Midterm MAC tut1-tut5

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1. b. Ted with Alice 1. Consider the following traders who

(Double coincidence of wants is the unlikely occurrence that 2 people each have a meet.
good or service that the other wants)
Bob has an apple, wants an orange
Ted has an orange, wants a peach
Mary has a pear, wants an apple
Alice has a peach, wants an orange

Which, if any, pairs of traders has a

double coincidence of wants?

a. Bob with Alice

b. Ted with Alice

c. Bob with Mary, Ted with Bob, and Ted

with Alice

d. None of the pairs above has a double

coincidence of wants.
2. b. the most liquid asset but an imperfect store of value. 2. Money is

Liquidity is the ease with which an asset can be converted into the economy's medium a. the most liquid asset and a perfect
of exchange. store of value.

The reason why money is the most liquid asset but far from perfect as a store of value b. the most liquid asset but an imperfect
is because when the prices rise, the value of money falls. In other words, when goods store of value.
and services become more expensive, each dollar in your wallet can buy less.
c. the least liquid asset but a perfect
store of value.

d. the least liquid asset and an imperfect

store of value.
3. c. You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 3. Which of the following best illustrates
the concept of a store of value?
(A store of value is an item that people can use to transfer purchasing power from the
present to the future) a. You are a precious-metals dealer, and
you are always aware of how many
ounces of platinum trade for an ounce of
gold.

b. You sell items on eBay, and your

prices are stated in terms of dollars.

c. You keep 6 ounces of gold in your

safe-deposit box at the bank for
emergencies.

d. None of the above is correct

4. c. M1 and M2. 4. Travelers checks are included in

M1 a. M1 but not M2.

Currency
Traveler's checks b. M2 but not M1.
Demand deposits
Other checkable deposits c. M1 and M2.

M2 d. neither M1 nor M2.

Everything in M1
Savings deposits
Small time deposits
Money market mutual funds
A few minor categories
5. b. M2 but not M1. 5. Savings deposits are included in

a. M1 but not M2.

b. M2 but not M1.

c. M1 and M2.

d. neither M1 nor M2.

6. b. those assets are government bonds and the Fed's reason for selling them is to decrease 7. When the Federal Reserve sells
the money supply. assets from its portfolio to the
public with the intent of changing
FOMC decides to increase the money supply, the Fed buy government bonds from the the money supply,
public in the nation's bond markets. After the purchase, these dollars are in the hands of the
public. Thus, an open market purchase of bonds by the Fed increases the money supply. a. those assets are government
bonds and the Fed's reason for
FOMC decides to decrease the money supply, the Fed sells government bonds from its selling them is to increase the
portfolio to the public in the nation's bond markets. After the sale, the dollars it receives for money supply.
the bonds are out of the hands of the public. Thus, an openmarket sale of bonds by the Fed
decreases the money supply. b. those assets are government
bonds and the Fed's reason for
selling them is to decrease the
money supply.

c. those assets are items that are

included in M2 and the Fed's
reason for selling them is to
increase the money supply.

d. those assets are items that are

included in M2 and the Fed's
reason for selling them is to
decrease the money supply.
7. c. $2,000.00. Table 29-2. An economy starts with $10,000 in currency. All of this currency is deposited
into a single bank, and the bank then makes loans totaling $9,250. The T-account of the
Reserve ratio = reserves/deposits = bank is shown below.
750/10000= 3/40
Assets:
Money multiplier = 1/ reserve ratio= 40/3 Reserves $750
Loans: $9,250
The increase deposits = increase in Liabilities
reserve of $150 x money multiplier = 150 Deposits: $10,000
x 40/3 = 2000
9. Refer to Table 29-2. If all banks in the economy have the same reserve ratio as this
bank, then an increase in reserves of $150 for this bank has the potential to increase
deposits for all banks by

a. $866.67.
b. $1,666.67.
c. $2,000.00.
d. an infinite amount.
8. c. assets will increase by $1,000. Table 29-3.

The bank takes no actions which means The First Bank of Johnson City
the bank does not lend out any money
>> Assets:
- liabilities increase $1000 Reserves: 2,000
- assets increase by $1000 Loans: 8,000
Liabilities
Deposits $10,000

10. Refer to Table 29-3. If $1,000 is deposited into the First Bank of Johnson City, and the
bank takes no other actions, its

a. reserves will increase by $200.

b. liabilities will decrease by $1,000.
c. assets will increase by $1,000.
d. reserves will increase by $800.
9. b. have $55,000 in excess Table 29-4. The First Bank of Wahooton
reserves.
Assets:
Reserve requirement = Reserves $25,000
10% = $20,000 Loans 125,000
Customer deposits an Liabilities:
additional $50,000: Deposits $150,000
Deposits = 150,000 +
50,000= 200,000
Actual reserve = 25,000 + 11. Refer to Table 29-4. Suppose the bank faces a reserve requirement of 10 percent. Starting from the
50,000 = 75,000 situation as depicted by the T-account, a customer deposits an additional $50,000 into his account at
We have : the bank. If the bank takes no other action it will
Acutual reserve =
Reserve requirement + a. have $65,000 in excess reserves.
Excess reserve
Excess reserve = 75,000 - b. have $55,000 in excess reserves.
20,000 = 55,000.
c. need to raise an additional $5,000 of reserves to meet the reserve requirement

d. None of the above is correct.

