P-ONLINE EXAM UNTIL TOPIC 2

The term economists use to describe a situation in which the economy's overall price level is rising is

a.
expansion.

b.
inflation.
Correct

c.
growth.

d.
recession.
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The correct answer is: inflation.

Question 2
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Which of the following is most commonly used to monitor short-run changes in economic activity?

a.
Real GDP
Correct

b.
Value of the U.S. dollar in the foreign exchange market

c.
Interest rates

d.
The inflation rate
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The correct answer is: Real GDP

Question 3
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At the equilibrium price, buyers have bought all they want to buy, but sellers have not sold all they want
to sell.

Select one:
True
False
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The correct answer is 'False'.

Question 4
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The goal of President Obama's stimulus package and increased government spending following the deep
economic downturn in 2008 and 2009 was to reduce inflation.

Select one:
True
False
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The correct answer is 'False'.

Question 5
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Table 23-2

The following table contains data for country Krugeveaux for the year 2019.

Household purchases of durable goods $1,574

Household purchases of nondurable goods $1,717
Household purchases of services $385
Household purchases of new housing $704
Purchases of capital equipment $310
Inventory changes $363
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1,422
Government expenditures on public works $569
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $140

Refer to Table 23-2. What was country Krugeveaux's investment in 2019?

a.
$1,988

b.
$1,991

c.
$7,603
Incorrect

d.
$3,676
Feedback
The correct answer is: $1,988

Question 6
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Because resources are scarce, a society cannot give all individuals the standard of living to which each
aspires.

Select one:
True
False
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The correct answer is 'True'.

Question 7
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Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to
compute the consumer price index for this economy for two or more consecutive years, we assume that

a.
the percentage change in the price of pretzels is equal to the percentage change in the price of cookies
from year to year.

b.
neither the price of pretzels nor the price of cookies changes from year to year.

c.
the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the
typical consumer in each year.
d.
neither the number of pretzels nor the number of cookies bought by the typical consumer changes from
year to year.
Correct
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The correct answer is: neither the number of pretzels nor the number of cookies bought by the typical
consumer changes from year to year.

Question 8
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When the market price is below the equilibrium price, suppliers are unable to sell all they want to sell.

Select one:
True
False
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The correct answer is 'False'.

Question 9
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When quantity supplied exceeds quantity demanded at the current market price, the market has a surplus,
and market price will likely rise in the future to eliminate the surplus.

Select one:
True
False
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The correct answer is 'False'.

Question 10
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The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more
than expected, production is

a.
more profitable and employment and output falls.

b.
more profitable and employment and output rises.
Correct

c.
less profitable and employment and output falls.

d.
less profitable and employment and output rises.
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The correct answer is: more profitable and employment and output rises.

Question 11
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The consumer price index tries to gauge how much incomes must rise to maintain

a.
a decreasing standard of living.
b.
a constant standard of living.
Correct

c.
the highest standard of living possible.

d.
an increasing standard of living.
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The correct answer is: a constant standard of living.

Question 12
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An increase in the price of a product and an increase in the number of sellers in the market affect the
supply curve in the same general way.

Select one:
True
False
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The correct answer is 'False'.

Question 13
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When the market price is below the equilibrium price, the quantity of the good demanded exceeds the
quantity supplied.
Select one:
True
False
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The correct answer is 'True'.

Question 14
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What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers
fell and the price of tea fell?

a.
Quantity would fall, and the effect on price would be ambiguous.

b.
Price would rise, and the effect on quantity would be ambiguous.

c.
Price would fall, and the effect on quantity would be ambiguous.
Correct

d.
Quantity would rise, and the effect on price would be ambiguous.
Feedback
The correct answer is: Price would fall, and the effect on quantity would be ambiguous.

Question 15
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In most societies, resources are allocated by

a.
a small number of central planners.

b.
a single central planner.

c.
the combined actions of millions of households and firms.
Correct

d.
those firms that use resources to provide goods and services.
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The correct answer is: the combined actions of millions of households and firms.

