Unemployment and Inflation Question TF #15
Frictional and structural unemployment are always present in a dynamic
economy.
*a. True
b. False
880. Chapter 7—Unemployment and Inflation Question TF #16
Shifts in consumer tastes, relocation of industries, and technological
changes can all be contributing factors to structural unemployment.
*a. True
b. False
881. Chapter 7—Unemployment and Inflation Question TF #17
Cyclical unemployment is unemployment that increases at high levels of
economic activity.
a. True
*b. False
882. Chapter 7—Unemployment and Inflation Question TF #18
Official unemployment rates will decrease if actual GDP rises faster
than potential GDP.
*a. True
b. False
883. Chapter 7—Unemployment and Inflation Question TF #19
The natural rate of unemployment is always more than the actual rate of
unemployment because it excludes frictional and seasonal unemployment
rates.
a. True
*b. False
884. Chapter 7—Unemployment and Inflation Question TF #20
Potential real GDP is the level of output produced when the unemployment
rate finally reaches zero.
a. True
*b. False
885. Chapter 7—Unemployment and Inflation Question TF #21
The government policies on the labor market in those higher-unemployment
European countries caused higher unemployment rates.
*a. True
b. False
886. Chapter 7—Unemployment and Inflation Question TF #22
The requirement by foreign governments that parents support their adult
children encourages those children to remain unemployed.
*a. True
b. False
887. Chapter 7—Unemployment and Inflation Question TF #23
The more difficult it is for a firm to adjust its labor force in the
face of economic fluctuation, the more likely the firm is to hire new
workers.
a. True
*b. False
888. Chapter 7—Unemployment and Inflation Question TF #24
Teenagers are usually the demographic group with the highest
unemployment rates.
*a. True
b. False
889. Chapter 7—Unemployment and Inflation Question TF #25
The primary reason that teenagers currently have the highest
unemployment rate is the decline in our educational system.
a. True
*b. False
890. Chapter 7—Unemployment and Inflation Question TF #26
Discrimination plays a role in the different unemployment rates for
whites and nonwhites.
*a. True
b. False
891. Chapter 7—Unemployment and Inflation Question TF #27
A high level of inflation is typical one of the economic problems
associated with a recession.
a. True
*b. False
892. Chapter 7—Unemployment and Inflation Question TF #28
If the inflation rate for a given year is 5 percent, then the purchasing
power of $1.00 in the previous year will buy approximately $0.95 this
year.
*a. True
b. False
893. Chapter 7—Unemployment and Inflation Question TF #29
Given constant real output, a decrease in real income implies that the
purchasing power of money is falling.
*a. True
b. False
894. Chapter 7—Unemployment and Inflation Question TF #30
Unexpected inflation tends to redistribute income away from those who
lend at fixed interest rates to those who borrow at fixed interest
rates.
*a. True
b. False
895. Chapter 7—Unemployment and Inflation Question TF #31
Creditors are likely to benefit from unexpected inflation.
a. True
*b. False
896. Chapter 7—Unemployment and Inflation Question TF #32
Expected inflation causes a redistribution of income.
a. True
*b. False
897. Chapter 7—Unemployment and Inflation Question TF #33
If the inflation rate is greater than the nominal interest rate, then
the real interest rate is less than zero.
*a. True
b. False
898. Chapter 7—Unemployment and Inflation Question TF #34
Demand-pull inflation occurs when aggregate spending exceeds total
economic output.
*a. True
b. False
899. Chapter 7—Unemployment and Inflation Question TF #35
The main macroeconomic problem associated with the expansionary phase of
a business cycle is the potential for demand-pull inflation.
*a. True
b. False
900. Chapter 7—Unemployment and Inflation Question TF #36
Cost-push inflation is caused by the achievement of full-capacity
output.
a. True
*b. False
901. Chapter 7—Unemployment and Inflation Question TF #37
Inflation is usually due either to greedy workers who want to earn more,
or to greedy retailers who want to charge higher prices for their
products.
a. True
*b. False
902. Chapter 7—Unemployment and Inflation Question TF #38
Hyperinflation is usually accompanied by a great macroeconomic
expansion.
a. True
*b. False
903. Chapter 7—Unemployment and Inflation Question TF #39
Low growth in the money supply is a means to prevent high inflation
rates.