10. b. 8.00 percent Table 29-6. Bank of Springfield

Reserve requirement = Assets:

(19,200/240,000) * 100 = Reserves $19,200
8% Loans 228,000
Liabilities
Deposits $240,000

12. Refer to Table 29-6. If the Bank of Springfield has lent out all the money it can given its level of
deposits, then what is the reserve requirement?

a. 5.00 percent
b. 8.00 percent
c. 8.42 percent
d. 95.00 percent
11. c. 37.5 percent. 13. If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Money supply = money a. 2.7 percent.

multiplier * reserves b. 12.5 percent.
Money multiplier = c. 37.5 percent.
$800/$300 = 8/3 d. 40 percent.
Reserve ratio = 1/ money
multiplier = 1/(8/3)= 3/8 =
0,375= 37,5%
12. b. the money supply increases and the federal 14. When the Fed buys government bonds,
funds rate decreases.
a. the money supply increases and the federal funds rate increases.
When the Fed buys government bonds, the
money supply will increase because Public as b. the money supply increases and the federal funds rate decreases.
seller will get a large amount of money from
selling bonds. c. the money supply decreases and the federal funds rate increases.
Federal funds rate is the interest rate at which
banks make overnight loans to one another. d. the money supply decreases and the federal funds rate decreases.

When Fed buys bonds in open market

operations, it injects reserves into the banking
system. With more reserves in the system,
fewer banks find themselves in need of
borrowing reserves to meet reserve
requirement. > the federal funds rate
decreases.
13. d. the deposits of its customers, but not its 15. A bank's liabilities include
reserves.
(Reserves are included in bank's Asset ) a. both its reserves and the deposits of its customers.

b. neither its reserves nor the deposits of its customers.

c. its reserves, but not the deposits of its customers.

d. the deposits of its customers, but not its reserves.

14. b, 12.5% 16. In Hugoland, the money supply is $8 million and reserves are $1 million.
Assuming that people hold only deposits and no currency, and that banks hold no
Reserve Ratio = ⅛ excess reserves, then the reserve requirement is

a. 14 percent.
b. 12.5 percent.
c. 8 percent.
d. None of the above is correct.
15. Chọn C Scenario 29-1. The monetary policy of Salidiva is determined by the Salidivian
Reserve Ratio = 125/1000= ⅛ Central Bank. The local currency is the salido. Salidivian banks collectively hold
Loaned 5m => money supply changes by 5m x 100 million salidos of required reserves, 25 million salidos of excess reserves, 250
⅛ = 40m million salidos of Salidivian Treasury Bonds, and their customers hold 1,000
million salidos of deposits. Salidivians prefer to use only demand deposits and so
the money supply consists of demand deposits.

17. Refer to Scenario 29-1. Suppose the Central Bank of Salidiva loaned the banks
of Salidiva 5 million salidos. Suppose also that both the reserve requirement and
the percentage of deposits held as excess reserves stay the same. By how much
would the money supply of Salidiva change?

a. 60 million salidos
b. 50 million salidos
c. 40 million salidos
d. None of the above is correct
16. Chọn C 18. The banking system currently has $200 billion of reserves, none of which are excess.
Money Supply old= 200 x 1/0,4 = 5000 People hold only deposits and no currency, and the reserve requirement is 4 percent. If
Money Supply new = 250 x 1/0,1 = 2500 the Fed raises the reserve requirement to 10 percent and at the same time buys $50
billion of bonds, then by how much does the money supply change?

a. It rises by $600 billion.

b. It rises by $125 billion.
c. It falls by $2,500 billion.
d. None of the above is correct
17. B 19. During a bank run, depositors decide to hold more currency relative to deposits and
Depositers hold more currency => less banks decide to hold more excess reserves relative to deposits.
demand deposits => less money supply
Banks hold more excess reserves => less a. Both the decision to hold relatively more currency and the decision to hold relatively
money in the circulation => less money more excess reserves would make the money supply increase.
multiplier => less money suppy
b. Both the decision to hold relatively more currency and the decision to hold relatively
more excess reserves would make the money supply decrease.

c. The decision to hold relatively more currency would make the money supply
increase. The decision to hold relatively more excess reserves would make the money
supply decrease.

d. The decision to hold relatively more currency would make the money supply
increase. The decision to hold relatively more excess reserves would make the money
supply decrease.
18. Chọn A 20. When the Fed conducts open-market purchases,
Buy Treasury securitites=> inject money in
the market => more deposits=> more a. it buys Treasury securities, which increases the money supply.
money supply
b. it buys Treasury securities, which decreases the money supply.

c. it borrows money from member banks, which increases the money supply.

d. it lends money to member banks, which decreases the money supply.

19. Savers to borrowers 1. At the broadest level, the financial system moves the economy's scarce resources
from
Explanation: Because in the financial
system, savers are people who spend less a. the rich to the poor.
than they earned and borrower are b. financial institutions to business firms and government.
people will spend more than they earned c. households to financial institutions.
d. savers to borrowers.
20. Never matures 2. A perpetuity is distinguished from other bonds in that it

Explanation: because perpetuity is the a. pays continuously compounded interest.

