testbankonline.comtestbankonline.com/wp-content/uploads/2… · Web view · 2014-11-18a. business. b. banking. c. education. d. the non-profit ... -sloping line that relates consumer

1. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 studentse. half that of college students.

5. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: The World Around You Question MC #21 �In economics, which of the following is not considered capital?

a. Offices and warehouses*b. Stocks and bondsc. Machineryd. Factoriese. Equipment

22. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 variablesc. 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 analysisb. Interpretation of association as causationc. Rational self-interest*d. The fallacy of compositione. Hypothesis testing

47. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 compositionb. The scientific methodc. Ceteris paribusd. Interpretation of association as causatione. Normative analysis

50. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: The World Around You Question MC #55 �Which of the following is a microeconomic concern?

a. Choices made by all consumersb. 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 1Economics: 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 growthb. How the composition of output is determined in an economyc. Concern over an entire economy's balance of paymentsd. Concern over simultaneous high rates of inflation and of unemployment*e. Price determination in the resource market

57. Chapter 1Economics: 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 1Economics: 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 countryc. 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 1Economics: 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 1Economics: 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 1Economics: The World Around You Question MC #61 �According to the article, women make less than males because of

a. sex discrimination.b. lower productivityc. 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 1Economics: 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. sporte. all of these choices.

63. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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. Trueb. False

68. Chapter 1Economics: The World Around You Question TF #5 �Economics ranks among the lowest-paid fields in the social sciences.

a. True*b. False

69. Chapter 1Economics: 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. Trueb. False

70. Chapter 1Economics: 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. Trueb. False

71. Chapter 1Economics: 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 1Economics: The World Around You Question TF #9 �Economics can be defined as the study of intended consequences.

a. True*b. False

73. Chapter 1Economics: The World Around You Question TF #10 �If scarcity does not exist we still need to study economics.

a. True*b. False

74. Chapter 1Economics: The World Around You Question TF #11 �Scarcity is the result of an unfair distribution of income.

a. True*b. False

75. Chapter 1Economics: 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. Trueb. False

76. Chapter 1Economics: 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 1Economics: The World Around You Question TF #14 �The factors of production are ingredients used to produce inputs.

a. True*b. False

78. Chapter 1Economics: The World Around You Question TF #15 �In economics the money you have is capital.

a. True*b. False

79. Chapter 1Economics: The World Around You Question TF #16 �Labor (input) includes skilled workers, but not unskilled workers.

a. True*b. False

80. Chapter 1Economics: 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. Trueb. False

81. Chapter 1Economics: 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. Trueb. False

82. Chapter 1Economics: The World Around You Question TF #19 �People make a choice in order to avoid scarcity problem.

a. True*b. False

83. Chapter 1Economics: 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 1Economics: The World Around You Question TF #21 �A rational consumer always has perfect information.

a. True*b. False

85. Chapter 1Economics: The World Around You Question TF #22 �A rational businessperson is concerned with his or her self-interest.

*a. Trueb. False

86. Chapter 1Economics: The World Around You Question TF #23 �Rational self-interest is the same as selfishness.

a. True*b. False

87. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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. Trueb. False

92. Chapter 1Economics: 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 1Economics: 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. Trueb. False

94. Chapter 1Economics: 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 1Economics: 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. Trueb. False

96. Chapter 1Economics: 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 1Economics: 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 1Economics: 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 1Economics: 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. Trueb. False

100. Chapter 1Economics: 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. Trueb. False

101. Chapter 1Economics: 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 AppendixWorking with Graphs Question MC #1 �Which type of graph is most frequently used to explain economic concepts?

*a. A line graphb. A bar graphc. A pie chartd. Graphs with positive relationshipse. Graphs with negative relationships

103. Chapter 1 AppendixWorking 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 AppendixWorking 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 AppendixWorking 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 AppendixWorking 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 degreee. there is no independent variable.

107. Chapter 1 AppendixWorking 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 AppendixWorking 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 AppendixWorking 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 AppendixWorking 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 AppendixWorking 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. Ab. Cc. Dd. Be. None of these


nar001-1.jpg

The positive relationship of two variables, X and Y, is shown in which graph of Figure A1-1?

*a. Bb. Dc. Cd. Ae. None of these


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.


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.


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.


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.


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.


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; -1b. 1; 1c. -2; -1d. 2; 1e. -4; -1


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 AppendixWorking 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 dependent variable.b. Y is the independent variable.c. a is the slope.d. b is the intercept.*e. If b is negative, the line slopes downward.

121. Chapter 1 AppendixWorking with Graphs Question MC #20 �An increase in income would enable more people to purchase computers. Thus, at every price more computers would be purchased. This effect could be shown 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 AppendixWorking 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 AppendixWorking 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 AppendixWorking with Graphs Question TF #1 �If a line has a negative slope, the relationship between the independent and dependent variables is inverse.

*a. Trueb. False

125. Chapter 1 AppendixWorking 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. Trueb. False

126. Chapter 1 AppendixWorking 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 AppendixWorking 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. Trueb. False

128. Chapter 1 AppendixWorking 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 AppendixWorking 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 AppendixWorking with Graphs Question TF #7 �The relationship between sales of cold sodas and the temperature is negative.

a. True*b. False

131. Chapter 1 AppendixWorking 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. Trueb. False

132. Chapter 1 AppendixWorking 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 AppendixWorking 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 GuideEconomics: The World Around You Question M �Which of the following occupations does a bachelor's degree in economics prepare you for?

*a. businessb. switchboard operationc. journalismd. international relations

e. all of these choices

135. Chapter 1 Study GuideEconomics: 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 GuideEconomics: The World Around You Question 3 �Which of the following is part of macroeconomics rather than microeconomics?

a. calculating the costs of producing automobilesb. determining how consumers choose how many apples to buy*c. measuring the unemployment rated. determining whether a market is a monopolye. measuring how makers of computer chips react to price changes

137. Chapter 1 Study GuideEconomics: 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 GuideEconomics: 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 GuideEconomics: 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 GuideEconomics: 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 GuideEconomics: 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 GuideEconomics: 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 GuideEconomics: 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 2Choice, 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 timeb. Quantifiable accounting costsc. Forgone costs*d. The highest-valued alternative that must be forgone when a

choice is madee. All of these choices

145. Chapter 2Choice, 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 2Choice, 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 collegeb. The price of a movie ticket at prime timec. 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 activitye. Having your cake and eating it too

147. Chapter 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, Opportunity Costs, and Specialization Questi 7 �Which economic concept is the closest parallel to the saying "There's no free lunch"?

a. Specializationb. Unlimited wantsc. Underutilization of resources*d. Opportunity costse. Overutilization of resources

151. Chapter 2Choice, 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 millionb. 2 miles of light railc. 200 miles of light raild. $50 millione. $1,000 million.

152. Chapter 2Choice, 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 2Choice, 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 examc. Answering a question correctly on your economics examd. Scoring an eagle on the fifth hole during a golf tournament and winning by one strokee. Leaving a 20 percent tip for great service at a fine restaurant

154. Chapter 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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.


Production Possibilities ScheduleChoice Capital (Investment) goods Consumption GoodsA 0 10B 1 9C 2 7D 3 4E 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.


