Multiple Choice
1. Which of the following illustrates the law of demand?
a. Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus.
b. Chen buys more ice cream at $4 per half-gallon than at $3 per half gallon, ceteris paribus.
c. Karissa buys fewer sweaters at $50 each than at $35 each, ceteris paribus.
d. a, b, and c
e. a and c
2. If an increase in income results in an increase in the demand for chicken, then chicken is
a. a neutral good.
b. a luxury good.
c. a normal good.
d. an inferior good.
3. An increase in the number of buyers in an area will result in a
a. movement up the demand curve.
b. movement down the demand curve.
c. leftward shift in the demand curve.
d. rightward shift in the demand curve.
4. "As the price of apples goes up, the demand for apples goes down." The author of this statement
a. implies that price and demand are unrelated.
b. uses the word "demand" when he should use the word "supply."
c. uses the word "demand" when he should use the words "quantity demanded."
d. implies that demand and price have a direct relationship.
5. Which of the following is true about the relationship between price and quantity supplied?
a. There is always a direct relationship.
b. There is always an inverse relationship.
c. There is usually a direct relationship.
d. There is usually an inverse relationship.
6. If the workers of a firm successfully negotiate an increase in wages, which of the following is most likely to happen?
a. The demand curve for the product the firm produces shifts rightward.
b. The demand curve for the product the firm produces shifts leftward.
c. The supply curve of the product the firm produces shifts rightward.
d. The supply curve of the product the firm produces shifts leftward.
7. Which of the following will not shift a supply curve?
a. a change in the price of relevant resources
b. a change in the good's own price
c. a change in the number of sellers
d. a change in per-unit costs brought about by a change in taxes.
8. On a supply-and-demand diagram, quantity demanded equals quantity supplied
a. only at the single equilibrium price.
b. at every price at or above the equilibrium price.
c. at every price at or below the equilibrium price.
d. at every price.
9. On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve. There is a at that price and we are clearly the equilibrium price.
a. shortage; above
b. shortage; below
c. surplus; above
d. surplus; below
10. Refer to Exhibit 3-1. At a price of $2 there is a
a. shortage of 350 units.
b. shortage of 200 units.
c. shortage of 150 units.
d. surplus of 200 units.
e. surplus of 150 units.
11. Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point B to C?
a. There was an increase in resource prices and income stayed constant.
b. There was a decrease in resource prices and income stayed constant.
c. There was an increase in resource prices and income decreased.
d. There was an increase in resource prices and income increased.
12. Refer to Exhibit 3-8. A surplus exists at any price above
a. $2.00.
b. $4.50.
c. $4.00.
d. $3.50.
e. $3.00.
13. An increase in the number of sellers will, ceteris paribus
a. increase equilibrium price and quantity.
b. increase equilibrium price and decrease equilibrium quantity.
c. decrease equilibrium price and increase equilibrium quantity.
d. decrease equilibrium price and quantity.
e. increase demand.
14. Which of the following statements represents a correct and sequentially accurate economic explanation?
a. X and Y are substitutes. The price of X falls, the quantity demanded of X rises, and the demand for Y rises.
b. X and Y are substitutes. The price of X rises, the demand for X falls, and the demand for Y rises.
c. X and Y are substitutes. The price of X falls, the demand for X rises, and the quantity demanded of Y rises.
d. X and Y are substitutes. The price of X falls, the quantity demanded of X rises, and the demand for Y falls.
e. X and Y are complements. The price of X falls, the quantity demanded of X rises, and the demand for Y falls.
15. The CPI was 140 in one year and 144 the following year. Approximately how much did prices rise between the two years?
a. 2.86 percent
b. 2.78 percent
c. 0.03 percent
d. 1.03 percent
e. none of the above
16. Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.00 for each unit of X, $0.96 for each unit of Y, and $1.13 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?
a. 1.05
b. 203
c. 105.17
d. 309
17. Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals ____.
a. $100
b. $130
c. $150
d. $180
e. $550
18. The base year is the year
a. in which prices are unstable.
b. in which prices are lowest.
c. in which prices are highest.
d. that serves as a reference point or benchmark.
e. in which nominal output is largest.
Exhibit 5-1
CPI
Year (1982=100)
1980 79.5
1981 91.3
1982 100.0
1983 104.3
1984 108.2
19. Refer to Exhibit 5-1. Prices rose by percent from 1983 to 1984.
a. 3.7
b. 3.9
c. 3.5
d. 3.6
e. 4.1
20. A person in the civilian labor force falls into one of two categories:
a. a person who works in a service industry or a person who works in a manufacturing industry.
b. unemployed or employed.
c. disemployed or unemployed.
d. a self-employed worker or a non-self-employed worker.
21. Suppose the civilian non-institutional population equals 100,000; the civilian labor force equals 75,000; there are 70,000 employed persons and 5,000 unemployed persons. If 5,000 persons who are currently "not in the labor force" decide to join the civilian labor force, and 3,000 are unemployed, then
a. both the unemployment and the employment rate rise.
b. both the unemployment and the employment rate fall.
c. the unemployment rate rises and the employment rate falls.
d. the unemployment rate falls and the employment rate rises.