synonym of forever therefore it's never
mature. b. pays interest only when it matures.
Or Because this bond was issued by the
government therefore it's only pay c. never matures.
interest but the principal is never paid
d. will be used to purchase another bond when it matures unless the owner specifies
otherwise
21. The supply, demand for the stock 3. The prices of stock traded on exchanges are
determined by
Explanation: because, stock is like Goods and services
a. the Corporate Stock Administration.
b. the administrators of NASDAQ.
c. the supply of, and demand for, the stock.
d. All of the above are correct.
22. people are optimistic about the company's future. 4. A high demand for a company's stock is an
indication that
Explanation: because when you want to invest into some company you must
have optimistic about the company therefore people buy more stock of that a. the company is in need of funds.
company b. the company has recently sold a large
quantity of bonds.
c. people are optimistic about the company's
future.
d. people are pessimistic about the company's
future.
23. A, because deposit is not a common medium of exchange 6. Which of the following statements is correct?
B, correct
C, Banks charge borrowers for a slightly higher interest-rate then they pay to a. Stocks, bonds, and deposits are all similar in
depositors that each provides a common medium of
exchange.
b. Most buyers of stocks and bonds prefer
those issued by large and familiar companies.
c. Banks charge borrowers a slightly lower
interest rate than they pay to depositors.
d. None of the above is correct.
24. both banks and mutual funds 7. Which of the following are financial
intermediaries?
Explanation: Because financial intermediary is financial institution through which
saver can indirectly provide funds to borrowers a. both banks and mutual funds
b. banks but not mutual funds
c. mutual funds but not banks
d. neither banks or mutual funds
25. Index funds 8. Index funds
typically have a higher rate of return and
lower costs than managed mutual funds. a. typically have a higher rate of return and higher costs than managed mutual
funds.
Explanation: Because index funds buy all the
stocks in a given stock index, perform b. typically have a higher rate of return and lower costs than managed mutual funds.
somewhat better on average then mutual
funds that take advantage of active c. typically have a lower rate of return and higher costs than managed mutual funds.
management by professional money
manager d. typically have a lower rate of return and lower costs than managed mutual funds.
26. Index funds 9. Index funds
buy all the stocks in a given stock index.
a. buy all the stocks in a given stock index.
Explanation: Same as 8
b. promise to beat the market by a certain percentage known as an index.

c. provide a return that is adjusted for changes in the consumer price index.

d. buy industries within a particular category of the North American Industry

Classification System.
27. Y = C + I + G + NX 10. Which of the following equations will always represent GDP in an open
economy?
Explanation: Y represent GDP, C represent
consumption, I represent investment, G a. S = I - G
represent Government purchase, NX
represent net exports ( exports-imports) b. I = Y - C + G

If the question was close economy there will c. Y = C + I + G

be no NX
d. Y = C + I + G + NX
28. equal to investment 11. In a closed economy, national saving is

Explanation: Because, Y=C+I+G <=> I=Y-C-G a. usually greater than investment.

mà Y-C-G= S => S=I
S represent National Saving (Saving) b. equal to investment.
National saving is the total income in the
economy that remains after paying for c. usually less than investment because of the leakage of taxes.
consumption and government purchase
d. always less than investment.
29. -$2 billion and $3 billion 12. The country of Hykenia does not trade with any other country. Its GDP is $20
billion. Its government collects $4 billion in taxes and pays out $3 billion to
Explanation: because, (close economy) y= c+ households in the form of transfer payments. Consumption equals $15 billion and
i+ g ⬄ 20= 15+2+g => g= 3 investment equals $2 billion. What is public saving in Hykenia, and what is the value
Because transfer payments does not include of the goods and services purchased by the government of Hykenia?
in G, and Public saving is the tax revenue
that the government has left after paying a. -$2 billion and $3 billion
for its spending => PS = taxes-(G+ transfer
payments) b. $1 billion and $3 billion
⬄PS= 4-(3+3)= -2
c. -$1 billion and $4 billion

d. There is not enough information to answer the question.

30. amount of tax revenue that the government has left after paying for its spending. 13. In a closed economy, public saving is the

Explanation: This is the definition a. amount of income that households have

left after paying for taxes and consumption.

b. amount of income that businesses have

left after paying for the factors of
production.

c. amount of tax revenue that the

government has left after paying for its
spending.

d. sum of A, B, and C.
31. A budget surplus is created if 14. A budget surplus is created if
T-G>0 ( T represent The amount that government collects from households in tax
minus the amount it pays back to households in the form of transfer payments) a. the government sells more bonds than it
T-G<0 => budget deficit buys back.

b. the government spends more than it

receives in tax revenue.

c. private saving is greater than zero.

d. None of the above is correct.

32. negative relation between the real interest rate and investment. 15. The slope of the demand for loanable
funds curve represents the
Explanation: because when interest rate fall, its will Stimulate investment
a. positive relation between the real interest
rate and investment.

b. negative relation between the real interest

rate and investment.

c. positive relation between the real interest

rate and saving.

d. negative relation between the real interest

rate and saving.
33. shortage at the former equilibrium interest rate. This shortage would 16. In the loanable funds model, an increase in an investment
lead to a rise in the interest rate. tax credit would create a

Explanation: because an investment tax credit increase the demand a. shortage at the former equilibrium interest rate. This
for loanable fund, therefore, It will create a shortage at the former shortage would lead to a rise in the interest rate.
equilibrium interests rate
b. shortage at the former equilibrium interest rate. This
shortage would lead to a fall in the interest rate.

c. surplus at the former equilibrium interest rate. This surplus

would lead to a rise in the interest rate.

d. surplus at the former equilibrium interest rate. This

surplus would lead to a fall in the interest rate.
34. makes investment spending fall 17. An increase in the budget deficit

Explanation: Because budget deficit lower national saving=> supply a. makes investment spending fall.
of loanable funds decreases
And it also crowd out households and firms who otherwise would b. makes investment spending rise.
borrow to finance investment ( crowds out = ép người ta làm gì đó
☺) c. does not affect investment spending.

d. may increase, decrease, or not affect investment

spending.
35. Bolivia had a smaller budget deficit in 2003 than in 2002. Other 18. Bolivia had a smaller budget deficit in 2003 than in
things the same, we would expect this reduction in the budget 2002. Other things the same, we would expect this
deficit to have reduction in the budget deficit to have
decreased interest rates and increased investment.
a. increased both interest rates and investment.
Explanation: trường hợp ngược lại của câu 17
b. increased interest rates and decreased investment.

c. decreased interest rates and increased investment.

d. decreased both interest rates and investment.