*a. True
b. False
904. Chapter 7—Unemployment and Inflation Question TF #40
Experienced workers who have lost their jobs at one firm are generally
able to meet entry-level requirements at other jobs.
a. True
*b. False
905. Chapter 7 Study Guide—Unemployment and Inflation Question MC #1
All of the following are leading economic indicators except
a. the average workweek.
b. unemployment claims.
c. new plant and equipment orders.
*d. the prime interest rate.
e. none of these; that is, they are all leading indicators.
906. Chapter 7 Study Guide—Unemployment and Inflation Question MC #2
A first-draft college basketball star who has a month off before
reporting to his new NBA team is an example of
*a. frictional unemployment.
b. structural unemployment.
c. cyclical unemployment.
d. technological unemployment.
e. a rich, employed person.
907. Chapter 7 Study Guide—Unemployment and Inflation Question MC #3
A steelworker who has been laid off during a recession is an example of
a. frictional unemployment.
b. seasonal unemployment.
*c. cyclical unemployment.
d. search unemployment.
e. structural unemployment.
908. Chapter 7 Study Guide—Unemployment and Inflation Question MC #4
If a college professor's income has increased by 20 percent at the same
time that prices have risen by 15 percent, the professor's real income
has
a. decreased by approximately 5 percent.
b. increased by approximately 20 percent.
*c. increased by approximately 5 percent.
d. decreased by approximately 20 percent.
e. not changed.
909. Chapter 7 Study Guide—Unemployment and Inflation Question MC #5
Which of the following groups benefits from unanticipated inflation?
a. Creditors
b. Retirees on fixed incomes
*c. Debtors
d. Workers whose salaries are tied to the CPI
e. Suppliers who have contracted to supply a fixed amount of their
product for a fixed price
910. Chapter 7 Study Guide—Unemployment and Inflation Question MC #6
Which of the following could be a cause of demand-pull inflation?
a. War in the Middle East, which can increase oil prices
b. Drought in the Midwest, which can cause crop failures
c. Suppliers who increase their profit margins by raising prices
faster than their costs increase
*d. Increased government spending in the absence of increased
taxes
e. Labor unions, which can force wage increases that are not
justified by increases in productivity
911. Chapter 7 Study Guide—Unemployment and Inflation Question ES #1
Suppose the United States were to institute a new system of unemployment
compensation that will pay anyone who has lost his or her job $500 a
month for the following six months, regardless of whether that
individual is actively seeking reemployment or not. What do you think
will happen to the average duration of unemployment and why? How will
frictional unemployment be affected and why? Does a higher unemployment
rate necessarily mean that society is worse off? Explain.
Correct Answer:
Answers will vary.
912. Chapter 7 Study Guide—Unemployment and Inflation Question ES #2
Evaluate the following statement: "If all inflation is anticipated, then
the real value of money will remain constant over time."
Correct Answer:
Answers will vary.
913. Chapter 7 Study Guide—Unemployment and Inflation Question ES #3
What is the link among real interest rates, unexpected inflation, and
real GDP growth? Explain.
Correct Answer:
Answers will vary.
914. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supply
Business cycles are linked to the interaction between
a. the foreign exchange rate and the balance of payments account.
*b. the aggregate demand and aggregate supply curves.
c. the demand and supply curves for a particular good.
d. the substitution and the wealth effect.
e. the long-run aggregate supply curve and the aggregate resource
curve.
915. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 2
Which of the following statements is not true?
a. Macroeconomic equilibrium occurs at the intersection of the
aggregate demand and aggregate supply curves.
b. The aggregate supply curve indicates a positive relationship
between the price level and GDP.
c. Other things equal, a downward shift of the aggregate demand
curve implies that the economy is entering a contractionary phase.
*d. Aggregate demand and aggregate supply determine the
equilibrium price and quantity of any given good.
e. The aggregate demand curve indicates a negative relationship
between the price level and GDP.
916. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 3
The aggregate demand curve
*a. shows the various levels of expenditures that the economy will
engage in at alternative price levels.
b. implies a positive relationship between inflation and
unemployment.
c. is identical to the consumption curve.
d. has the same slope as the aggregate supply curve.
e. relates relative prices to the quantity demanded of a
particular good.
917. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 4
The aggregate supply curve
a. is irrelevant for determining macroeconomic equilibrium.
b. shows the various amounts of real output that the economy will
produce of a particular good.
c. has a negative slope.
d. shifts with changes in consumer spending, investment,
government spending, and net exports.