Exhibit 5-2
Civilian Civilian Employed
Noninstitutional Labor Force Persons
Year Population (millions) (millions) (millions)
1 250 200 175
2 400 300 200
3 500 400 350
4 1000 800 720
22. Refer to Exhibit 5-2. How many unemployed persons are there in year 1?
a. 25 million
b. 50 million
c. 75 million
d. 175 million
e. 200 million
23. The cyclical unemployment rate is defined as the unemployment rates.
a. sum of the structural and the frictional
b. difference between the structural and the frictional
c. difference between the existing (actual) and the natural
d. sum of the natural and the frictional
24. If the CPI is 123 in year 1 and 135 in year 2, what is the approximate percentage change in prices between the two years?
a. 8.9 percent
b. 9.8 percent
c. 15.7 percent
d. 11.4 percent
e. 23.9 percent
25. In the definition of GDP, the words "total market value" refer to total
a. dollar value at base prices.
b. dollar value at current prices.
c. subjective value.
d. objective value.
e. a and d
26. The best reason economists take only final goods and services into account when calculating GDP is that
a. this is the way things have always been done.
b. they want to avoid the problem of final counting.
c. they want to avoid the problem of double counting.
d. this is the only way things can be done.
27. Which of the following would not be included in the measurement of GDP?
a. a bill from a car mechanic
b. wages of a card dealer working in a Las Vegas casino
c. commissions of a stockbroker
d. the increased value of shares of stock
e. c and d
28. Macroeconomists define "consumption" as
a. purchases by the business sector.
b. wearing away and breakdown of capital goods.
c. the difference between imports and exports.
d. purchases by the household sector.
29. Government purchases consist of the total dollar amount(s) spent by the
a. federal government only.
b. state governments only.
c. local governments only.
d. state and local governments.
e. federal, state, and local governments.
30. John just bought shares of stock in IBM for $10,000 and paid a $90 commission to his broker. How did this affect GDP?
a. It had no impact on GDP.
b. GDP increased by $90.
c. GDP increased by $10,000.
d. GDP increased by $9,990.
e. GDP increased by $10,090.
31. If Real GDP was $6,742 billion in year 2 and it had been $6,509 billion in year 1, what was the approximate economic growth rate during this time period?
a. 1.99 percent
b. 3.6 percent
c. 3.58 percent
d. 1.34 percent
e. none of the above
32. If some of a person's wealth is in money form, it follows that
a. this person's wealth will change as the price level changes.
b. this person's wealth will not change as the price level changes.
c. this person is wealthier than a person who holds all his wealth in nonmonetary form.
d. a and c
e. b and c
33. As the price level falls,
a. the purchasing power of cash holdings rises.
b. the purchasing power of cash holdings falls.
c. the purchasing power of cash holdings remains constant.
d. cash holdings turn into dollar-denominated assets.
e. none of the above
34. Suppose consumption decreases at each price level. As a result, aggregate demand ____, and the AD curve shifts ____.
a. increases; leftward
b. decreases; leftward
c. increases; rightward
d. decreases; rightward
35. The real balance effect is one of the
a. reasons why an AD curve is downward-sloping.
b. shifters of an AD curve.
c. reasons why a short-run aggregate supply curve can be derived.
d. shifters of a short-run aggregate supply curve.
36. Suppose a drop in stock prices makes people feel less wealthy. This would cause the economy's AD curve.
a. movement down along
b. movement up along
c. a rightward shift of
d. a leftward shift of
37. A rise in foreign real national income tends to raise U.S. ____, shifting the U.S. AD curve to the ____.
a. exports; left
b. exports; right
c. imports; left
d. imports; right
38. A short-run aggregate supply curve shows the
a. amount of a particular good producers are willing and able to buy at a particular price,ceteris paribus.
b. real output (Real GDP) producers are willing and able to sell at different price levels,ceteris paribus.
c. real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
d. real output (Real GDP) people are willing and able to buy at different price levels,ceteris paribus.
39. Which of the following statements is false?
a. An increase in wage rates causes producers to move up the SRAS curve.
b. An increase in the price level causes producers to move up the SRAS curve.
c. The SRAS curve is upward sloping.
d. The long-run aggregate supply curve is vertical.
40. If consumption increases,
a. the SRAS curve will shift rightward, which will push the price level up.
b. the SRAS curve will shift leftward, which will push the price level up.
c. the AD curve will shift leftward, which will push the price level down.
d. the AD curve will shift rightward, which will push the price level up.
41. The purchases made by the foreign sector are called ____; the purchases made by the household sector are called ____; the purchases made by the government sector are called ____; and the purchases made by the business sector are called investment.
a. net exports; consumption; net interest
b. net exports; domestic spending; government purchases
c. net exports; consumption; government purchases
d. exports; domestic spending; government product
e. imports; consumption; government expenditures
42. Business taxes fall. This raises ____, which raises and the curve shifts rightward.
a. consumption; aggregate demand (AD); AD
b. investment; government purchases; AD
c. investment; aggregate demand (AD); AD
d. net exports; aggregate demand (AD); AD
e. none of the above
43. Wage rates fall. This increases and the curve shifts rightward.
a. aggregate demand (AD); AD
b. short-run aggregate supply (SRAS); AD
c. short-run aggregate supply (SRAS); SRAS
d. employment; AD
e. none of the above
44. Which set of changes is definitely predicted to raise Real GDP in the short run?
a. Wealth increases and there is an adverse supply shock.
b. Individuals expect higher (future) incomes and wage rates fall.
c. Business taxes rise and wage rates fall.
d. The U.S. dollar appreciates and there is a beneficial supply shock.
e. none of the above
45. The wage rate rises. As a result, in the short run Real GDP will and the price level will ____.
a. rise; rise
b. fall; fall
c. remain constant; fall
d. fall; rise
e. rise; fall