36. saving and the interest rate 19. If the government instituted an investment tax credit, then
which of the following would be higher in equilibrium?
Explanation: Investment tax credit which mean that lower the tax
on new capital, therefore, encouraged to invest more, => interest a. saving and the interest rate
rates rise => more saving
b. saving but not the interest rate

c. the interest rate but not saving

d. neither saving nor the interest rate

37. Ans: B (16 ys) - fact 1. The Bureau of Labor Statistics counts a member of a
surveyed household as an adult if that person is at least

a. 14 years old.
b. 16 years old.
c. 18 years old.
d. 21 years old.
38. A. 2. Who of the following would be included in the Bureau of Labor Statistics'
According to theory, "unemployed" if not "unemployed" category?
working (1); looking for a work during past
4 weeks (2), or waiting to be called back a. Tuuli, who is waiting for her new job to start
to laid off, or start a new job (3); available b. Jyri, who worked only 15 hours last week
for work (4) c. Panu, who neither has a job nor is looking for one
Tuuli is waiting for new job (3)-> TRUE; jyri d. None of the above is correct.
is "employed"; Panu dont have job but NOT
LOOKING for one.
39. C. Theory: 3. The sum of which of the following must be equal to the adult population?
Adult population = employed +
unemployed + not in the labor force. a. employed, unemployed
(Not in the labor force means or ppl who b. employed, unemployed, labor force
are not available to work or not looking c. employed, unemployed, not in the labor force
for a job...) d. employed, unemployed, labor force, not in the labor force
40. >>> D, 60% and 4.8% 7. In 2004, based on concepts similar to those used to estimate U.S. employment
LFPR = (LF/ adult population)100 = figures, the Japanese adult non-institutionalized population was 109.684 million, the
(65760/109684)100 = 60% labor force was 65.760 million, and the number of people employed was 62.630
Unemployment rate = 100(LF - million. According to these numbers, the Japanese labor-force participation rate and
employment )/LF = 100(65760 - unemployment rate were about
62630)/65760 = 4,8%
a. 57.1% and 2.9%.
b. 57.1% and 4.8%.
c. 60% and 2.9%.
d. 60% and 4.8%.
41. >>> B,2.76m 8. Suppose some country had an adult population of about 46 million, a labor-force
LFPR = (LF/adult population)100 >>> LF = participation rate of 75 percent, and an unemployment rate of 8 percent. How many
(75% 46m)/100 = 3450m people were unemployed?
Unemployment rate = 100*( LF -
employment )/ LF >>> a. 2.54 million
>>Employment = 3450m - (8% * LF)/100 = b. 2.76 million
3447.24m c. 3.68 million
LF = unemployment + employment >>> d. 8 million
unemployment = 3450m - 3447,24m =
2,76m
42. 9. >>> C, 90m= 5m + 85m Table 28-3: 2003 Labor Data for
Adults (age 16 and older) in Meditor
10. >>> d. 105m = 35m+5m+65m
Males not in labor force 45 million
Females not in labor force 35 million
Males unemployed 5 million
Females unemployed 5 million
Males employed 85 million
Females employed 65 million

9. Refer to Table 28-3. What is the

adult male labor force in Meditor?

a. 50 million
b. 85 million
c. 90 million
d. 130 million

10. Refer to Table 28-3. What is the

adult female population in Meditor?

a. 40 million
b. 70 million
c. 100 million
d. 105 million
43. *Ans: C 13. Which of the following is not
the rate equal zero, it means that everyone feel satisfied with the 1st job they do and correct?
they dont wanna find a new job that is more suitable, better than the old one. And 100%
entrants can find a job immediately. However, actually it's impossible, it's not true, a. Most people who become
everything always changes to get the best. unemployed will soon find jobs.

b. In an ideal labor market, wages

would adjust to ensure that all
workers are always fully employed.

c. The unemployment rate

occasionally falls to zero.

d. There are always some workers

without jobs, even when the overall
economy is doing well.
44. >>> D, Frictional unemployment >>> occurs when workers spend time searching for the 14. Unemployment that results
jobs that best suit for them, short-term for most workers. because it takes time for workers to
(Structural unemployment occurs when there are fewer jobs than workers in some labor search for the jobs that best suit their
market, ussually long-term). tastes and skills is called

a. the natural rate of unemployment.

b. cyclical unemployment.

c. structural unemployment.

d. frictional unemployment.
45. >>> B, , frictional unemployment created by sectoral shifts 15. Consumers decide to buy more computers and
>>> Sectoral shifts always take workers time to adapt to the new job, and fewer typewriters. As a result, computer companies
the time that people need to learn new skills and get familiar to the new expand production while typewriter companies lay-off
job would be considered as they are in a temporarily unemployed workers. This is an example of
situation or frictional unemployed
a. frictional unemployment created by efficiency
wages.

b. frictional unemployment created by sectoral shifts.

c. structural unemployment created by efficiency

wages.

d. structural unemployment created by sectoral shifts.

