1. Which of the following characterizes the U.S. trade balance since the mid-1970s?

a. The U.S. trade balance has been in deficit.  

b. The value of imports has exceeded the value of exports.  

c. Trading partners have sold more to the United States than the United States has sold to them.  

d. All of the above.  

2. If we add together all the gains from specialization and trade and then subtract all the losses, the net

result would be:

a. Zero; the gains and losses would cancel out.  

b. Positive; a net gain for the world and each country.  

c. Negative; a net loss for the world and each country.  

d. Impossible to tell; the net result could be zero, positive, or negative.  

3. Comparative advantage refers to:

a. The ability of a country to produce a specific good with fewer resources than other countries.  

b. A country's monopoly power in the world market for a specific good.  

c. The ability of a country to sell a certain good for a higher price than other countries in the same

market.  

d. The ability of a country to produce a specific good at a lower opportunity cost than other

countries.  

4. Suppose that France and the United States do not trade and that the competitive price of an

ordinary bottle of wine is 20 francs in France and $2 in the United States; the price of wheat

per bushel is 40 francs in France and       $6 in the United States.  If prices reflect only the

differences in costs of the resources to produce wine and wheat in the two countries, this

information is sufficient to enable us to state that:

a. France has a comparative advantage in the production of wine.  

b. France has a comparative advantage in the production of wheat.  

c. Neither country has a comparative advantage in the production of either good.

d. The United States has an absolute advantage in the production of both goods.  

5. Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative

advantage in tomatoes. Which of the following groups would be worse off if these two

countries specialize and trade?

a. Brazilian tomato producers.  

b. Brazilian coffee producers.  

c. Mexican tomato producers.  

d. Each of the groups is better off when specialization and trade take place.

6. When one country can produce a given amount of a good using fewer inputs than any other

country:

a. It has an absolute advantage in producing the good.  

b. It has a comparative advantage in producing the good.  

c. Its specialization in that good will definitely increase worldwide consumption possibilities.  

d. All of the above.  

7. Tariffs result in:

a. Lower domestic prices than those that would prevail in their absence.  

b. A stimulus to efficient American firms that are not protected.  

c. Higher employment and output in protected industries than would otherwise be the case.

d. A more efficient allocation of resources than would occur in their absence.  

8. Tariffs tend to reduce the volume of imports by:

a. Setting maximum allowable import limits.  

b. Placing severe quality restrictions on imported goods.  

c. Making them more expensive to domestic consumers.

d. Reducing prices of domestically produced goods.  

9. What should happen to the equilibrium price and quantity in a market as a result of a quota

on imports?

a. Equilibrium price and quantity should both go up.  

b. Equilibrium price should go up, and equilibrium quantity should go down.  

c. Equilibrium price should go down, and equilibrium quantity should go up.  

d. Equilibrium price and quantity should both go down.  

10. A market is said to be in equilibrium when:

a. Demand is fully satisfied at all alternative prices.  

b. The buying intentions of all consumers are realized.  

c. The supply intentions of all sellers are realized.  

d. The quantity demanded equals the quantity supplied.

11. When the U.S. dollar loses value compared, for example, to the Japanese yen:

a. U.S. producers and consumers will lose.  

b. U.S. auto producers and autoworkers will gain.

c. U.S. consumers of Japanese TV sets will gain.  

d. Japanese tourists to the U.S. will lose.  

12. A decrease in the supply of gasoline, ceteris paribus, will cause:

a. Price to rise and quantity to fall.

b. Price and quantity to rise.  

c. Price to fall and quantity to rise.  

d. Price and quantity to fall.  

13. When a price ceiling is set for a market:

a. Quantity demanded will be less than the equilibrium quantity, and price will be less than the

equilibrium price.  

b. Quantity demanded will be less than the equilibrium quantity, and price will be greater than the

equilibrium price.  

c. Quantity demanded will be greater than the equilibrium quantity, and price will be less than the

equilibrium price.  

d. Quantity demanded will be greater than the equilibrium quantity, and price will be greater than the

equilibrium price.  

14. One HEADLINE article, "Shoppers Face Bill for El Nino Storms," mentions that basil prices

will increase because of the leftward supply curve shift.  What will happen to the equilibrium

quantity of basil?

a. Equilibrium quantity should increase.  

b. Equilibrium quantity should decrease.  

c. Equilibrium quantity should remain unchanged.  

d. Equilibrium quantity could either increase or decrease based on the slope of the supply curve.