Question 16
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If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

a.
[(CPI in Year 1 − CPI in Year 2)/CPI in Year 2] × 100.

b.
[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.
Correct

c.
[(CPI in Year 1 − CPI in Year 2)/CPI in Year 1] × 100.

d.
[(CPI in Year 2 − CPI in Year 1)/CPI in Year 2] × 100.
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The correct answer is: [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

Question 17
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Figure 4-7

Refer to Figure 4-7. At what price would there be an excess supply of 400 units of the good?

a.
$30

b.
$25

c.
$40

d.
$35
Correct
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The correct answer is: $35

Question 18
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Figure 33-5

Refer to Figure 33-5. Suppose the economy starts at Point R. If there is a reduction in aggregate demand,
then in the long run the economy moves to

a.
Point Q.
Incorrect

b.
Point O.

c.
Point P.

d.
Point S.
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The correct answer is: Point S.

Question 19
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In the GDP accounts production equals

a.
income − imports.

b.
income.
Correct

c.
income + saving.

d.
income − government expenditures.
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The correct answer is: income.

Question 20
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Table 24-4
Will's expenditures on food for three consecutive years, along with other values, are presented in the
following table.

Year
1 2 3
Expenditures on food $4,000 $4,800 $5,200
Consumer price index 175 182 x

Refer to Table 24-4. To the nearest dollar, Will's Year 1 food expenditures in Year 2 dollars amount to

a.
$4,160.
Correct

b.
$5,077.

c.
$4,615.

d.
$182.
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The correct answer is: $4,160.

Question 21
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The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.

Select one:
True
False
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The correct answer is 'False'.

Question 22
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Other things the same, as the price level decreases it induces greater spending on

a.
net exports but not investment.

b.
neither net exports nor investment.

c.
investment but not net exports.

d.
both net exports and investment.
Correct
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The correct answer is: both net exports and investment.

Question 23
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Figure 4-4

Refer to Figure 4-4.The movement from point A to point B on the graph is caused by

a.
a decrease in the price of the good.

b.
a decrease in input prices.

c.
an advance in production technology.

d.
an increase in the price of the good.
Correct
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The correct answer is: an increase in the price of the good.
Question 24
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Recessions come at

a.
irregular intervals. During recessions consumption spending falls relatively more than investment
spending.
Incorrect

b.
regular intervals. During recessions consumption spending falls relatively more than investment spending.

c.
regular intervals. During recessions investment spending falls relatively more than consumption spending.

d.
irregular intervals. During recessions investment spending falls relatively more than consumption
spending.
Feedback
The correct answer is: irregular intervals. During recessions investment spending falls relatively more
than consumption spending.

Question 25
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Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these
countries so that they desire to purchase more U.S assets.
Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports
and U.S. aggregate demand?

a.
Net exports would rise which by itself would increase U.S. aggregate demand.

b.
Net exports would fall which by itself would increase U.S. aggregate demand.

c.
Net exports would fall which by itself would decrease U.S. aggregate demand.
Correct

d.
Net exports would rise which by itself would decrease U.S. aggregate demand.
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The correct answer is: Net exports would fall which by itself would decrease U.S. aggregate demand.

Question 26
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Pizza is a normal good if the demand

a.
curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are
substitutes.

b.
for pizza rises when income rises.
Correct

c.
for pizza rises when the price of pizza falls.

d.
curve for pizza slopes upward.
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The correct answer is: for pizza rises when income rises.

Question 27
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Figure 4-10

Refer to Figure 4-10. Which of the following movements would illustrate the effect of an improved
high-speed mixer that allows bakers to produce cakes in less time on the market for cakes?

a.
Point A to Point D

b.
Point A to Point B
Incorrect

c.
Point C to Point B

d.
Point C to Point D
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The correct answer is: Point C to Point D

Question 28
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Which of the following correctly orders U.S. income measures from largest to smallest?

a.
Disposable personal income, gross national product, national income, net national product, personal
income

b.
Gross national product, net national product, national income, personal income, disposable personal
income
Correct

c.
Personal income, net national product, national income, gross national product, disposable personal
income

d.
Disposable personal income, personal income, national income, net national product, gross national
product
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The correct answer is: Gross national product, net national product, national income, personal income,
disposable personal income

Question 29
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Figure 33-3

Refer to Figure 33-3. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
a.
causes the economy to experience an increase in the unemployment rate.

b.
causes the economy to experience stagflation.

c.
could be caused by a decrease in the expected price level.
Correct

d.
could be caused by an outbreak of war in the Middle East.
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The correct answer is: could be caused by a decrease in the expected price level.