46. >>> c, unemployment insurance 16. Which of the following does not help reduce
>>> increase frictional ubemployed because people respond to frictional unemployment?
incentives.
Have no motivation to find new jobs when they still have unemployment a. government-run employment agencies
compensation from insurance
b. public training programs

c. unemployment insurance

d. All of the above help reduce frictional

unemployment.
47. *Ans: A 17. Minimum-wage laws can keep wages
labor demand equal labor supply => equilibrium (no unemployment )
if minimum wage is above wage at equilibrium point, firms must cut down a. above equilibrium and cause a surplus of labor.
employees to ensure profits. That cause unemployment and surplus of
labor. b. above equilibrium and cause a shortage of labor.

c. below equilibrium and cause a surplus of labor.

d. below equilibrium and cause a shortage of labor.

48. *Ans: B (the reason is just 3 options left are totally true like a definition, 18. Which of the following is not correct?
in outline mentioned it ). No one ensures abt accuracy of ans B.
a. A union is a worker association that bargains with
employers over wages, benefits, and working
conditions.

b. Unions play a much larger role in the U.S. labor

market now than they did in the past.

c. Unions play a large role in many European

countries.

d. A union is a type of cartel.

49. >>> D, , lower the wages of nonunionized workers 19. Unions
>>> unions will struggle to raise wages and when they raise wages the company will
lay off workers. Then those who are not in the union will be fired a. do not affect the natural rate of
unemployment.

b. lower the wages of unionized workers.

c. raise the profits of unionized firms.

d. lower the wages of nonunionized

workers.
50. >>> d, Efficiency wages decrease a country's natural rate of unemployment and 20. Which of the following is not a
therefore increase its standard of living. reason that paying efficiency wages may
increase a firm's profit?
>>>> when the firms pay efficiency wages that are above the equilibrium level, they
also create an excess in the labor supply: more people want to work for the wage a. Efficiency wages increase worker
than there are positions. Efficiency wages, like the minimum wage and labor unions, health and therefore increase worker
therefore increase the wages for workers who are employed but also increase productivity.
overall unemployment.
b. Efficiency wages decrease worker
turnover and therefore decrease hiring
and training costs.

c. Efficiency wages decrease worker

shirking and therefore increase worker
productivity.

d. Efficiency wages decrease a country's

natural rate of unemployment and
therefore increase its standard of living.
51. Answer : 10 years 2. In some East Asian countries, average
Explain : according to rule of 70 : if a country develope at x %, after 70/x (years), income, as measured by real GDP per
economy would develop double. X=7% -> after 10 years person, has recently grown at an average
annual rate that implies output will
double about every

a. 10 years.

b. 15 years.

c. 20 years.

d. 25 years
52. Answer: The population increased from 45 million 4. Last year Panglossia had real GDP of 27.0 billion. This year it had real GDP
to 50 million of 31.5 billion. Which of the following changes in population is consistent with a
5 percent growth rate of real GDP per person over the last year?
Explain: real GDP per capita = total real
GDP/population. a. The population decreased from 88 million to 84 million.
GDP last year = 27/x (1)
GDP this year = 31.5/y (2) b. The population decreased from 75 million to 73 million.
% changes = (2)-(1)/(1) = 5%
-> x=45, y=50 c. The population increased from 45 million to 50 million.

d. The population increased from 60 million to 62 million.

53. Answer: the quantity of goods and services 5. Productivity is defined as
produced from each unit of labor input.
a. the amount of difficulty that is involved in producing a given quantity of
goods and services.

b. the quantity of labor that is required to produce one unit of goods and
services.

c. the quantity of goods and services produced from each unit of labor input.

d. the quantity of goods and services produced over a given amount of time.
54. Answer: 2 chairs per hour 6. Cedar Valley Furniture uses 5 workers, each working 8 hours, to produce 80
Explain: Productivity = Total output / (Number of rocking chairs. What is the productivity of these workers?
working hours per worker x Number of workers)
= 80/(5x8) = 2 chairs per hour a. 2 chairs per hour

b. 10 chairs per hour

c. 1 hour per chair

d. 80 chairs
55. Answer: its price rises relative to other prices. 7. In a market economy, we know that a resource has become scarcer when
Explain: when the resource has become scarcer,
the amount of goods and services decrease, the a. its price rises relative to other prices.
supply => price in order to demand
b. it is non-renewable and some of it is used.

c. people search for substitutes.

d. All of the above are correct.

56. Answer: Abundant domestic natural resources may help make a country rich, 8. Which of the following best states economists'
but even countries with few natural resources can have high standards of understanding of the facts concerning the
living. relationship between natural resources and
economic growth?
For example: Some countries in the Middle East, such as Kuwait and Saudi
Arabia, are rich simply because they happen to be on top of some of the a. A country with no or few domestic natural
largest pools of oil in the world. Japan is one of the richest countries in the resources is destined to be poor.
world, despite having few natural resources.
b. Differences in natural resources have virtually
no role in explaining differences in standards of
living.

c. Some countries can be rich mostly because of

their natural resources and countries without
natural resources need not be poor, but can never
have very high standards of living.

d. Abundant domestic natural resources may help

make a country rich, but even countries with few
natural resources can have high standards of
living.
57. Answer: It follows that real GDP per person grew faster in Oceania than in 9. Suppose that over the last ten years productivity
Freedonia. grew faster in Oceania than in Freedonia and the
population of both countries was unchanged.

a. It follows that real GDP per person must be

higher in Oceania than in Freedonia.

b. It follows that real GDP per person grew faster

in Oceania than in Freedonia.

c. It follows that the standard of living must be

higher in Oceania than in Freedonia.

d. All of the above are correct.