Production Possibilities ScheduleChoice Capital (Investment) goods Consumption GoodsA 0 10B 1 9C 2 7

D 3 4E 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 2Choice, 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 2Choice, 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.


nar003-1.jpg

In Figure 2-3, underutilization of resources is represented by point

a. Ab. Bc. Cd. D

*e. E


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 2Choice, 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 2Choice, 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.


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.


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.


nar004-1.jpg

Consider the PPC in Figure 2-4. Point K indicates

a. that the production of goods has expanded.b. that the production of services has expanded.c. that the production of goods has contracted.d. that the production of services has contracted.*e. a point that is currently unattainable for this economy.


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.


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 2Choice, 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 producedb. The price levelc. The marginal opportunity cost*d. The amount of resourcese. The amount of goods produced

177. Chapter 2Choice, 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 2Choice, 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.


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 onlyb. Figure B only*c. Figure C onlyd. Figures B and C are both possible

e. None of these

180. Chapter 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, Opportunity Costs, and Specialization Questi42 �Which of the following will not cause a rightward shift in a nation's production possibilities curve?

a. An increase in the quantity of the nation's resourcesb. Advances in technologyc. An increase in the general level of educationd. An increase in the labor force*e. A reduction in unemployment

186. Chapter 2Choice, 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.


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.


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 2Choice, 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 2Choice, 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 curvee. by a movement toward the production possibilities curve.

191. Chapter 2Choice, 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 resourcesb. An increase in the working-age populationc. An increase in unemploymentd. An increase in the availability of natural resources*e. A decrease in the amount of capital available


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


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.


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 2Choice, 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 2Choice, 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.


Production Possibilities ScheduleCombination Capital Goods Consumer GoodsA 4 0B 3 4C 2 7D 1 9E 0 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.



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.



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.



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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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.


Production Possibilities Schedule Country X Country YChoice Coffee Sugar Coffee SugarA 200 0 100 0B 160 40 80 30C 120 80 60 60D 80 120 40 90E 40 160 20 120F 0 200 0 150

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.



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 coffeeb. 3/2 units of coffeec. 2/3 unit of coffeed. 200 units of coffeee. 1/2 unit of coffee



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 coffeeb. 3/2 units of coffee*c. 2/3 unit of coffeed. 200 units of coffeee. 1/2 unit of coffee



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 sugarc. 20 units of coffeed. 10 units of sugare. 80 units of coffee and 90 units of sugar


Labor Hours Required to Produce 1 Gallon of

In Maine In New Hampshire

Grape juice 1 hour 9 hoursApple juice 5 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.





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.





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.





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. 3c. 0.5d. 0.25e. 10





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. 1.33b. 5/6*c. 1.5d. 6e. 2/3


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 cansb. 6 cans and 6 units of foodc. 6 units of foodd. 4 units of foode. 12 cans


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 cansc. 1/2 cand. 20 canse. 10 cans


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 canb. 2 cansc. 1/2 cand. 20 canse. 10 cans

222. Chapter 2Choice, 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 elseb. The ability to sell more goods or services than anyone else, regardless of the pricec. 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 elsee. The inability to produce a good or service better than anyone

else

223. Chapter 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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.



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.



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


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.


Labor Cost per Unit (in hours) Shoes BreadCountry A 150 200Country B 300 250

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.


Labor Cost per Unit (in hours) Shoes BreadCountry A 150 200Country B 300 250

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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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. Trueb. False

238. Chapter 2Choice, 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 2Choice, 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 2Choice, 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. Trueb. False

241. Chapter 2Choice, 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 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest100 �An example of opportunity cost is the time you forgo to eat a "free lunch."

*a. Trueb. False

244. Chapter 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest102 �There is no cost of using your own savings in your business.

a. True*b. False

246. Chapter 2Choice, Opportunity Costs, and Specialization Quest103 �Since we cannot tolerate waste so we must eliminate it.

a. True*b. False

247. Chapter 2Choice, 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. Trueb. False

248. Chapter 2Choice, Opportunity Costs, and Specialization Quest105 �If a new labor-saving technology is discovered, the PPC shifts inward.

a. True*b. False

249. Chapter 2Choice, Opportunity Costs, and Specialization Quest106 �A rightward shift of the PPC might be caused by an increase in the general level of education.

*a. Trueb. False

250. Chapter 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest108 �The construction of a PPC does not require that the amount of money in the economy remain constant.

*a. Trueb. False

252. Chapter 2Choice, Opportunity Costs, and Specialization Quest109 �Economically, it's possible to move a point on the PPC to another point.

*a. Trueb. False

253. Chapter 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest111 �If the minimum working age is raised from 16 to 18, the PPC will shift inward.

*a. Trueb. False

255. Chapter 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest113 �Economic growth is represented by shifting PCC outward.

*a. Trueb. False

257. Chapter 2Choice, 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 2Choice, 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 2Choice, Opportunity Costs, and Specialization Quest116 �A specialist is a person who is capable of doing only one thing.

a. True*b. False

260. Chapter 2Choice, Opportunity Costs, and Specialization Quest117 �Trade occurs because countries may produce more than they need.

a. True*b. False

261. Chapter 2Choice, Opportunity Costs, and Specialization Quest118 �A bowed-out PPC indicates increasing marginal opportunity costs between the goods or services produced.

*a. Trueb. False

262. Chapter 2Choice, 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 2Choice, 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. Trueb. False

264. Chapter 2Choice, 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. Trueb. False


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. Trueb. False


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


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 2Choice, 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. Trueb. False

269. Chapter 2Choice, Opportunity Costs, and Specialization Quest126 �International trade is a kind of zero-sum game.

a. True*b. False

270. Chapter 2Choice, 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 2Choice, 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. Trueb. False

272. Chapter 2Choice, 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 2Choice, 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 2Choice, 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 2Choice, 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. Trueb. False

276. Chapter 2 Study GuideChoice, Opportunity Costs, and Specializat �Figure SG2-1

Combination Clothing FoodA 0 110B 10 105C 20 95D 30 80E 40 60F 50 35G 60 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 GuideChoice, Opportunity Costs, and Specializ 2 �Figure SG2-1


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.



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.


Alpha BetaCombination Beef Microchips Beef MicrochipsA 0 200 0 300B 25 150 25 225C 50 100 50 150D 75 50 75 75E 100 0 100 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; 2b. 2; 3; 1/2; 1/3*c. 1/2; 1/3; 2; 3d. 3; 2; 1/3; 1/2e. 1/2; 3; 1/3; 2


Alpha BetaCombination Beef Microchips Beef MicrochipsA 0 200 0 300B 25 150 25 225C 50 100 50 150D 75 50 75 75E 100 0 100 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; microchipsb. beef; microchips; microchips; beefc. microchips; beef; microchips; beefd. microchips; beef; beef; microchipse. 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 GuideChoice, 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 GuideChoice, Opportunity Costs, and Specializ 7 �If the U.S. unemployment rate is 9 percent, this would be represented at a point

a. outside the U.S. PPC.b. on the U.S. PPC.c. on the vertical axis.

d. on the horizontal axis.*e. inside the U.S. PPC.

283. Chapter 2 Study GuideChoice, 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 GuideChoice, Opportunity Costs, and Specializ 9 �Roughly estimate your true cost of attending college.