Question 30
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Table 4-5

Quantity Supplied
Price
(Cases of water)
(Dollars per case)
Aqueduct Springs Basin Mountain Cascade Waters Drop Good
0.00 0 0 0 0
2.00 100 40 60 100
4.00 200 80 120 200
6.00 300 120 180 300

Refer to Table 4-5. If the four suppliers listed are the only suppliers in this market and the market
demand schedule is:

Price Quantity Demanded

(Dollars per case) (Cases of water)
 0.00 350
2.00 300
4.00 250
6.00 200

The equilibrium price and quantity are

a.
$4.00 and 250 cases.

b.
$0.00 and 350 cases.
Incorrect

c.
$2.00 and 300 cases.

d.
$6.00 and 200 cases.
Feedback
The correct answer is: $2.00 and 300 cases.

Question 31
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If total spending rises from one year to the next, then the economy must be producing a larger output of
goods and services.

Select one:
True
False
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The correct answer is 'False'.

Question 32
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The real interest rate tells you

a.
the number of dollars in your bank account today.

b.
how fast the purchasing power of your bank account rises over time.
Correct

c.
how fast the number of dollars in your bank account rises over time.

d.
the purchasing power of your bank account today.
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The correct answer is: how fast the purchasing power of your bank account rises over time.

Question 33
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Price cannot fall so low that some sellers choose to supply a quantity of zero.

Select one:
True
False
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The correct answer is 'False'.
Question 34
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Increased output and prices in the United States in the early 1940s were mostly the result of increased
government expenditures.

Select one:
True
False
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The correct answer is 'True'.

Question 35
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Policymakers who influence aggregate demand can potentially mitigate the severity of economic
fluctuations.

Select one:
True
False
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The correct answer is 'True'.

Question 36
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GDP can be measured in terms of expenditures but not income, since income is subject to taxation.

Select one:
True
False
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The correct answer is 'False'.

Question 37
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Table 23-5

A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these
goods for the last several years are shown in the following table. The base year is 2017.

Movies Popcorn
Year Price Quantity Price Quantity
(Dollars per movie) (Movies) (Dollars per bag) (Bags)
2016 10.00 500 5 1,000
2017 11.00 600 4 900
2018 12.00 650 5 950
2019 12.00 625 6 925

Refer to Table 23-5. What was this country's nominal GDP in 2016?

a.
$9,500
b.
$10,000
Correct

c.
$10,200

d.
$10,500
Feedback
The correct answer is: $10,000

Question 38
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Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most
likely will predict that

a.
the consumer price index will increase in the future.
Correct

b.
GDP will increase in 2019.

c.
the producer price index will increase by more than 1.5 percent in 2019.

d.
interest rates will decrease in the future.
Feedback
The correct answer is: the consumer price index will increase in the future.

Question 39
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An increase in the actual price level does not shift the short-run aggregate supply curve, but an expected
increase in the price level shifts the short-run aggregate supply curve to the left.

Select one:
True
False
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The correct answer is 'True'.

Question 40
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Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed
that Social Security recipients are harmed by years of low inflation because they do not receive as large
an increase in their payments as they do in years of high inflation. Which of the following statements is
correct?

a.
The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same
as the market basket used to compute the CPI.

b.
The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients
change at a different rate than the prices of the goods in the market basket used to compute the CPI
Correct

c.
The newspaper editorial is incorrect under all circumstances.
d.
The newspaper editorial is correct under all circumstances.
Feedback
The correct answer is: The newspaper editorial could be correct if the prices of the goods consumed
by Social Security recipients change at a different rate than the prices of the goods in the market basket
used to compute the CPI

Question 41
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Table 23-2

The following table contains data for country Krugeveaux for the year 2019.