58. Answer: Its productivity 10. Which of the following would, by itself, reveal
the most about a country's standard of living?
Explain:Productivity is a measure of the amount of goods and services that
the average worker produces in an hour of work. The higher the amount of a. its level of capital
goods and services are, the higher country's standard of living is.
b. the number of hours worked

c. its availability of natural resources

d. its productivity
59. Answer: Productivity rises and output falls 11. Suppose a country imposes new restrictions
on how many hours people can work. If these
Explain: Because Productivity = Total output / (Number of working hours per restrictions reduce the total number of hours
worker x Number of workers), when the number of working hour , the worked in the economy, but all other factors
productivity , output that determine output are held fixed, then

a. productivity and output both rise.

b. productivity rises and output falls.

c. productivity falls and output rises.

d. productivity and output fall.

60. Answer: Neither productivity growth nor income growth increase 12. If a country's saving rate increases, then in the
long run
Because of diminishing returns (the property whereby the benefit from an
extra unit of an input declines as the quantity of the input increases), an a. both productivity growth and income growth
increase in saving rate leads to higher growth only for a while. As the higher increase.
saving allows more capital to be accumulated, the benefits from additional
capital become smaller over time, and growth slow down. b. only productivity growth increases.

c. only income growth increases.

d. neither productivity growth nor income

growth increase.
61. Answer: The increase in output growth from an increase in the saving rate falls 13. The traditional view that the production
over time, and that, other things the same, poor countries should grow faster process has diminishing returns implies that
than rich ones.
a. the increase in output growth from an increase
Explain: in the saving rate rises over time, and that, other
Because of diminishing returns, an increase in the saving rate leads to higher things the same, rich countries should grow
growth only for a while. As the higher saving rate allows more capital to be faster than poor ones.
accumulated, the benefits from additional capital become smaller over time,
and so growth slows down. b. the increase in output growth from an increase
in the saving rate falls over time, and that, other
The catch-up effect: it is easier for a country to grow fast if it starts out things the same, rich countries should grow
relatively poor. In poor countries, workers lack even the most rudimentary faster than poor ones.
tools and, as a result, have low productivity. Small amounts of capital
investment would substantially raise these workers' productivity c. the increase in output growth from an increase
in the saving rate rises over time, and that, other
things the same, poor countries should grow
faster than rich ones.

d. the increase in output growth from an increase

in the saving rate falls over time, and that, other
things the same, poor countries should grow
faster than rich ones.
62. Answer: Increase Honduran GDP more than it would increase Honduran 14. Suppose U.S.-based Intel Corporation builds and
GNP. operates a new computer chip factory in Honduras.
Future production from such an investment would
Explain:
- GDP (Gross Domestic Product ) is a measure of (national income = a. increase Honduran GDP more than it would
national output = national expenditure) produced in a particular country. It increase Honduran GNP.
includes income of foreign multinationals
- GNP (Gross National Product ) = GDP + net property income from b. increase Honduran GNP more than it would
abroad. This net income from abroad includes dividends, interest and increase Honduran GDP.
profit. It excludes income eanrt by foreign multinationals.
c. not affect Honduran GNP, but would increase
Honduran GDP.

d. have no affect on either Honduran GDP or GNP.

63. Answer: d. All of the above are correct 15. Which of the following statements is correct?

a. In an economy-wide sense, property rights are an

important prerequisite for the price system to work.

b. Property rights give people the ability to exercise

authority over the resources they own.

c. Based on the available evidence, the existence of

well-established and well-enforced property rights
appears to be associated with an enhanced standard
of living.

d. All of the above are correct.

64. Inward-oriented policies : in some ways are like prohibiting the use of 16. Inward-oriented policies
certain technologies.
a. are generally supported by economists.
Most economists believe that poor countries are better off pursuing
outward-oriented policies b. are primarily concerned with the development of
Inward-oriented policies: attempt to increase productivity and living human capital.
standards within the country by avoiding interaction with the rest of the
world >>> protect from foreign competition >>> impose tariff and trade c. in some ways are like prohibiting the use of certain
restriction technologies.
Trade: a type of tech because a country exports wheat and import
textiles, the country benefits as if it had invented a technology for d. All of the above are correct.
turning wheat into textiles
65. D. Outward-oriented policies : allow countries to take advantage of gains 17. Outward-oriented policies
from trade, have generally led to high growth for the countries that
pursued them, receive widespread support from economists. a. allow countries to take advantage of gains from
trade.

b. have generally led to high growth for the countries

that pursued them.

c. receive widespread support from economists.

d. All of the above are correct.

66. A 19. Senator Noitall says that in order to help poor countries
develop, the United States should:

1. Prevent U.S. corporations from investing in poor countries

because they take profits that the poor countries should
have;

2. Not import goods from poor countries that use child

labor;

3. Work to promote political stability in poor countries; and

4. Reduce poor countries' reliance on market forces in their

economies.