285. Chapter 2 Study GuideChoice, Opportunity Costs, and Specializ10 �What are the benefits of trade?


286. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 well-defined 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 politiciansb. The exchange of shares of stockc. Sales and purchases of illegal drugsd. The exchange of a particular good at many different locations*e. All of these choices

299. Chapter 3Markets, Demand and Supply, and the Price System Que14 �Markets

a. must be specialized.b. must be general.c. must consist of one buyer and one seller.d. must consist of many buyers and many sellers.*e. can be organized either loosely or formally.

300. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 well-defined good or service.

305. Chapter 3Markets, 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 3Markets, 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 3Markets, Demand and Supply, and the Price System Que22 �Figure 3-1

The law of demand is composed of the following five phrases:

1. the quantity of a well-defined good or service2. that people are willing and able to purchase3. during a particular period of time4. decreases as the price of that good or service rises and increases as the price falls,5. 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.




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.




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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 incomeb. Consumer tastes*c. The price of good Xd. The prices of other goodse. Consumer expectations

314. Chapter 3Markets, 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 3Markets, 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.


Combination Price per Access Hour to Network Games

Access Hours per Week

A $5 10B 4 20C 3 30D 2 40E 1 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.




A $5 10B 4 20C 3 30D 2 40E 1 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.




A $5 10B 4 20C 3 30D 2 40E 1 50

The table in Figure 3-2 is called

a. a demand curve.*b. a demand schedule.c. a supply curve.d. a supply relationship.e. an equilibrium curve.

319. Chapter 3Markets, 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 Cokeb. The price of Pepsic. The consumer's incomed. The consumer's tastese. All of these

320. Chapter 3Markets, 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.


Price of game access hour

Quantities of game access hours demanded

Maria 1 Abdul 1 Jorgen 1$14 20 20 15$12 30 50 17$10 40 70 24$8 50 90 36

$6 60 110 581Maria, Abdul, and Jorgen are the only consumers.

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.




Maria 1 Abdul 1 Jorgen 1$14 20 20 15$12 30 50 17$10 40 70 24$8 50 90 36$6 60 110 581Maria, Abdul, and Jorgen are the only consumers.

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, 65b. 15, 17, 24, 36, 58*c. 55, 97, 134, 176, 228d. 20, 30, 40, 50, 60e. 50, 80, 110, 140, 170




Maria 1 Abdul 1 Jorgen 1$14 20 20 15$12 30 50 17$10 40 70 24$8 50 90 36$6 60 110 58

1Maria, Abdul, and Jorgen are the only consumers.

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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 clubsb. A decrease in the popularity of golfc. An increase in the number of golfersd. An expected increase in the price of golf balls*e. A decrease in the price of golf balls

328. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, Demand and Supply, and the Price System Que56 �It is sometimes said that Gucci clothes are outrageously expensive and that the suppliers of these garments are ripping off all consumers. Which of the following statements might an economist put forth in reaction to statements such as this?

*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.


The law of supply is composed of the following five phrases:

1. the quantity of a well-defined good or service2. that producers are willing and able to offer for sale3. during a particular period of time4. increases as the price of that good or service rises and decreases as the price falls,5. everything else held constant.


*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.


The law of supply is composed of the following five phrases:

1. the quantity of a well-defined good or service2. that producers are willing and able to offer for sale3. during a particular period of time4. increases as the price of that good or service rises and decreases as the price falls,5. everything else held constant.


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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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.


Quantities SuppliedPrice per Loaf Orobran 1 Holsum 1 Deliteful 1$5 60 30 124 50 25 93 40 20 62 30 15 31 20 10 01Orobran, Holsum, and Deliteful are the only producers of bread.

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, 30b. 60, 50, 40, 30, 20c. 30, 48, 66, 84, 102d. 90, 75, 60, 45, 30e. 30, 25, 20, 15, 10


Quantities SuppliedPrice per Loaf Orobran 1 Holsum 1 Deliteful 1$5 60 30 124 50 25 93 40 20 62 30 15 31 20 10 01Orobran, Holsum, and Deliteful are the only producers of bread.

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 3Markets, 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 steelb. An improvement in the technology of automobile manufacturing*c. An increase in the price of automobilesd. A decrease in the number of automobile producerse. An increase in the productivity of workers

352. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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.


Price per Access Hour Quantity Demanded per WeekQuantity Supplied per Week$5 30 1024 48 843 66 662 84 481 102 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.



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.



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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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.


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.


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 3Markets, 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.


Price Quantity Demanded Quantity Supplied$45 350 050 300 555 250 5060 200 10065 150 15070 100 200

In Figure 3-8, which is the equilibrium price?

a. $45b. $70c. $60*d. $65e. $50



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.


Price Quantity Demanded Quantity Supplied$45 350 050 300 555 250 5060 200 100

65 150 15070 100 200

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.



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.



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.


nar009-1.jpg

In Figure 3-9, quantity supplied exceeds quantity demanded at

a. $4.b. $7.*c. $10.d. $5.e. $2.


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.


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. $10c. $7d. $4e. $12


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.


nar009-1.jpg

In Figure 3-9, quantity demanded exceeds quantity supplied at

*a. $5.b. $10.c. $12.d. $15.e. $7.


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.


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.


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 3Markets, 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.


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 changesb. At the original price of $2.50 a surplus of 18 DVDs results when demand changesc. At the original price of $2.50, a scarcity of 18 DVDs results when demand changesd. At the original price of $2.50, no DVDs would be rented following the demand changee. At the original price of $2.50, the new demand causes price to

increase and supply to increase


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 incomeb. A decrease in the price of good X*c. An increase in the price of a complementary goodd. Lower productivitye. An increase in the price of a substitute good


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.


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.


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 well-being, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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.


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.


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 in the number of consumers.b. an increase in expected income.c. an increase in the price of a substitute good.d. pessimistic producer expectations.*e. a shift in consumer tastes away from the product.

399. Chapter 3Markets, 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.


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. Ab. B*c. Cd. De. E


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.


Quantity Demanded Price per Unit Quantity Supplied10 $5 5020 4 4030 3 3040 2 2050 1 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.


Quantity Demanded Price per Unit Quantity Supplied10 $5 5020 4 4030 3 3040 2 2050 1 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.


Quantity Demanded Price per Unit Quantity Supplied10 $5 5020 4 4030 3 30

40 2 2050 1 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, Demand and Supply, and the Price System Qu123 �Minimum wage law

a. makes employers hire more workers.b. creates more jobs.c. creates shortages in labor market.d. increases government tax revenue.*e. creates more unemployment.

409. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, Demand and Supply, and the Price System Qu138 �A market is always a specific location or store.

a. True*b. False

424. Chapter 3Markets, 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. Trueb. False

425. Chapter 3Markets, 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 3Markets, 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. Trueb. False

427. Chapter 3Markets, Demand and Supply, and the Price System Qu142 �In the law of demand, the relationship between ceteris paribus and the determinants of demand is that ceteris paribus means "everything else held constant," and those things held constant are the determinants of demand.

*a. Trueb. False

428. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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. Trueb. False

432. Chapter 3Markets, 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 3Markets, 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. Trueb. False

434. Chapter 3Markets, 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. Trueb. False

435. Chapter 3Markets, 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 3Markets, 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. Trueb. False

437. Chapter 3Markets, 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 3Markets, 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. Trueb. False

439. Chapter 3Markets, 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. Trueb. False

440. Chapter 3Markets, Demand and Supply, and the Price System Qu155 �People purchase more today if they expect the price will go up.