Household purchases of durable goods $1,574

Household purchases of nondurable goods $1,717
Household purchases of services $385
Household purchases of new housing $704
Purchases of capital equipment $310
Inventory changes $363
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1,422
Government expenditures on public works $569
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $140

Refer to Table 23-2. What was country Krugeveaux's consumption in 2019?

a.
$1,988

b.
$1,991

c.
$7,603
Incorrect

d.
$3,676
Feedback
The correct answer is: $3,676

Question 42
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A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908
price level, then multiplying by the 1908 dollar figure.

Select one:
True
False
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The correct answer is 'True'.

Question 43
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Expenditures on a nation's domestic production

a.
could be less than, equal to, or greater than its domestic production.
b.
are greater than its domestic production.

c.
are less than its domestic production.

d.
are equal to its domestic production.
Correct
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The correct answer is: are equal to its domestic production.

Question 44
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Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool
and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time
that the pool is open she can only choose one activity. This illustrates the basic principle that

a.
people face tradeoffs.
Correct

b.
improvements in efficiency sometimes come at the expense of equality.

c.
rational people think at the margin.

d.
people respond to incentives.
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The correct answer is: people face tradeoffs.
Question 45
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Table 23-2

The following table contains data for country Krugeveaux for the year 2019.

Household purchases of durable goods $1,574

Household purchases of nondurable goods $1,717
Household purchases of services $385
Household purchases of new housing $704
Purchases of capital equipment $310
Inventory changes $363
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1,422
Government expenditures on public works $569
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $140

Refer to Table 23-2. What were country Krugeveaux's imports in 2019?

a.
−$52
Incorrect

b.
$52

c.
$88
d.
$140
Feedback
The correct answer is: $140

Question 46
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An economy's income is the same as its expenditure because every transaction has a buyer and a seller.

Select one:
True
False
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The correct answer is 'True'.

Question 47
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One way that governments can improve market outcomes is to ensure that individuals are able to own and
exercise control over their scarce resources.

Select one:
True
False
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The correct answer is 'True'.

Question 48
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Which of the following is an important cause of inflation in an economy?

a.
Lack of property rights in the economy
Incorrect

b.
Increases in productivity in the economy

c.
Growth in the quantity of money in the economy

d.
The influence of positive externalities on the economy
Feedback
The correct answer is: Growth in the quantity of money in the economy

Question 49
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A improvement in production technology will shift the

a.
demand curve to the right.

b.
supply curve to the left.

c.
demand curve to the left.

d.
supply curve to the right.
Correct
Feedback
The correct answer is: supply curve to the right.

Question 50
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If the demand for a good falls when income falls, then the good is called an inferior good.

Select one:
True
False
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The correct answer is 'False'.

Question 51
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A farmer produces lemons and sells them to Fresh Juice, which makes lemon juice. The lemons produced
by the farmer are called

a.
final goods.

b.
transitory goods.
c.
inventory goods.

d.
intermediate goods.
Correct
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The correct answer is: intermediate goods.

Question 52
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Who gets scarce resources in a market economy?

a.
Whoever the government decides gets them
Incorrect

b.
The government

c.
Whoever is willing and able to pay the price

d.
Whoever wants them
Feedback
The correct answer is: Whoever is willing and able to pay the price

Question 53
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When the market price is above the equilibrium price, suppliers are unable to sell all they want to sell.

Select one:
True
False
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The correct answer is 'True'.

Question 54
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Which of the following would shift the demand curve for gasoline to the right?

a.
A decrease in the price of gasoline

b.
A decrease in the expected future price of gasoline

c.
An increase in consumer income, assuming gasoline is a normal good
Correct

d.
An increase in the price of cars, a complement for gasoline
Feedback
The correct answer is: An increase in consumer income, assuming gasoline is a normal good

Question 55
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From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel
wealthier, then it would have shifted aggregate

a.
demand right.
Correct

b.
supply right.

c.
demand left.

d.
supply left.
Feedback
The correct answer is: demand right.