*e. relates total output in the economy to alternative price
levels.
918. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 5
Other things equal, an increase in aggregate demand will result in
*a. an economic expansion.
b. higher unemployment and a lower equilibrium price level.
c. an economic recession.
d. a decrease in equilibrium real GDP and an increase in the
equilibrium level of prices.
e. decreased economic welfare.
919. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 6
An increase in aggregate demand will lead to
a. demand push inflation.
*b. demand pull inflation.
c. price push inflation.
d. price pull inflation.
e. cost push inflation.
920. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 7
An increase in resource prices results in
a. a rightward shift of the aggregate supply curve.
b. a rightward shift of the aggregate demand curve.
c. a movement down the aggregate demand curve.
d. a leftward shift of the aggregate demand curve.
*e. a leftward shift of the aggregate supply curve.
921. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 8
Cost-push inflation is
a. associated with an economic expansion.
b. associated with an economic contraction.
*c. caused by a decrease in aggregate supply.
d. identical to demand-pull inflation.
e. the result of increased consumer spending.
922. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp 9
Other things equal, the steeper the aggregate supply curve,
a. the greater the expansionary effect of an increase in aggregate
demand.
b. the smaller the inflationary effect of an increase in aggregate
demand.
*c. the smaller the recessionary effect of a decrease in aggregate
demand.
d. the greater the expansionary effect of a decrease in aggregate
demand.
e. the smaller the recessionary effect of an increase in aggregate
demand.
923. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp10
The sum of consumption spending, investment, government spending, and
net exports is defined as
a. aggregate supply.
b. aggregate demand.
c. aggregate equilibrium.
*d. aggregate expenditures.
e. aggregate wealth.
924. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp11
Other things equal, a natural disaster that decreases the value of
assets owned by a household will lead to
a. a decrease in aggregate production.
*b. a decrease in aggregate demand.
c. an increase in international trade.
d. an increase in aggregate expenditures.
e. a movement down along the aggregate demand curve.
925. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp12
Which of the following is not one of the factors that directly affect
how much households spend?
a. Government spending and taxes
*b. Aggregate supply
c. Changes in the population of a country
d. Expectations about the future
e. Households' wealth
926. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp13
We would expect higher interest rates on business loans to result in
a. an increase in aggregate demand.
b. an increase in aggregate supply.
c. an increase in investment spending.
d. a decrease in government spending.
*e. a decrease in aggregate expenditures.
927. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp14
Other things equal, an increase in government spending
a. increases the slope of the aggregate demand curve.
b. increases the slope of the aggregate supply curve.
*c. increases aggregate expenditures.
d. shifts the aggregate demand curve to the left.
e. reduces the equilibrium level of GDP.
928. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp15
Which of the following will not cause net exports to decline?
a. An appreciation of the domestic currency
b. A fall in foreign income
c. Higher foreign tariffs on domestic goods
d. Lower foreign prices
*e. An appreciation of the foreign currency
929. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp16
Other things equal, a depreciation of the U.S. dollar against other
foreign currencies will result in
a. a decrease in domestic investment spending.
b. an increase in U.S. demand for foreign goods.
c. an increase in foreign aggregate expenditures.
d. a decrease in U.S. aggregate expenditures.
*e. an increase in foreign demand for U.S. goods.
930. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp17
All of the following lead to an increase in aggregate expenditures
except
a. an increase in domestic income
b. depreciation of the domestic currency.
c. an increase in foreign income.
*d. a decrease in the domestic price level.
e. a decrease in interest rates.
931. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp18
The inverse relationship between the general price level and real GDP is
depicted by
a. a downward-sloping demand curve for an individual good.
*b. the aggregate demand curve.
c. an upward-sloping demand curve.
d. the aggregate supply curve.
e. a vertical long-run aggregate supply curve.
932. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp19
Which of the following occurs when the price level falls?
*a. The purchasing power of money increases.
b. Aggregate expenditures tend to fall.
c. The purchasing power of money falls.
d. The real value of assets falls.
e. The real value of wealth falls.
933. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp20
Figure 8-1
Price of Bond
Interest Payment
Year 1
$2,000
$200
Year 2
$1,800
$200
Refer to Figure 8-1. Between year 1 and year 2, the interest rate on the
bond
a. did not change.
b. decreased by 1 percentage point.