*a. Trueb. False

441. Chapter 3Markets, 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. Trueb. False

442. Chapter 3Markets, 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. Trueb. False

443. Chapter 3Markets, Demand and Supply, and the Price System Qu158 �A supply curve is a graphical representation of a supply schedule.

*a. Trueb. False

444. Chapter 3Markets, 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. Trueb. False

445. Chapter 3Markets, 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 3Markets, 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 3Markets, 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. Trueb. False

448. Chapter 3Markets, 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 3Markets, Demand and Supply, and the Price System Qu164 �At the equilibrium price, there is no pressure on price to rise or fall.

*a. Trueb. False

450. Chapter 3Markets, 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 3Markets, 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 3Markets, Demand and Supply, and the Price System Qu167 �When there is a surplus, the actual price decreases.

*a. Trueb. False

453. Chapter 3Markets, 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 3Markets, 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. Trueb. False

455. Chapter 3Markets, 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 3Markets, 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. Trueb. False

457. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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 3Markets, 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. Trueb. False

462. Chapter 3Markets, 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 3Markets, Demand and Supply, and the Price System Qu178 �When a price ceiling for shoes is lifted, shoe shortage becomes less

severe.

*a. Trueb. False

464. Chapter 3Markets, 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. Trueb. False

465. Chapter 3Markets, 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 3Markets, 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 3Markets, 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 GuideMarkets, 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 GuideMarkets, 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 GuideMarkets, 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-servedb. government scheme*c. market systemd. random allocatione. allocation of the good by members of the clergy on the basis of perceived need

471. Chapter 3 Study GuideMarkets, 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 GuideMarkets, Demand and Supply, and the Pric 5 �Which of the following is not a determinant of supply?

a. Prices of resourcesb. Technology and productivity*c. Prices of complementsd. Expectations of producerse. The number of producers

473. Chapter 3 Study GuideMarkets, 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 farmersb. A change in technology that reduces the cost of milking cowsc. A decrease in the price of cheese*d. A decrease in the price of milke. A decrease in the price of cow feed

474. Chapter 3 Study GuideMarkets, 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 GuideMarkets, 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 GuideMarkets, 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 GuideMarkets, Demand and Supply, and the Pric10 �Figure SG3-1

Price Quantity Demanded Quantity Supplied$0 24 01 20 22 16 43 12 64 8 8

5 4 106 0 12

In Figure SG3-1, the equilibrium price is

a. $1.b. $2.c. $3.*d. $4.e. $5.


Price Quantity Demanded Quantity Supplied$0 24 01 20 22 16 43 12 64 8 85 4 106 0 12

In Figure SG3-1, the equilibrium quantity is

a. 2.b. 4.c. 6.*d. 8.e. 10.



In Figure SG3-1, if the price is $2, a ____ of ____ units will develop,

causing the price to ____.

*a. shortage; 12; increaseb. shortage; 12; decreasec. surplus; 12; increased. surplus; 12; decreasee. surplus; 19; decrease



In Figure SG3-1, if the price is $5, a ____ of ____ units will develop, causing the price to ____.

a. shortage; 6; increaseb. shortage; 6; decreasec. surplus; 6; increase*d. surplus; 6; decreasee. shortage; 12; increase

481. Chapter 3 Study GuideMarkets, 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?


482. Chapter 3 Study GuideMarkets, 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.


483. Chapter 3 Study GuideMarkets, Demand and Supply, and the Pric16 �What is equilibrium? What is the difference between a surplus and a shortage? Explain graphically.


484. Chapter 3 Study GuideMarkets, 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.


485. Chapter 4The 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 4The Market System and the Private and Public Sectors 2 �What are the major sectors that make up the U.S. economy?

a. Businesses and householdsb. Government, households, and the international sectorc. Households, governments, and businessesd. Consumers, producers, and world trade*e. The international sector, households, businesses, and government

487. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 PDAsb. An outward shift of the demand curve for smartphonec. An increase in the number of resources used in smartphoned. A decrease in the number of resources used in PDAs*e. A reduction in the value of resources used in smartphone

494. Chapter 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors13 �Competitive firms produce in the manner that ____ costs and ____ profits.

a. minimizes, minimizesb. maximizes, maximizesc. eliminates, maximizesd. maximizes, minimizes*e. minimizes, maximizes

498. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors21 �Which of the following receives profits as a source of income?

a. A laborerb. A landownerc. An owner of capital*d. An entrepreneure. A government employee

506. Chapter 4The 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 4The 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 4The Market System and the Private and Public Sectors24 �Which of the following constitutes a household?

a. A divorced woman living alone and supporting herselfb. A husband and wife and their two children sharing a condoc. An unmarried couple who live together, sharing both income and expensesd. A single woman renting an apartment*e. All of these

509. Chapter 4The 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 4The Market System and the Private and Public Sectors26 �The household spending is called

a. payment.b. expenditure.c. incomed. national spending*e. consumption.

511. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors32 �Which of the following is not a multinational corporation?

a. PepsiCob. Gillette Corporationc. Microsoftd. Ford Motor Company*e. The United States government

517. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors38 �Charles Hires was the first person to commercialize which of the following products in 1875?

a. Tamponsb. Steam boatsc. Coca-Cola*d. Root beere. Toothpaste

523. Chapter 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors42 �United States trade is concentrated with which countries?

a. Eastern European countriesb. Western European countries*c. Canada, Mexico, and the major industrial powers.d. Asian countriese. Less developed countries

527. Chapter 4The 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 missilesc. Iron ored. Bananase. Gold

528. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors49 �Scenario 4-1

In a given year, country A exported $12 million worth of goods to country B and $6 million worth of goods to country C; country B exported $4 million worth of goods to country A and $7 million worth of goods to country C; and country C exported $5 million worth of goods to country A and $2 million worth of goods to country B.

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.



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.



According to Scenario 4-1, country B is running a ____ with country A and a ____ with country C.

*a. trade deficit; trade surplusb. trade surplus; trade surplusc. trade surplus; trade deficitd. trade deficit; trade deficite. balanced trade; trade deficit

536. Chapter 4The 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 4The 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 4The Market System and the Private and Public Sectors54 �Which of the following is not a service that the government usually provides?

a. National defenseb. Educationc. Postal servicesd. Police and fire protection*e. Religious services

539. Chapter 4The 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. Congressc. Federal Reserved. Council of Economic Adviserse. Treasury Department

540. Chapter 4The 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 4The 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 percentc. 2 percent; 18 percent.d. 2 percent; 25 percent.*e. 2.5 percent; 30 percent.

542. Chapter 4The 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 4The 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 4The 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 revenuee. None of these choices.

545. Chapter 4The 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 4The 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 4The Market System and the Private and Public Sectors63 �Which of the following is not a financial intermediary?

a. Commercial bankb. Credit union*c. Department of Commerced. Savings and loan firmse. Local agricultural bank

548. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sectors74 �According to the text, an economy is made up of individual buyers and sellers and could include something as small as the neighborhood around your home or something as large as an entire country or several countries.

*a. Trueb. False

559. Chapter 4The 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 4The 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 4The 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 4The 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. Trueb. False

563. Chapter 4The Market System and the Private and Public Sectors79 �An unmarried couple holding joint title to their condominium constitutes a household.