15. One HEADLINE article, "Stocks Plummet 7% as Pros Seek Cover to Protect 1997 Gains,"

describes how stock prices dropped dramatically primarily as a result of economic turmoil in

East Asia.  This is an illustration of how:

a. Changes in expectations can affect the demand for stocks.  

b. Changes in income can affect the demand for stocks.  

c. International trade balances can affect the supply of stock.  

d. The price of stocks will fall when there are more buyers than sellers.

16. Which of the following causes a movement along a market-demand curve, but not a shift of

the demand curve?  A change in:

a. Buyers' expectations.  

b. The number of buyers.

c. Price of the good.  

d. Price of other goods.  

17. Which of the following are possible explanations for how much a consumer demands a

particular good?

a. The consumer’s ability to pay.  

b. The consumer’s fears, psychological complexes, and anxieties.

c. Ego and status.  

d. All of the above.  

18. When the federal government announced results showing that smoking caused cancer, there

was a sudden drop in cigarette sales.  Ceteris paribus, this change reflected:

a. The law of demand.  

b. The law of diminishing marginal utility.  

c. A shift in the demand curve.  

d. A movement along the demand curve

19. If consumers expect automakers to offer rebates next month, consumers will:

a. Increase their demand for cars today.  

b. Decrease their demand for cars today.  

c. Keep demand the same, but increase the quantity demanded for cars.  

d. Keep demand the same, but decrease the quantity demanded for cars.

20. Other things being equal, if the price of coffee increases significantly, the:

a. Demand for coffee substitutes will decrease.

b. Demand for coffee will decrease.  

c. Demand for coffee substitutes will increase.  

d. Quantity demanded of coffee will increase.

21. A downturn in the business cycle is characterized by:

a. Lower unemployment rates.

b. Higher prices.  

c. Lower real output.  

d. Higher interest rates.  

22. Real GDP measures changes in:

a. Prices.  

b. Production.  

c. Prices and production.  

d. Wages.  

23. Which of the following would be counted as a member of the labor force?

a. A housewife that works 12 hours a day taking care of her children, cleaning her house, etc.

b. An unemployed steelworker actively looking for employment.  

c. A student attending college full time.  

d. A retired member of the armed forces collecting a pension.

24. The unemployment rate is calculated by dividing:

a. The number of unemployed by the size of the population and multiplying by 100.  

b. 1.0 minus the percentage of the employed population and multiplying by 100.  

c. The number of unemployed by the labor force and multiplying by 100.  

d. The number of employed by the labor force and multiplying by 100.  

25. When migrant workers seek employment after the crops have been picked, the

unemployment rate goes up.  This situation is an example of:

a. Frictional unemployment.  

b. Seasonal unemployment.  

c. Structural unemployment.  

d. Cyclical unemployment.  

26. A garment worker who loses his job because of competition from foreign producers is, ceteris

paribus:

a. Frictionally unemployed.  

b. Structurally unemployed.  

c. Cyclically unemployed.  

d. Seasonally unemployed  

27. According to the law of demand, a demand curve:

a. Is upward sloping.  

b. Is downward sloping.  

c. Is a horizontal, or flat, line.  

d. Can slope either upward or downward based on consumer behavior.

28. Which of the following types of unemployment became worse in the United States during the

1990s as a result of cutbacks in defense spending?

a. Structural unemployment.  

b. Frictional unemployment.  

c. Cyclical unemployment.  

d. Seasonal unemployment

29. For the United States the relationship between the unemployment rate and the percentage

change in the real GDP would best be characterized as:

a. A positive relationship in which both indicators fluctuate in the same direction around a constant

trend.  

b. Both indicators steadily falling during the 1980s.  

c. Both indicators steadily rising during the 1970s.  

d. An inverse relationship.  

30. What is the likely consequence of an unemployment rate falling below the rate at which "full

employment" is achieved?

a. The threat of recession.  

b. Increased inflationary pressures.  

c. An increase in discouraged workers.

d. Political upheaval.  

31. Inflation means:

a. Specific prices are rising, and relative prices are falling.  

b. Both relative prices and average prices are rising.  

c. Relative prices are rising, but it is not certain what is happening to average prices.

d. Average prices are rising, but it is not certain what is happening to relative prices.  

32. Generally speaking, which of the following groups would tend to gain real income from the

wealth effects of inflation?

a. People who invested in long-term bonds when interest rates were low.  

b. People who have passbook savings accounts.  

c. People who own assets that are appreciating faster than the inflation rate.

d. People who hold all of their assets in the form of cash.  