*c. increased by 1 percentage point.
d. decreased by 10 percentage points.
e. increased by 10 percentage points.
934. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp21
Figure 8-1
Price of Bond
Interest Payment
Year 1
$2,000
$200
Year 2
$1,800
$200
Refer to Figure 8-1. The change in the price of the bond is likely to be
the result of
a. a decrease in the price of goods and services.
b. an increase in government spending.
*c. an increase in the price of goods and services.
d. a decrease in the supply of bonds.
e. None of these
935. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp22
A bond with a price of $8,000 that pays $1,000 interest in one year,
would imply an interest rate of
a. 0.8%e
b. 1.25%
c. 8.0%
*d. 12.5%
e. 80.0%
936. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp23
Suppose a representative household holds a bond that is expected to pay
a real return of $100 one year from now. However, over the next year,
the inflation rate rises 15 percent more than was originally
anticipated. As a consequence,
a. the real value of household wealth will increase.
b. consumption spending will increase, and aggregate demand will
rise.
c. the purchasing power of money will rise.
d. savings will fall and aggregate expenditures will rise.
*e. the aggregate quantity demanded will decrease.
937. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp24
Assuming a fixed exchange rate, a decrease in U.S. prices relative to
European prices will
*a. decrease European exports to the United States.
b. increase U.S. imports from Europe.
c. decrease aggregate spending in the U.S.
d. not affect U.S. exports or imports.
e. raise the purchasing power of U.S. consumers.
938. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp25
Lower investment spending is the result of
a. a fall in prices that increases consumption expenditure.
b. a decrease in interest rates.
c. an increase in the price of bonds.
d. a greater demand for bonds.
*e. an increase in interest rates.
939. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp26
A decrease in the foreign price level relative to the domestic price
level will result in
*a. a leftward shift of the domestic aggregate demand curve.
b. a rightward shift of the domestic aggregate demand curve.
c. a movement to the left along the domestic aggregate demand
curve.
d. a movement to the right along the domestic aggregate demand
curve.
e. no change in the domestic aggregate demand curve.
940. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp27
Which of the following is a nonprice determinant of demand?
a. A change in resource prices
b. Technological Innovation
*c. Depreciation of domestic currency
d. A change in the CPI
e. An increase in global oil supply
941. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp28
If consumers become more pessimistic about their future economic well-
being, we would expect
*a. the AD curve to shift to the left.
b. a movement to the right along the AD curve.
c. a movement to the left along the AD curve.
d. the AD curve to be unchanged, but the AS curve to shift to the
right.
e. the AD curve to shift to the right.
942. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp29
A decrease in aggregate expenditures may not be caused by
a. an increase in the domestic price level.
b. a decrease in net exports.
c. an increase in income taxes.
*d. an increase in foreign income.
e. a decrease in government purchases.
943. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp30
An increase in foreign income causes the domestic aggregate demand curve
to shift to the right because
a. net exports decline at every domestic price level.
*b. net exports rise at every domestic price level.
c. domestic prices rise, causing net exports to decline.
d. domestic prices fall, causing net exports to increase.
e. domestic consumption spending rises, causing net exports to
increase.
944. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp31
An increase in aggregate demand will cause
a. equilibrium real GDP to fall at every price level.
b. aggregate supply to fall at every price level.
c. aggregate supply to rise at every price level.
*d. the average price level to rise for all income levels.
e. the average price level to fall for all income levels.
945. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp32
An upward-sloping aggregate supply curve indicates that
a. higher prices lead to less consumption.
*b. higher prices lead to increased production.
c. lower prices lead to increased production.
d. the amount of real GDP produced falls as prices increase.
e. lower prices increase the supply of labor.
946. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp33
The effect of prices on profits explains
a. the direct relationship between aggregate quantity demanded and
national output.
*b. the direct relationship between aggregate quantity supplied
and the price level.
c. the inverse relationship between aggregate quantity demanded
and national output.
d. the inverse relationship between aggregate quantity supplied
and profits.
e. the inverse relationship between aggregate quantity supplied
and national output.
947. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp34
The short-run AS curve is drawn under the assumption that
a. nominal wages are increasing.
b. price levels are fixed.
c. interest rates are decreasing.
d. businesses expect to maintain current profit levels.
*e. the costs of the factors of production are constant.
948. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp35
The short-run aggregate supply curve is
a. a horizontal line.