*a. Trueb. False

564. Chapter 4The 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. Trueb. False

565. Chapter 4The Market System and the Private and Public Sectors81 �Household spending is called investment.

a. True*b. False

566. Chapter 4The Market System and the Private and Public Sectors82 �In 2009, household spending represented the largest single component of U.S. total spending.

*a. Trueb. False

567. Chapter 4The 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 4The 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 4The 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 4The 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 4The 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. Trueb. False

572. Chapter 4The 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 4The 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 4The 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 4The 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. Trueb. False

576. Chapter 4The Market System and the Private and Public Sectors92 �Industrial countries greatly outnumber developing countries.

a. True*b. False

577. Chapter 4The 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 4The 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. Trueb. False

579. Chapter 4The 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. Trueb. False

580. Chapter 4The Market System and the Private and Public Sectors96 �A trade deficit occurs when total exports are less than total imports.

*a. Trueb. False

581. Chapter 4The 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. Trueb. False

582. Chapter 4The 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 4The Market System and the Private and Public Sectors99 �The federal government spending today is greater than $1 trillion.

*a. Trueb. False

584. Chapter 4The 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. Trueb. False

585. Chapter 4The 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. Trueb. False

586. Chapter 4The 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. Trueb. False

587. Chapter 4The 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 4The 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. Trueb. False

589. Chapter 4The 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. Trueb. False

590. Chapter 4The 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. Trueb. False

591. Chapter 4The 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. Trueb. False

592. Chapter 4The 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 4The 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 4The 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 4The Market System and the Private and Public Sector111 �Domestic firms may produce for foreign as well as domestic consumption.

*a. Trueb. False

596. Chapter 4The 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 4The 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. Trueb. False

598. Chapter 4The 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. Trueb. False

599. Chapter 4 Study GuideThe 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; morec. supply of; increase; decrease; mored. demand for; increase; decrease; moree. supply of; increase; decrease; fewer

600. Chapter 4 Study GuideThe Market System and the Private and Pu 2 �When technology or consumer tastes change, some industries shrink and lose employment, and other industries expand and increase employment. What the phrase that economists use to describe this process?

a. eminent domain*b. creative destructionc. demand-driven changed. supply-driven changee. producer sovereignty

601. Chapter 4 Study GuideThe Market System and the Private and Pu 3 �Household spending, or consumption, is the ____ component of total spending in the economy.

*a. largestb. second largestc. third largest

d. fourth largeste. smallest

602. Chapter 4 Study GuideThe 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 onlyb. partnerships onlyc. corporations only*d. sole proprietorships and partnerships onlye. sole proprietorships, partnerships, and corporations

603. Chapter 4 Study GuideThe 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 countriesd. imports exceed exports.e. industrial countries sell to less developed countries.

604. Chapter 4 Study GuideThe 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 GuideThe Market System and the Private and Pu 7 �Combined government spending on goods and services is larger than ____ but smaller than ____.

a. consumption; net exportsb. consumption; investmentc. net exports; investmentd. investment; net exports*e. investment; consumption

606. Chapter 4 Study GuideThe Market System and the Private and Pu 8 �____ own(s) the factors of production.

*a. Corporationsb. Partnershipsc. The international sector

d. State and local governmentse. Households

607. Chapter 4 Study GuideThe 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?


608. Chapter 4 Study GuideThe 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?


609. Chapter 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National Income Accounting Question MC #8 �Figure 5-1

The Production of a CorvetteProduction Stage Sales ValueSteal Co. sells the raw material $1,500Motor Inc. sells the engine to GMC $2,350Dealer buys car form GMC $19,700Dealer sells car (retail) $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.


The Production of a CorvetteProduction Stage Sales ValueSteal Co. sells the raw material $1,500Motor Inc. sells the engine to GMC $2,350Dealer buys car form GMC $19,700Dealer sells car (retail) $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 5National Income Accounting Question MC #10 �Which of the following must add to GDP?

a. the sale of a used car to an auto dealershipb. bartering lawn care services for car washesc. a father staying home to care for his childd. the sale of an illegal cable box*e. payment for an SAT preparation class

619. Chapter 5National 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 5National 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 5National Income Accounting Question MC #13 �What is the importance of not including intermediate goods when calculating GDP?

a. Avoiding single product countingb. Restricting GDP to important goodsc. Keeping the consumer price index constant*d. Avoiding double countinge. Restricting GDP to goods that can be priced

622. Chapter 5National 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 5National 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 5National 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 5National 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 5National 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 5National Income Accounting Question MC #19 �Which of the following is true?

a. GDP = I + G + S + Xb. GDP - X = C + I + Sc. GDP = C + I + G - X*d. GDP = I + C + G + Xe. X + I = GDP - C + G

628. Chapter 5National 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 5National 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. $148b. -$34*c. $280d. $910e. Cannot be determined from the information given.


GDP ExpendituresConsumption Spending $1,640Gross Investment $550Government Purchases $320Total Exports $280GDP $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.


GDP ExpendituresConsumption Spending $1,640Gross Investment $550Government Purchases $320Total Exports $280GDP $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 5National Income Accounting Question MC #24 �What is an indirect business tax?

*a. A tax that is collected by businesses for a government agencyb. A foreign tax that hits the country indirectlyc. A foreign tax collected by the local governmentd. A local tax intended to tax different goods from the ones that end up being taxede. A tax that affects only businesses that deal with indirect goods

633. Chapter 5National 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 taxesb. Only income taxesc. Only income and sales taxes*d. Only excise and sales taxese. Excise, sales, and income taxes are all forms of indirect business taxes.

634. Chapter 5National 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 5National 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 5National 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 5National 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 5National Income Accounting Question MC #30 �NNP is equal to

a. GNP - X*b. C + net investment + G + Xc. C + I + G + X - taxesd. NI + taxes + depreciatione. PI + depreciation

639. Chapter 5National 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 5National 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 5National 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 5National 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).


GNP Data(Includes net factor income from abroad)Consumption Spending $2,420Net Investment $470Government Spending $350Capital Consumption Allowance $55Exports $740Imports $600

Refer to Figure 5-3. Net exports equals

a. -$140.b. -$740.c. -$1,340.*d. $140.e. $1,340


GNP Data(Includes net factor income from abroad)Consumption Spending $2,420Net Investment $470

Government Spending $350Capital Consumption Allowance $55Exports $740Imports $600

Refer to Figure 5-3. Gross investment equals

a. $470.b. $375.c. $160.*d. $525.e. $60.



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.



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 5National 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 5National 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 5National 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 5National Income Accounting Question MC #42 �Which of the following national income accounts would be the smallest in any year?

a. NNPb. NI*c. DPId. PI

e. GNP

651. Chapter 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 economyc. A measure of the highest price at which consumers sell their resourcesd. A measure of the average price at which consumers sell their resourcese. A measure of the average price dispersion of all final goods

658. Chapter 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National Income Accounting Question MC #60 �Which of the following statements is true?

a. Total expenditures > Total income > Total output valueb. Total expenditures > Total output value > Total incomec. Total output value > Total income > Total expendituresd. Total income > Total expenditures > Total output value*e. Total expenditures = Total income = Total output value

669. Chapter 5National 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 5National 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 taxationb. limited restrictions in the labor market*c. social security paymentsd. inflatione. social

671. Chapter 5National 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 5National Income Accounting Question TF #1 �National income accounting is a system of accounts that measures macroeconomic activity.