Question 56
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Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.

Select one:
True
False
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The correct answer is 'True'.
Question 57
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The CPI is always 1 in the base year.

Select one:
True
False
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The correct answer is 'False'.

Question 58
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When we move along a given supply curve,

a.
all nonprice determinants of supply are held constant.

b.
technology and price are held constant.
Incorrect

c.
only price is held constant.

d.
all determinants of quantity supplied are held constant.
Feedback
The correct answer is: all nonprice determinants of supply are held constant.

Question 59
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GDP includes the value of paper clips but does not also count the value of the metal used to make them.

Select one:
True
False
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The correct answer is 'True'.

Question 60
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The basic tools of supply and demand are central to microeconomic analysis but are of little use to
macroeconomics.

Select one:
True
False
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The correct answer is 'False'.

Question 61
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When an increase in the price of one good lowers the demand for another good, the two goods are called
complements.

Select one:
True
False
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The correct answer is 'True'.

Question 62
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When the market price is above the equilibrium price, the quantity of the good demanded exceeds the
quantity supplied.

Select one:
True
False
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The correct answer is 'False'.

Question 63
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If real GDP doubles and the GDP deflator doubles, then nominal GDP
a.
doubles.

b.
triples.

c.
quadruples.
Correct

d.
remains constant.
Feedback
The correct answer is: quadruples.

Question 64
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A shortage will occur at any price below equilibrium price and a surplus will occur at any price above
equilibrium price.

Select one:
True
False
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The correct answer is 'True'.

Question 65
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Question text
GDP and GNP are identical when

a.
all domestic production is by domestically owned producers and no foreign production is carried out by
domestic producers.

b.
exports and imports exactly balance.
Incorrect

c.
there are no taxes.

d.
production by domestic producers in other countries is greater than production by foreign producers
domestically.
Feedback
The correct answer is: all domestic production is by domestically owned producers and no foreign
production is carried out by domestic producers.

Question 66
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Disposable personal income is the income that households and noncorporate businesses have left
after satisfying all their obligations to the government.
Select one:
True
False
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The correct answer is 'True'.

Question 67
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Supply and demand together determine the price and quantity of a good sold in a market.

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True
False
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The correct answer is 'True'.

Question 68
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The GDP deflator is the ratio of

a.
nominal GDP to real GDP multiplied by 100.

b.
nominal GDP to the inflation rate multiplied by 100.

c.
real GDP to nominal GDP multiplied by 100.
Incorrect

d.
real GDP to the inflation rate multiplied by 100.
Feedback
The correct answer is: nominal GDP to real GDP multiplied by 100.

Question 69
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An increase in household saving causes consumption to

a.
rise and aggregate demand to increase.

b.
fall and aggregate demand to decrease.
Correct

c.
fall and aggregate demand to increase.

d.
rise and aggregate demand to decrease.
Feedback
The correct answer is: fall and aggregate demand to decrease.

Question 70
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A change in the supply of labor, all else remaining the same, will shift the short-run aggregate-supply
curve.

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True
False
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The correct answer is 'True'.
Question 71
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Fundamentally, economics deals with

a.
poverty.

b.
scarcity.
Correct

c.
banking.

d.
money.
Feedback
The correct answer is: scarcity.

Question 72
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All goods and services are sold in perfectly competitive markets.

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True
False
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The correct answer is 'False'.

Question 73
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A likely example of complementary goods for most people would be

a.
apple juice and orange juice.

b.
butter and margarine.

c.
coffee and sugar.
Correct

d.
tennis balls and basketballs.
Feedback
The correct answer is: coffee and sugar.

Question 74
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Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been
selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in
Year 3, the basket's cost was $55. The value of the CPI in Year 3 was

a.
104.0.

b.
110.0.
Correct

c.
105.0.

d.
90.9.
Feedback
The correct answer is: 110.0.

Question 75
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National income differs from net national product because

a.
it includes profits of corporations.

b.
it includes transfer payments.

c.
it excludes depreciation.

d.
of a statistical discrepancy.
Correct
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The correct answer is: of a statistical discrepancy.