How many of these ideas are likely to help poor countries

grow?

a. 1
b. 2
c. 3
d. 4
67. Answer: the poor country has poorly developed property rights. 20. Some poor countries appear to be falling behind rather
Explain: Because property right refer to the ability of people to than catching up with rich countries. Which of the following
exercise authority over the resources they own. If they have poorly could explain the failure of a poor county to catch up?
developed property right, it will not be able to stop direct theft.
a. The poor country has outward-oriented trade policies.

b. The poor country allows foreign direct investment.

c. The poor country has poorly developed property rights.

d. All of the above are correct.

68. b. Why do wages differ across industries? 1. Which of the following questions is more likely to be
studied by a microeconomist than a macroeconomist?
1) Micro economists are concerned with economics on an industry
or individual firm basis. Macro economists are concerned with a. Why do prices in general rise by more in some countries
national and international level than in others?

b. Why do wages differ across industries?

c. Why do production and income increase in some periods

and not in others?

d. How rapidly is GDP currently increasing?

69. c. income must equal expenditure. 2. For an economy as a whole,

2) For an economy as a whole, income must equal expenditure because: a. wages must equal profit.
Every transaction has a buyer and a seller.
Every dollar of spending by some buyer is a dollar of income for some b. consumption must equal saving.
sellerc. income must equal expenditure.
c. income must equal expenditure.

d. the number of buyers must equal the number of

sellers.
70. d. All of the above are correct. 3. In a simple circular-flow diagram, firms use the
money they get from a sale to
3)all the answers are the basis of circular-flow diagram
a. pay wages to workers.

b. pay rent to landlords.

c. pay profit to the firms' owners.

d. All of the above are correct.

71. D. 4. Suppose an apartment complex converts to a
4) An apartment complex converts to a condominium so that the condominium, so that the former renters are now
former renters are now owners of their housing units. owners of their housing units. Suppose further that a
A current estimate of the value of the condominium owners' housing current estimate of the value of the condominium
services is the same as the rent they previously paid. owners' housing services is the same as the rent they
This will cause no change in GDP. This is because earlier rent was being previously paid. What happens to GDP as a result of
paid which was included in GDP. But now that the former renters are this conversion?
the owners. The rent is replaced by the imputed rent or the value of
condominium owners' housing services. Since the imputed rent is the a. GDP necessarily increases.
same as the rent paid earlier. The GDP will remain unaffected.
b. GDP necessarily decreases.

c. GDP is unaffected because neither the rent nor the

estimate of the value of housing services is included in
GDP.

d. GDP is unaffected because previously the rent

payments were included in GDP and now the rent
payments are replaced in GDP by the estimate of the
value of housing services.
72. C. 5. Darla, a Canadian citizen, works only in the United
States. The value of the output she produces is
5)Because she is a Canadian citizen therefore the value of the output
she produces is include only in the US GDP and the Canada GNP ( GNP a. included in both U.S. GDP and U.S. GNP.
is The market value of all final goods and services produced by
permanent resident of a nation within a given period of time and GDP b. included in U.S. GDP, but it is not included in U.S.
is The market value of all final goods and services produced by GNP.
permanent resident of a nation within a given period of time)
c. included in U.S. GNP, but it is not included in U.S.
GDP.

d. included in neither U.S. GDP nor U.S. GNP.

73. D. 6. How is net national product (NNP) calculated?
6) because NNP Is total income of the resident of a nation after subtracting
losses from depreciation ( depreciation is the wear and tear on the a. Saving is subtracted from the total income of a
economy's stock of equipment and structure) nation's citizens.

b. Saving is subtracted from the total income of a

nation's permanent residents.

c. Depreciation losses are subtracted from the total

income of a nation's citizens.

d. Depreciation losses are subtracted from the total

income of a nation's permanent residents.
74. A. 7. In the national income accounts, depreciation is
because NNP Is total income of the resident of a nation after subtracting called
losses from depreciation ( depreciation is the wear and tear on the
economy's stock of equipment and structure) a. "consumption of fixed capital."

b. "negative investment."

c. "capital taxation."

d. "loss due to wear."

75. c. households and noncorporate businesses have left after paying taxes and 8. Disposable personal income is the income that
non-tax payments to the government.
a. households have left after paying taxes and non-
8) Disposable personal income measures the after-tax income of persons tax payments to the government.
and nonprofit corporations. It is calculated by subtracting personal tax and
nontax payments from personal income b. businesses have left after paying taxes and non-
tax payments to the government.

c. households and noncorporate businesses have

left after paying taxes and non-tax payments to the
government.

d. households and businesses have left after paying

taxes and non-tax payments to the government.
76. c. government spending, based on the fact that most higher-education 9. Household spending on education is included in
students attend publicly-supported colleges and universities.
a. consumption, although it might be argued that it
would fit better in investment.

b. investment, although it might be argued that it

would fit better in consumption.

c. government spending, based on the fact that

most higher-education students attend publicly-
supported colleges and universities.