33. The CPI is designed specifically to allow measurement of:

a. The unemployment rate.  

b. The inflation rate.  

c. The growth rate of the economy.

d. The business cycle.  

34. The CPI tends to overestimate the rate of inflation because:

a. Only the goods and services that consumers buy are included in the calculation.

b. Some price increases are an indication of higher quality products.  

c. The CPI measures changes in average prices, not changes in relative prices.  

d. Some price increases are simply the result of greedy producers and sellers.  

35. The use of government taxes and spending to alter economic outcomes as known as:

a. Monetary policy.  

b. Fiscal policy.  

c. Income policy.  

d. Foreign-trade policy.

36. On October 24, 1929, the US stock market crashed.  By the end of the year, over $40 billion

of wealth had vanished.  Which of the following was the immediate effect?

a. Aggregate supply shifts to the left.  

b. Aggregate supply shifts to the right.  

c. Aggregate demand shifts to the left.  

d. Aggregate demand shifts to the right.

37. Which of the following would be a fiscal policy prescription for ending a recession?

a. Raise taxes to pay for greater transfer payments to stimulate the economy.

b. Increase government expenditures to let the multiplier work.  

c. Raise interest rates to stimulate saving.  

d. Restrict exports to increase injections in the domestic economy.  

38. Which of the following is a determinant of supply?

a. Consumers' tastes or desires for the good.  

b. Consumers' income.  

c. The prices of the factors of production.  

d. The availability and price of other goods. ***

39. If the multiplier is 5 and a change in government spending leads to a cumulative $500 million

decrease in aggregate spending, then initially:

a. Government spending decreased by $500 million.  

b. Taxes increased by $500 million.  

c. Taxes decreased by $100 million.  

d. Government spending decreased by $100 million.  

40. A budget deficit is incurred whenever:

a. Tax revenues fall short of expenditures over the fiscal year.  

b. Discretionary fiscal spending is used to achieve macro equilibrium.  

c. The U.S. Treasury engages in refinancing activities.  

d. The government uses fiscal policy.  

41. Which of the following is included in the money supply (M1)?

a. Currency in circulation.  

b. Traveler's checks.  

c. Transaction-account balances.

d. All of the above are included.  

42. Which of the following sets the legal minimum-reserve ratio?

a. The commercial banks.

b. The U.S. Treasury.  

c. The Federal Reserve.  

d. Congress.  

43. Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and bank

reserves of $45,000.  Then the bank can make new loans in the amount of:

a. $20,000.  

b. $25,000.  

c. $45,000.  

d. $200,000.  

44. If the Fed wishes to reduce the money supply, it could:

a. Raise the discount rate.  

b. Sell securities on the open market.

c. Raise the minimum reserve ratio.  

d. All of the above.  

45. An increase in the discount rate:

a. Reduces the cost of reserves borrowed from the Federal Reserve.  

b. Signals the Federal Reserve's desire to restrain money growth.  

c. Signals the Federal Reserve's desire to stimulate money growth.  

d. Signals the Federal Reserve's eagerness to lend additional reserves.

46. If the Fed buys more bonds from the public:

a. The money supply will decrease and the aggregate demand curve will shift to the right.

b. The money supply will increase and the aggregate demand curve will shift to the right.  

c. The money supply will increase and the aggregate demand curve will shift to the left.  

d. The money supply will decrease and the aggregate demand curve will shift to the left.  

47. One HEADLINE article stated: "... the Bank of Japan today announced that it will slash by

about 40 percent the amount of money that commercial banks must keep in reserve at the

central bank."  Which of the following has been lowered?

a. The federal funds rate.  

b. The discount rate.  

c. The reserve requirement.  

d. The rate in the sale of open-market securities.

48. One HEADLINE article in the text has the title "Italy Raises Interest Rates."  Which of the following reasons would be consistent with this policy initiative of the Bank of Italy?

a. Concern about mounting unemployment.  

b. Concern about current output exceeding desired spending.

c. Concern about the rise in the value of the currency.  

d. Concern about inflationary pressures on the economy.  

49. Which of the following events would cause a rightward shift in the market-supply curve for

large automobiles?

a. A technological improvement that reduces the cost of production.

b. An increase in the wages of autoworkers.  

c. An excise tax on automobiles.  

d. A decrease in the number of sellers.  

50. Over a given period of time if exports exceed imports, the result is:

a. A trade war.  

b. A trade deficit.  

c. An embargo.  

d. A trade surplus.  

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