Question 76
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The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that
wages are sticky in the short run.

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True
False
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The correct answer is 'False'.

Question 77
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Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops
programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth

a.
is more equal but less efficient for society.
Correct

b.
is more efficient and more equal for society.

c.
is more efficient but less equal for society.

d.
is less equal and less efficient for society.
Feedback
The correct answer is: is more equal but less efficient for society.

Question 78
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When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP
deflator.

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True
False
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The correct answer is 'True'.

Question 79
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A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps
explain why the aggregate demand curve slopes downward.

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True
False
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The correct answer is 'True'.

Question 80
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The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost
of living; that problem is the problem of

a.
introduction of new goods.
Correct

b.
product-improvement bias.

c.
unmeasured quality change.

d.
substitution bias.
Feedback
The correct answer is: introduction of new goods.

Question 81
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Economists use the term inflation to describe a situation in which the economy's overall production level
is rising.

Select one:
True
False
Feedback
The correct answer is 'False'.
Question 82
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If a person expects the price of pumpkins to increase next month, then that person's current demand for
pumpkins will increase.

Select one:
True
False
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The correct answer is 'True'.

Question 83
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People are willing to pay more for a diamond than for a bottle of water because

a.
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water
have to manipulate water prices.

b.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
Correct

c.
water prices are held artificially low by governments, since water is necessary for life.

d.
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra
bottle of water.
Feedback
The correct answer is: the marginal benefit of an extra diamond far exceeds the marginal benefit of an
extra bottle of water.

Question 84
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If net exports is a negative number for a particular year, then

a.
the value of goods sold to foreigners exceeded the value of foreign goods purchased during the year.

b.
the value of firms' inventories declined over the course of the year.

c.
the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.
Correct

d.
consumption exceeded the sum of investment and government purchases during the year.
Feedback
The correct answer is: the value of foreign goods purchased exceeded the value of goods sold to
foreigners during the year.

Question 85
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When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same
standard of living.

Select one:
True
False
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The correct answer is 'True'.

Question 86
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The effect of an increase in the price level on the aggregate-demand curve is represented by a

a.
shift to the left of the aggregate-demand curve.

b.
movement to the right along a given aggregate-demand curve.

c.
movement to the left along a given aggregate-demand curve.

d.
shift to the right of the aggregate-demand curve.
Incorrect
Feedback
The correct answer is: movement to the left along a given aggregate-demand curve.

Question 87
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 Flag question
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A worker in Thailand can earn $12 per day making cotton cloth on a hand loom. A worker in
the United States can earn $82 per day making cotton cloth with a mechanical loom. What is the likely
explanation for the difference in wages?

a.
Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
Correct

b.
There is little demand for cotton cloth in Thailand and great demand in the United States.

c.
United States textile workers belong to a union, whereas Thailand textile workers do not belong to a
union.

d.
Thailand has a low-wage policy to make its textile industry more competitive in world markets.
Feedback
The correct answer is: Labor is more productive making cotton cloth with a mechanical loom than
with a hand loom.

Question 88
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Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit
withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit’s
purchasing power has increased by 12 percent.

Select one:
True
 False
Feedback
The correct answer is 'True'.

Question 89
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The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the
basket used to compute the CPI.

Select one:
True
False
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The correct answer is 'False'.

Question 90
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Disposable personal income is the income that

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

b.
households and noncorporate businesses have left after paying taxes and non-tax payments to the
government.

c.
households have left after paying taxes and non-tax payments to the government.
Incorrect

d.
households and businesses have left after paying taxes and non-tax payments to the government.
Feedback
The correct answer is: households and noncorporate businesses have left after paying taxes and non-
tax payments to the government.

Question 91
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One of the widely acknowledged problems with using the consumer price index as a measure of the cost
of living is that the CPI

a.
fails to account for the fact that consumers spend larger percentages of their incomes on some goods and
smaller percentages of their incomes on other goods.

b.
fails to account for the introduction of new goods.
Correct

c.
fails to account for consumer spending on housing.

d.
accounts only for consumer spending on food, clothing, and energy.
Feedback
The correct answer is: fails to account for the introduction of new goods.