d. None of the above is correct; in general,

household spending on services is not included in
any component of GDP.
77. b. included in the current quarter GDP as investment. 10. During the current quarter, a firm
produces consumer goods and adds some
GDP is generally said to be the market value of the goods andservices produced of those goods to its inventory rather than
by a country and businesses within the country. selling them. The value of the goods added
to inventory is
One of the main ways GDP is calculated is by using the expenditure approach.
Using the method GDP = Consumption + Investment +Government Purchases + Net a. not included in the current quarter GDP.
Exports (Net Exports = Exports -Imports).
b. included in the current quarter GDP as
Investment is the main part of the GDP equation for this question. Investment investment.
consists of investments in fixed assets and inventory increases. A change in
inventory can also be used as an important signal for the next GDP periods. The c. included in the current quarter GDP as
increase in inventory will increase the current GDP periods, but may lead to lower consumption.
future GDP calculations as the excess inventory is depleted.
d. included in the current quarter GDP as a
So instead of needing to produce more for orders the statistical discrepancy
company takes in future quarters, they just ship out
previously produced items.
78. d. the value of foreign goods purchased exceeded the value of goods sold to 11. If net exports is a negative number for a
foreigners particular year, then
during the year.
a. the value of firms' inventories declined
Net exports= Exports - Imports over the course of the year.
Net exports is negative number→ Imports (goods pusched) is higher than exports
(goods sold) b. consumption exceeded the sum of
investment and government purchases
during the year.

c. the value of goods sold to foreigners

exceeded the value of foreign goods
purchased during the year.

d. the value of foreign goods purchased

exceeded the value of goods sold to
foreigners during the year
79. c. $3000 12. In the economy of Wrexington in 2008,
exports were $500, GDP was $6400,
Y= C + I + G + NX (Exports-Imports) government purchases were $1500, imports
6400= C + 2000 + 1500 + (500-600) were $600, and investment was $2000.
→ C= $3000 What was Wrexington's consumption in
2008?

a. $1800

b. $2800

c. $3000

d. $4000
80. A. 13. In the economy of Wrexington in 2008, consumption was $200, exports were $50, GDP was $325,
Y= C + I + G + NX government purchases were $100, imports were $125, and investment was $100. What were Wrexington's net
(Exports-Imports) exports in 2008?
325=
200+100+100+Exports- a. -$75
125 → Ex= $50
NX= 50-125= -75 b. -$50

c. $50

d. $75
81. d. $2500 14. In the economy of Wrexington in 2008, consumption was $3000, GDP was $5500, government
Y= C + I + G + NX purchases were $1000, imports were $2000, and investment was $1000. What were Wrexington's exports in
(Exports-Imports) 2008?
5500=
3000+1000+1000+Ex- a. -$1500
2000 →Ex= 2500
b. $500

c. $1500

d. $2500
82. c. 15. In the economy of Wrexington in 2008, consumption was $2000, exports were $800, GDP was $4800,
Y= C + I + G + NX government purchases were $840, and investment was $1400. What were Wrexington's imports in 2008?
(Exports-Imports)
4800= a. -$560
2000+1400+840+800-
Im → Im= $240 b. -$240

c. $240

d. $560
83. b. 16. In the economy of Wrexington in 2008, nominal GDP was $18 billion and the GDP deflator was 120.
Deflator GDP= What was Wrexington's real GDP in 2008?
(Nominal GDP/ real
GDP)*100 a. $6.7 billion
120= (18/real
GDP)*100 → real b. $15 billion
GDP= $15 billion
c. $21.6 billion

d. $38 billion
84. c. 17. In the economy of Wrexington in 2008, nominal GDP was $10 trillion and real GDP was $4 trillion. What
Deflator GDP= was Wrexington's GDP deflator in 2008?
(Nominal GDP/ real
GDP)*100 a. 25
= (10/4)*100= 250
b. 40

c. 250

d. 400
85. a. 18. In the economy of Wrexington in 2008, nominal GDP
Deflator GDP= (Nominal GDP/ real GDP)*100 was $28 trillion and real GDP was $32 trillion. What was
= (28/32)*100 Wrexington's GDP deflator in 2008?

a. 87.5

b. 114.3

c. 400

d. 896
86. B Table 23-6 The table below contains data for the country of
Togogo. The base year is 1974.
Real GDP= (Nominal GDP/deflator GDP)*100
1974: R1= (2000/100)*100=2000 Year Nominal GDP GDP Deflator
1975: R2= (3000/120)*100= 2500 1974 $2000 100
1976: R3= (3750/150)*100= 2500 1975 $3000 120
1977: R4= (6000/200)*100= 3000 1976 $3750 150
1977 $6000 200

19. Refer to Table 23-6. Which of the following is not

correct?

a. This economy experienced growth from 1974 to 1975.

b. This economy experienced growth from 1975 to 1976.

c. This economy experienced growth from 1976 to 1977.

d. This economy experienced inflation from 1974 to 1975,

from 1975 to 1976, and from 1976 to 1977.
87. c. GDP is still a useful measure of society's welfare because it 20. Many things that society values, such as good health,
measures a nation's ability to purchase the inputs that can be used high-quality education, enjoyable recreation opportunities,
to help produce the things that contribute to welfare. and desirable moral attributes of the population, are not
measured as part of GDP. It follows that
Despite the fact that not everything can be a part of GDP, GDP is
still a useful measure of society's welfare because it measures a a. GDP is not a useful measure of society's welfare.
nation's ability to purchase the inputs that can be used to help
produce the things that contribute to welfare. b. GDP is still a useful measure of society's welfare because
providing these other attributes is the responsibility of
government.

c. GDP is still a useful measure of society's welfare because

it measures a nation's ability to purchase the inputs that can
be used to help produce the things that contribute to
welfare.

d. GDP is still the best measure of society's welfare because

these other values cannot actually be measured