*a. Trueb. False

673. Chapter 5National 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. Trueb. False

674. Chapter 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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 5National 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. Trueb. False

681. Chapter 5National 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 5National 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 5National 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 5National 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. Trueb. False

685. Chapter 5National 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. Trueb. False

686. Chapter 5National Income Accounting Question TF #15 �When using the income approach to GDP, one would exclude local and state government purchases.

*a. Trueb. False

687. Chapter 5National Income Accounting Question TF #16 �Figure 5-4

Excise Taxes Paid by Businesses $26Gross Domestic Product $810Sales Taxes Paid by Businesses $130Capital Consumption Allowance $176Imports $220Receipts of Foreign Factor Income $46Payments of Factor Income Abroad $51Statistical Discrepancies $0

According to Figure 5-4, gross national product equals $805.

*a. Trueb. False



According to Figure 5-4, net national product is $629.

*a. Trueb. False



According to Figure 5-4, national income is $499.

a. True*b. False

690. Chapter 5National Income Accounting Question TF #19 �Net national product equals GDP plus net investment.

a. True*b. False

691. Chapter 5National 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. Trueb. False

692. Chapter 5National 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 5National Income Accounting Question TF #22 �Nominal GDP must always exceed real GDP.

a. True*b. False

694. Chapter 5National 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. Trueb. False

695. Chapter 5National Income Accounting Question TF #24 �A base year is a year against which other years are measured.

*a. Trueb. False

696. Chapter 5National Income Accounting Question TF #25 �CPI is a narrower measure of than the GDP price index.

*a. Trueb. False

697. Chapter 5National 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 5National 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 5National Income Accounting Question TF #28 �CPI represents each household's cost of living.

a. True*b. False

700. Chapter 5National Income Accounting Question TF #29 �Labor unions typically rely on the consumer price index when cost-of-living adjustments are negotiated as part of wage contracts.

*a. Trueb. False

701. Chapter 5National Income Accounting Question TF #30 �The circular flow diagram shows the different sectors in the economy are independent.

a. True*b. False

702. Chapter 5National 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 5National 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. Trueb. False

704. Chapter 5 Study GuideNational 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 GuideNational 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 GuideNational Income Accounting Question MC #3 �Which of the following is counted in the GDP?

a. The value of homemaker servicesb. Estimated illegal drug transactionsc. The value of NFL players' help to the community*d. The wages earned while working overtimee. The sale of a used automatic dishwasher

707. Chapter 5 Study GuideNational 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 GuideNational 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 GuideNational 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 GuideNational 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.


711. Chapter 6An 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 6An 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 6An 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 Exchangeb. The central banks around the world*c. Anywhere monies of different countries are exchangedd. The Internete. The consulates and embassies of the United States

714. Chapter 6An 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 6An 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 6An 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. $50b. $0.50*c. $5d. $10e. We would need to know the reciprocal exchange rate to answer this question.

717. Chapter 6An 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 6An 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 0.05974b. $5.794*c. RUB 5.974d. RUB 1.00e. RUB 0.2985

719. Chapter 6An 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 6An 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 6An 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 6An 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 GBPb. 23.50 GBPc. 27.50 GBPd. 47.00 GBPe. 50.00 GBP

723. Chapter 6An 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 6An 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; fallc. fall; falld. fall; risee. Cannot tell with the information given.

725. Chapter 6An 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. $173.55b. $165.43c. $219.10d. $187.61e. $195.00

726. Chapter 6An 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 6An 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 6An 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 6An 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 6An 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 6An 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. $25.50b. $18.00*c. $10.59d. $15.00e. $30.60

732. Chapter 6An 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 6An 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 6An 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 6An 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; payablesb. Debits; creditsc. Payables; creditsd. Credits; payables*e. Credits; debits

736. Chapter 6An 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 6An 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. -$414b. -$246c. $246*d. -$262e. $262

738. Chapter 6An Introduction to the Foreign Exchange Market and t28 �Which of the following is included in a nation's current account?

a. Purchases of foreign assetsb. Borrowing from abroadc. Foreign purchases of U.S. financial assets*d. Investment income receiptse. Purchases of foreign real property

739. Chapter 6An 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 6An 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 6An Introduction to the Foreign Exchange Market and t31 �What is a unilateral transfer?

a. A merchandise export*b. A gift to foreignersc. A royalty receipt on a foreign patentd. A salary earned abroade. Collection on a foreign insurance policy

742. Chapter 6An 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 6An 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 loanb. U.S. humanitarian aid for victims of war in Bosniac. Income received from abroad by a U.S. firm*d. A loan received by the U.S. government from abroade. The purchase of a German car by an American

744. Chapter 6An 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 6An 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 6An 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 transfersb. Statistical discrepancy*c. Servicesd. Merchandisee. Investment income

747. Chapter 6An 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 6An Introduction to the Foreign Exchange Market and t38 �Figure 6-1

U.S. International Transactions in 2007 Millions of DollarsMerchandise Exports $1,138,384Service Exports $ 504,784Net Unilateral Transfers -$ 112,705Service Imports $ 375,215Merchandise Imports $2,344,590Net Investment Income $ 88,776 U.S. Purchases of Foreign Assets $1,472,125Foreign Purchases of U.S. Assets $2,129,512Statistical Discrepancy $ 41,287

According to Figure 6-1, what was the merchandise balance for the United States in 2007?

a. -$1,643,168b. $1,643,168c. -$657,387*d. -$1,206,206e. $1,206,206



According to Figure 6-1, the current account balance for the United States in 2007 was

a. -$1,226,615*b. -$1,189,342c. $1,189,342d. -$1,241,711

e. $1,241,711



According to Figure 6-1, the financial account balance for the United States in 2007 was

a. -$1,206,206b. $1,206,206*c. +657,387d. -657,387e. $1,643,168

751. Chapter 6An 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 6An Introduction to the Foreign Exchange Market and t42 �The U.S. has experienced

a. a current account deficit since the mid-1960s.tb. 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 6An 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 6An 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 6An 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 6An Introduction to the Foreign Exchange Market and t46 �Foreign exchange is money denominated in foreign currencies.

*a. Trueb. False

757. Chapter 6An Introduction to the Foreign Exchange Market and t47 �A U.S. fifty-dollar bill constitutes foreign exchange to an Australian resident.

*a. Trueb. False

758. Chapter 6An 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. Trueb. False

759. Chapter 6An 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 6An 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. Trueb. False

761. Chapter 6An Introduction to the Foreign Exchange Market and t51 �The dollar price of one unit of foreign currency is an exchange rate.

*a. Trueb. False

762. Chapter 6An 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 6An 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 6An 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 6An Introduction to the Foreign Exchange Market and t55 �Foreign exchange trading overlaps in London and New York for four hours

each day.

*a. Trueb. False

766. Chapter 6An Introduction to the Foreign Exchange Market and t56 �There is a short overlap of European trading with Asian trading.