*b. positively sloped.
c. negatively sloped and nearly vertical.
d. a vertical line.
e. negatively sloped and nearly horizontal.
949. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp36
Why does the AS curve become steeper as real GDP increases?
*a. As prices increase, there are smaller and smaller increases in
output.
b. As prices increase, there are larger and larger increases in
output.
c. Resource costs rise more slowly than prices.
d. Excess capacity increases.
e. Factors of production become increasingly idle.
950. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp37
The upward-sloping aggregate supply curve represents
a. increases in national output that are accompanied by decreases
in the average price level.
b. increases in national output but a fixed price level.
c. increases in the average price level but fixed national output.
*d. increases in national output that are accompanied by increases
in the average price level.
e. fixed national output and a fixed price level.
951. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp38
Figure 8-2
nar002-1.jpg
Which of the graphs in Figure 8-2 is consistent with a short-run
equilibrium model where prices are variable?
a. A
b. B
*c. C
d. D
e. None of these
952. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp39
Figure 8-2
nar002-1.jpg
Which of the graphs in Figure 8-2 is consistent with long-run
equilibrium analysis?
*a. A
b. B
c. C
d. D
e. None of these
953. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp40
In the long run, the AS curve is depicted by
a. a horizontal line at one price level.
b. a vertical line at one price level.
c. a relatively flat upward-sloping curve.
d. a downward-sloping curve.
*e. a vertical line at potential real GDP.
954. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp41
If no more output can be produced unless the productive capacity or
potential GDP increases, the aggregate supply curve is
a. downward-sloping.
b. U-shaped.
*c. vertical.
d. upward-sloping.
e. horizontal.
955. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp42
Why is the long-run aggregate supply curve vertical at potential real
GDP?
*a. Resource costs adjust fully to price changes.
b. Producers' profits are increasing at this point.
c. Unemployment equals zero.
d. There is a very strong relationship between further price
changes and output produced.
e. Production costs are at the lowest level possible.
956. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp43
Consider the following statement: "If the government attempts to raise
employment through increased fiscal spending, all it will end up doing
will be to drive up the price level." The person who makes this
statement assumes that
a. the aggregate demand curve is a horizontal line.
*b. the aggregate supply curve is a vertical line.
c. the aggregate supply curve is upward-sloping.
d. the aggregate supply curve is downward-sloping.
e. the aggregate supply curve is flat.
957. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp44
Which of the following will not shift the short-run aggregate supply
curve?
a. A change in technology
b. A change in price expectations
c. A change in wage rates
*d. A change in the domestic price level
e. A change in raw material supplies
958. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp45
The short-run aggregate supply curve shifts to the left when
a. production technology increases.
*b. equipment prices rise.
c. people expect lower inflation rates.
d. productivity increases.
e. wages are reduced.
959. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp46
The development of a new and cheap source of energy will result in
a. a lower price level and a lower amount of production.
b. a higher price level and a higher amount of production.
c. a lower amount of production at every price level.
*d. a higher amount of production at every price level.
e. a lower profit at every price level.
960. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp47
The short-run aggregate supply curve will shift to the right when
a. nominal wage rates fall.
b. nominal wage rates increase.
c. real wage rates increase.
*d. real wage rates fall.
e. real wage rates equal nominal wage rates.
961. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp48
Which of the following statements is true?
a. The long-run aggregate supply curve can never shift to the
left.
b. The long-run aggregate supply curve can never shift to the
right.
*c. The long-run aggregate supply curve can shift both to the left
and to the right.
d. The long-run aggregate supply curve always stays in the same
location, because potential real GDP cannot change.
e. New technologies affect only the short-run aggregate supply
curve, not the long-run aggregate supply curve.
962. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp49
Which of the following is the reason why aggregate supply decreased in
1979 and 1980?
a. The crisis of savings and loan institutions
b. The bad harvest in the agricultural sector
c. The sharp increase in the price of gold
d. The decline in labor productivity
*e. The significant increase in the price of crude oil
963. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp50
When we consider an upward-sloping aggregate supply curve and a
downward-sloping aggregate demand curve, a decrease in aggregate
expenditures at all price levels is reflected as
a. a leftward shift in the AS curve, which increases the
equilibrium price level and decreases equilibrium real GDP.
b. a rightward shift in the AS curve, which increases both the
equilibrium price level and equilibrium real GDP.
c. a rightward shift in the AD curve, which increases both the
equilibrium price level and equilibrium real GDP.