*a. Trueb. False

767. Chapter 6An 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 6An 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 6An 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. Trueb. False

770. Chapter 6An 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 6An 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. Trueb. False

772. Chapter 6An 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. Trueb. False

773. Chapter 6An 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 6An 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 6An 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 6An 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 6An 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 6An 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. Trueb. False

779. Chapter 6An 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. Trueb. False

780. Chapter 6An Introduction to the Foreign Exchange Market and t70 �The balance on the merchandise account is frequently referred to as the balance of trade.

*a. Trueb. False

781. Chapter 6An Introduction to the Foreign Exchange Market and t71 �Merchandise imports are recorded as a debit in the current account.

*a. Trueb. False

782. Chapter 6An 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 6An 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 6An Introduction to the Foreign Exchange Market and t74 �The financial account is where trade involving financial assets and international investment is recorded.

*a. Trueb. False

785. Chapter 6An 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. Trueb. False

786. Chapter 6An 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. Trueb. False

787. Chapter 6An 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. Trueb. False

788. Chapter 6An 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 6An 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 6An Introduction to the Foreign Exchange Market and t80 �A current account deficit is consistent with domestic spending in excess of domestic production.

*a. Trueb. False

791. Chapter 6An 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 6An Introduction to the Foreign Exchange Market and t82 �The foreign exchange rate is one of the key variables to affect international tourists.

*a. Trueb. False

793. Chapter 6 Study GuideAn 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 GuideAn 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. $36.00c. $181.15d. $283.05e. $212.99

795. Chapter 6 Study GuideAn Introduction to the Foreign Exchange 3 �If export goods exceed import goods, the ____ account will show a ____.

a. merchandise; deficit*b. merchandise; surplusc. services; deficitd. services; surpluse. unilateral transfers; surplus

796. Chapter 6 Study GuideAn Introduction to the Foreign Exchange 4 �Which account contains all of the activities involving goods and services?

a. Merchandiseb. Servicesc. Unilateral transfers*d. Current

e. Capital

797. Chapter 6 Study GuideAn 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 expensiveb. appreciated; less expensivec. depreciated; more expensive*d. depreciated; less expensivee. depreciated; the same price as before

798. Chapter 6 Study GuideAn 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) Mike travels to Munich, Germany, and spends $25 cash in a beer garden.

(b) General Motors sells $500,000 worth of Chevrolets to a French car dealer.

(c) U.S. charitable organizations donate $84,000 in humanitarian aid to the government of Somalia.

Correct Answer:$415, 975

799. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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.


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.


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.


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 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question MC #11 �What is a common definition of what constitutes a recession?

*a. Two or more consecutive quarters of declining GDPb. Six years of droughtc. A sharp decline in unemploymentd. A sharp decline in the balance of paymentse. Two consecutive crashes in the stock markets

810. Chapter 7Unemployment 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 7Unemployment and Inflation Question MC #13 �Which of the following would be considered a coincident indicator?

a. Inflation rate for services*b. Personal incomec. Inventory to sales ratiod. Labor costs per unit of outpute. Unemployment claims

812. Chapter 7Unemployment 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 7Unemployment and Inflation Question MC #15 �Which of the following would be considered a lagging indicator?

a. Inflation rate for servicesb. Personal incomec. Inventory to sales ratiod. Labor costs per unit of output*e. Unemployment claims

814. Chapter 7Unemployment 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 7Unemployment 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 non-institutionalized 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 non-institutionalized population, age 16 or older.

816. Chapter 7Unemployment 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 7Unemployment and Inflation Question MC #19 �Which of the following persons would be considered unemployed?

a. A house wife/husbandb. A 15-year-old looking for summer employmentc. A person who worked more than 20 hours in a family-owned business*d. A recent college graduate looking for her first jobe. A full-time student

818. Chapter 7Unemployment 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 the past yearb. An inmate in a state prison who makes license platesc. A person in a mental institutiond. A 14-year-old boy who mows lawns for money on the weekends*e. An anthropologist whose search for a job has been unsuccessful

819. Chapter 7Unemployment 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 millionb. 294 million*c. 174.5 milliond. 198 millione. 315.5 million

820. Chapter 7Unemployment 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 percentb. 8.3 percentc. 11.5 percent*d. 12.3 percente. 16.5 percent

821. Chapter 7Unemployment 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 economyc. The underground economy; discouraged workers; underemploymentd. Underemployment; discouraged workers; structural unemploymente. Frictional unemployment; structural unemployment; the underground economy

822. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question MC #26 �Which of the following is a shortcoming of the unemployment rate as a true measure of unemployment?

a. The existence of unemployed workersb. The exclusion of institutionalized adultsc. The exclusion of workers who are out of work and voluntarily idled. The inclusion of those who cannot find work but continue to search*e. The exclusion of those who gave up looking for work

825. Chapter 7Unemployment 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 7Unemployment and Inflation Question MC #28 �This type of unemployment arises as one of the worst effects of a recession.

a. Seasonal unemploymentb. Static unemployment*c. Cyclical unemploymentd. Frictional unemployment

e. Structural unemployment

827. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 recessionc. A ski instructor who is out of work during the summerd. An economics journalist who just quit her writing job in order to begin a new career as a college professor next monthe. A worker displaced from his factory job because of greater mechanization in the workplace

831. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 Programsc. Discrimination with regard to job opportunitiesd. The quality of education in school with large minority populationse. The quality of education in school with limited minority populations

838. Chapter 7Unemployment 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. Teenagersb. Menc. Nonwhitesd. Womene. Whites

839. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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.


Price Data 2005 20091 Pair of Jeans $50 $601 Pair of Shoes $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.


Price Data 2005 2009

1 Pair of Jeans $50 $601 Pair of Shoes $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 in 2005.*b. The relative price of shoes in terms of jeans was 1.2 in 2005.c. The relative price of shoes in terms of jeans was 0.63 in 2005.d. The relative price of shoes in terms of jeans was 1.58 in 2005.e. The relative price of shoes in terms of jeans was 1.00 in 2005.

845. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question MC #50 �In which decade did the U.S. experience the most substantial inflation?

a. 1960s*b. 1970sc. 1980sd. 1990se. 2000s

849. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question MC #60 �Which of the following could contribute to cost-push inflation?

a. Greater demand for exportsb. Lower income taxesc. An increase in consumption demandd. Higher government spending*e. Higher wage demands by trade unions


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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question TF #2 �In a business cycle, a peak marks the end of an expansion and the beginning of a recession.

*a. Trueb. False

867. Chapter 7Unemployment and Inflation Question TF #3 �During a period of economic expansion, we would expect increasing levels of employment.

*a. Trueb. False

868. Chapter 7Unemployment and Inflation Question TF #4 �The U.S. economy reached a peak in December of 2007.

*a. Trueb. False

869. Chapter 7Unemployment and Inflation Question TF #5 �Recession is another name given to a period in which unemployment rises.

*a. Trueb. False

870. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #7 �A coincident indicator will change before a recession starts.

a. True*b. False

872. Chapter 7Unemployment 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. Trueb. False

873. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question TF #11 �Any individual who is not working would be considered unemployed.

a. True*b. False

876. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #13 �The effect of discouraged workers and underemployment is an unemployment rate that understates actual unemployment.

*a. Trueb. False

878. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #15 �Frictional and structural unemployment are always present in a dynamic economy.

*a. Trueb. False

880. Chapter 7Unemployment and Inflation Question TF #16 �Shifts in consumer tastes, relocation of industries, and technological changes can all be contributing factors to structural unemployment.