*d. a leftward shift in the AD curve, which decreases both the
equilibrium price level and real GDP.
e. a leftward shift in the AD curve, which increases the
equilibrium price level and decreases equilibrium real GDP.
964. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp51
If both aggregate demand and short-run aggregate supply increase at the
same time,
a. the price level increases, but we cannot be sure what change
will occur in equilibrium real GDP.
b. both the price level and equilibrium real GDP increase.
c. both the price level and equilibrium real GDP decline.
*d. equilibrium real GDP increases, but we cannot be sure what
change will occur in the price level.
e. we cannot be sure what change will occur either in equilibrium
real GDP or in the price level.
965. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp52
Figure 8-3
nar003-1.jpg
Consider the economy described by Figure 8-3. At point A equilibrium
real GDP equals
a. $100 billion.
b. $200 billion.
*c. $300 billion.
d. $500 billion.
e. $700 billion.
966. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp53
Figure 8-3
nar003-1.jpg
Consider the economy described by Figure 8-3. The shift in aggregate
demand from AD1 to AD2 could have been initiated by
a. a decrease in the price level.
b. an increase in saving.
c. government budget cuts.
*d. an increase in autonomous net exports.
e. lower resource prices.
967. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp54
Figure 8-3
nar003-1.jpg
Consider the economy described by Figure 8-3. At point C,
a. businesses produce more than consumers want to spend.
*b. inventories become depleted, which will push the price up to
its new equilibrium.
c. inventories accumulate, which will push the price down to its
new equilibrium.
d. real GDP is below its equilibrium level.
e. the economy is in equilibrium.
968. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp55
Figure 8-3
nar003-1.jpg
Consider the economy described by Figure 8-3. When macroeconomic
equilibrium shifts from point A to point B,
*a. cyclical unemployment decreases.
b. inflation decreases.
c. productive capacity decreases.
d. business profits decrease.
e. aggregate expenditures decrease.
969. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp56
Figure 8-3
nar003-1.jpg
Consider the economy described by Figure 8-3 and assume that equilibrium
is at point A. Given AD1, a rightward shift of the AS curve would cause
a. unemployment to rise.
b. the price level to rise.
c. the equilibrium real GDP level to fall.
d. business production to fall.
*e. real GDP to rise.
970. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp57
Which of the following statements concerning the long-run aggregate
demand and supply model is true?
*a. An increase in aggregate demand increases real GDP only
temporarily.
b. An increase in aggregate demand increases real GDP by an amount
equivalent to the initial increase in investment.
c. Prices are fixed.
d. Output change that results from a change in aggregate demand is
a permanent effect.
e. A change in aggregate demand leads to a permanent change of
higher output.
971. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp58
In an equilibrium real GDP model where prices are flexible, increases in
aggregate expenditures
*a. increase real GDP only in the short run.
b. increase real GDP permanently.
c. have no impact at all on real GDP.
d. decrease real GDP in the short run.
e. decrease real GDP permanently.
972. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp59
Figure 8-4
nar004-1.jpg
Refer to Figure 8-4. If initially AD1 and AS1 are the relevant curves,
equilibrium real GDP equals
a. $500 billion.
b. $300 billion.
*c. $400 billion.
d. P1.
e. P2.
973. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp60
Figure 8-4
nar004-1.jpg
Refer to Figure 8-4. The shift in aggregate demand from AD1 to AD2 could
have been initiated by
a. an increase in domestic exports.
*b. lower foreign income.
c. an increase in government spending.
d. an increase in the price level.
e. business expectations of strong economic growth.
974. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp61
Figure 8-4
nar004-1.jpg
Refer to Figure 8-4. Over time, short-run aggregate supply shifts from
AS1 to AS2 because
*a. production costs fall in response to lower resource prices.
b. the government increases spending.
c. consumers increase spending.
d. personal income tax rates decrease.
e. exports increase.
975. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp62
Figure 8-4
nar004-1.jpg
Refer to Figure 8-4. In the long run, following the shifts to AD2 and
AS2, the equilibrium price level and real GDP are, respectively,
a.
b.
c.
d.
P2
P1
P2
P3
and
and
and
and
$300
$400
$400
$300
billion.
billion.
billion.
billion.
*e. P3 and $400 billion.
976. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp63
Figure 8-5
nar005-1.jpg
In Figure 8-5, the change in aggregate supply from AS1 to AS2 could be
the result of
*a. an increase in real wage rates.
b. contractionary fiscal policy.
c. higher labor productivity.
d. a reduction in net exports.
e. higher business profits.
977. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp64
Figure 8-5
nar005-1.jpg
Refer to Figure 8-5. Given AS2 and AD1, at price level P1,
a. unplanned inventories accumulate that push the equilibrium
price down.
*b. there is a shortage of real GDP supplied, which pushes the
equilibrium price level up to P2.
c. there is an unplanned depletion of inventories, which reduces
the aggregate quantity demanded to zero.
d. unplanned inventories just equal planned inventories.
e. there is a surplus of aggregate quantities supplied such that
the equilibrium price level will be lowered to P2.
978. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp65
Figure 8-5
nar005-1.jpg
Refer to Figure 8-5. Suppose the economy is currently operating at Y2P2.
However, the economy's potential GDP level is at Y1. To achieve long-run
equilibrium at that level,
*a. the aggregate demand curve would have to shift upward to
intersect AS2 at Y1.
b. the aggregate demand curve would have to shift downward to
intersect AS1 at Y2.
c. the aggregate supply curve would have to become a horizontal
line at Y2.
d. the aggregate demand curve would have to shift upward to
intersect AS1 at P1.
e. the aggregate supply curve would have to become a vertical line
at P2.
979. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp66
Which of the following is used to measure people's sentiment about the
economy?
*a. The consumer confidence index
b. The inflation rate index
c. The producer price index
d. The government's reading index
e. The consumer price index
980. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp67
Changes in the demand and supply of a particular good bring about
business cycles.
a. True
*b. False
981. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp68
In the twentieth century, U.S. economic growth has been steady.
a. True
*b. False
982. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp69
The equilibrium of each good in an economy occurs at the intersection of
the aggregate demand and aggregate supply curves.
a. True
*b. False
983. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp70
A rightward shift of the aggregate demand curve with no change in
aggregate supply signals an economic expansion.
*a. True
b. False
984. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp71
Demand-pull inflation occurs when there is a decrease in aggregate
demand.
a. True
*b. False
985. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp72
The purpose of developing and understanding an aggregate supplyaggregate demand model is to help us understand economic growth and
business cycles.
*a. True
b. False
986. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp73
A decrease in aggregate demand would lead to reduced demand pull
inflation and reduced unemployment.
a. True
*b. False
987. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp74
Inflation normally causes an increase in aggregate demand.
a. True
*b. False
988. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp75
A rightward shift in the aggregate supply curve is generally associated
with a reduction in resource prices.
*a. True
b. False
989. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp76
The economic reasons that underlie the shape of the aggregate supply
curve are identical to those underlying the shape of the supply curve
for a particular good.
a. True
*b. False
990. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp77
If the aggregate supply curve is vertical, then shifts in aggregate
demand will not lead to business cycles.
*a. True
b. False
991. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp78
Improved expectations, greater capacity utilization, and higher interest
rate are all factors that would lead to an increase in aggregate demand.
a. True
*b. False
992. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp79
One of the factors influencing aggregate demand is the aggregate supply
level.
a. True
*b. False
993. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp80
The difference between income and wealth is that whereas wealth is
inherited, people have to work to earn income.
a. True
*b. False
994. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp81
Firms tend to invest less when they have a lot of excess capacity. This
is why it is important to understand the concept of capacity utilization
of firms in the economy.
*a. True
b. False
995. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp82
Investment spending is highly dependent on the current level of interest
rates.
*a. True
b. False
996. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp83
The level of government spending is based directly on the level of
aggregate expenditures.
a. True
*b. False
997. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp84
Appreciation of the U.S. dollar would lead to a greater level of net
exports for the U.S.
a. True
*b. False
998. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp85
A higher domestic price level lowers aggregate expenditures and,
therefore, shifts the aggregate demand curve to the left.
a. True
*b. False
999. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp86
The wealth effect refers to the fact that wealthier individuals tend to
spend more on foreign goods.
a. True
*b. False
1000. Chapter 8—Macroeconomic Equilibrium: Aggregate Demand and Supp87
If the level of prices falls, the real value of wealth also falls.
a. True
*b. False