*a. Trueb. False

881. Chapter 7Unemployment and Inflation Question TF #17 �Cyclical unemployment is unemployment that increases at high levels of economic activity.

a. True*b. False

882. Chapter 7Unemployment and Inflation Question TF #18 �Official unemployment rates will decrease if actual GDP rises faster than potential GDP.

*a. Trueb. False

883. Chapter 7Unemployment 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 7Unemployment 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 7Unemployment and Inflation Question TF #21 �The government policies on the labor market in those higher-unemployment European countries caused higher unemployment rates.

*a. Trueb. False

886. Chapter 7Unemployment and Inflation Question TF #22 �The requirement by foreign governments that parents support their adult children encourages those children to remain unemployed.

*a. Trueb. False

887. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #24 �Teenagers are usually the demographic group with the highest unemployment rates.

*a. Trueb. False

889. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #26 �Discrimination plays a role in the different unemployment rates for whites and nonwhites.

*a. Trueb. False

891. Chapter 7Unemployment 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 7Unemployment 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. Trueb. False

893. Chapter 7Unemployment and Inflation Question TF #29 �Given constant real output, a decrease in real income implies that the purchasing power of money is falling.

*a. Trueb. False

894. Chapter 7Unemployment 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. Trueb. False

895. Chapter 7Unemployment and Inflation Question TF #31 �Creditors are likely to benefit from unexpected inflation.

a. True*b. False

896. Chapter 7Unemployment and Inflation Question TF #32 �Expected inflation causes a redistribution of income.

a. True*b. False

897. Chapter 7Unemployment 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. Trueb. False

898. Chapter 7Unemployment and Inflation Question TF #34 �Demand-pull inflation occurs when aggregate spending exceeds total economic output.

*a. Trueb. False

899. Chapter 7Unemployment 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. Trueb. False

900. Chapter 7Unemployment and Inflation Question TF #36 �Cost-push inflation is caused by the achievement of full-capacity output.

a. True*b. False

901. Chapter 7Unemployment 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 7Unemployment and Inflation Question TF #38 �Hyperinflation is usually accompanied by a great macroeconomic expansion.

a. True*b. False

903. Chapter 7Unemployment and Inflation Question TF #39 �Low growth in the money supply is a means to prevent high inflation rates.

*a. Trueb. False

904. Chapter 7Unemployment 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 GuideUnemployment 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 GuideUnemployment 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 GuideUnemployment 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 GuideUnemployment 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 GuideUnemployment and Inflation Question MC #5 �Which of the following groups benefits from unanticipated inflation?

a. Creditorsb. Retirees on fixed incomes*c. Debtorsd. Workers whose salaries are tied to the CPIe. Suppliers who have contracted to supply a fixed amount of their product for a fixed price

910. Chapter 7 Study GuideUnemployment 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 pricesb. Drought in the Midwest, which can cause crop failuresc. Suppliers who increase their profit margins by raising prices faster than their costs increase*d. Increased government spending in the absence of increased taxese. Labor unions, which can force wage increases that are not justified by increases in productivity

911. Chapter 7 Study GuideUnemployment 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.


912. Chapter 7 Study GuideUnemployment 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."


913. Chapter 7 Study GuideUnemployment and Inflation Question ES #3 �What is the link among real interest rates, unexpected inflation, and real GDP growth? Explain.


914. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 supplyc. Changes in the population of a countryd. Expectations about the futuree. Households' wealth

926. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp15 �Which of the following will not cause net exports to decline?

a. An appreciation of the domestic currencyb. A fall in foreign incomec. Higher foreign tariffs on domestic goodsd. Lower foreign prices*e. An appreciation of the foreign currency

929. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp17 �All of the following lead to an increase in aggregate expenditures except

a. an increase in domestic incomeb. 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp20 �Figure 8-1

Year 1 Year 2Price of Bond $2,000 $1,800Interest Payment $200 $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.


Year 1 Year 2Price of Bond $2,000 $1,800Interest Payment $200 $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 8Macroeconomic 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%eb. 1.25%c. 8.0%*d. 12.5%e. 80.0%

936. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp27 �Which of the following is a nonprice determinant of demand?

a. A change in resource pricesb. Technological Innovation*c. Depreciation of domestic currencyd. A change in the CPIe. An increase in global oil supply

941. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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.


nar002-1.jpg

Which of the graphs in Figure 8-2 is consistent with a short-run equilibrium model where prices are variable?

a. Ab. B*c. Cd. De. None of these


nar002-1.jpg

Which of the graphs in Figure 8-2 is consistent with long-run equilibrium analysis?

*a. Ab. Bc. Cd. De. None of these

953. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp44 �Which of the following will not shift the short-run aggregate supply curve?

a. A change in technologyb. A change in price expectationsc. A change in wage rates*d. A change in the domestic price levele. A change in raw material supplies

958. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 institutionsb. The bad harvest in the agricultural sectorc. The sharp increase in the price of goldd. The decline in labor productivity

*e. The significant increase in the price of crude oil

963. Chapter 8Macroeconomic 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 8Macroeconomic 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.


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.


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.


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.


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.


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 8Macroeconomic 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 8Macroeconomic 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.


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.


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.


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.


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. P2 and $300 billion.b. P1 and $400 billion.c. P2 and $400 billion.d. P3 and $300 billion.*e. P3 and $400 billion.


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.


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.


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 8Macroeconomic Equilibrium: Aggregate Demand and Supp66 �Which of the following is used to measure people's sentiment about the economy?

*a. The consumer confidence indexb. The inflation rate indexc. The producer price indexd. The government's reading indexe. The consumer price index

980. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp68 �In the twentieth century, U.S. economic growth has been steady.

a. True*b. False

982. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp70 �A rightward shift of the aggregate demand curve with no change in aggregate supply signals an economic expansion.

*a. Trueb. False

984. Chapter 8Macroeconomic Equilibrium: Aggregate Demand and Supp71 �Demand-pull inflation occurs when there is a decrease in aggregate demand.

a. True*b. False

985. Chapter 8Macroeconomic Equilibrium: Aggregate Demand and Supp72 �The purpose of developing and understanding an aggregate supply-aggregate demand model is to help us understand economic growth and business cycles.

*a. Trueb. False

986. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp74 �Inflation normally causes an increase in aggregate demand.

a. True*b. False

988. Chapter 8Macroeconomic Equilibrium: Aggregate Demand and Supp75 �A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

*a. Trueb. False

989. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp77 �If the aggregate supply curve is vertical, then shifts in aggregate demand will not lead to business cycles.

*a. Trueb. False

991. Chapter 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp79 �One of the factors influencing aggregate demand is the aggregate supply level.

a. True*b. False

993. Chapter 8Macroeconomic 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 8Macroeconomic 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. Trueb. False

995. Chapter 8Macroeconomic Equilibrium: Aggregate Demand and Supp82 �Investment spending is highly dependent on the current level of interest rates.

*a. Trueb. False

996. Chapter 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic 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 8Macroeconomic Equilibrium: Aggregate Demand and Supp87 �If the level of prices falls, the real value of wealth also falls.

a. True*b. False

Documents

testbankonline.comtestbankonline.com/wp-content/uploads/2… · Web view · 2014-11-18a. business. b. banking. c. education. d. the non-profit ... -sloping line that relates consumer