Question 92
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Changes in real GDP reflect

a.
both changes in prices and changes in the amounts being produced.

b.
neither changes in prices nor changes in the amounts being produced.

c.
only changes in prices.

d.
only changes in the amounts being produced.
Correct
Feedback
The correct answer is: only changes in the amounts being produced.

Question 93
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Figure 4-1

Refer to Figure 4-1.The movement from point A to point B on the graph is caused by

a.
an increase in income.
b.
a decrease in price.
Correct

c.
an increase in price.

d.
a decrease in the price of a substitute good.
Feedback
The correct answer is: a decrease in price.

Question 94
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The U.S. income tax system is completely indexed for inflation.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 95
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Table 24-3

The following table lists the per gallon prices of gas and milk for the months of September, October, and
November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month,
and that September is the base period.

Price of Gas Price of Milk

Month
(Dollars per gallon) (Dollars per gallon)
September 4.00 3.50
October 4.40 3.52
November 4.60 3.58

Refer to Table 24-3. What is the consumer price index for November?

a.
114.27

b.
91.36

c.
87.51
Incorrect

d.
95.79
Feedback
The correct answer is: 114.27

Question 96
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The economic boom of the early 1940s resulted mostly from

a.
increased government expenditures.
Correct

b.
an increase in the growth rate of the money supply.

c.
falling prices of oil and other natural resources.

d.
rapid developments in transportation, electronics, and communication.
Feedback
The correct answer is: increased government expenditures.

Question 97
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Scenario 24-1

Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he
earned $270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.

Refer to Scenario 24-1. Mia's 1943 income in current year dollars is

a.
$23,180.

b.
$298,033.
Incorrect

c.
$39,900.

d.
$424,200.
Feedback
The correct answer is: $23,180.

Question 98
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Real GDP evaluates current production using prices that are fixed at past levels and therefore shows how
the economy's overall production of goods and services changes over time.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 99
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As long as prices are rising over time, then

a.
the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of
your bank account is changing over time.

b.
the real interest rate is positive.

c.
the real interest rate exceeds the nominal interest rate.
d.
the nominal interest rate exceeds the real interest rate.
Correct
Feedback
The correct answer is: the nominal interest rate exceeds the real interest rate.

Question 100
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When ranking movies by nominal box office receipts, what important fact is overlooked?

a.
Prices, including those for movie tickets, have been rising over time.
Correct

b.
Movies and DVD are complements.

c.
More people go to movies now than in the past.

d.
There are no good substitutes for movies currently.
Feedback
The correct answer is: Prices, including those for movie tickets, have been rising over time.

Question 101
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The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
Select one:
True
False
Feedback
The correct answer is 'True'.

Question 102
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Individual supply curves are summed vertically to obtain the market supply curve.

Select one:
True
False
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The correct answer is 'False'.

Question 103
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Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 104
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Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well
as an increase in taxes, then in the short run, real GDP will

a.
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be unaffected.

b.
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be unaffected.
Incorrect

c.
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be lower.

d.
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be lower.
Feedback
The correct answer is: fall and the price level might rise, fall, or stay the same. In the long run, the
price level might rise, fall, or stay the same but real GDP will be lower.

Question 105
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Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these
countries so that they desire to purchase more U.S assets.
Refer to Scenario 33-1.What would the change in the interest rate created by foreigners wanting to buy
more U.S. assets do to investment spending in the United States?

a.
Make it rise which by itself would increase U.S. aggregate demand.

b.
Make it fall which by itself would decrease U.S. aggregate demand.
Correct

c.
Make it fall which by itself would increase U.S. aggregate demand.

d.
Make it rise which by itself would decrease U.S. aggregate demand.
Feedback
The correct answer is: Make it fall which by itself would decrease U.S. aggregate demand.

Question 106
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What basket of goods and services is used to construct the CPI?

a.
Only food, clothing, transportation, entertainment, and education

b.
A random sample of all goods and services produced in the economy

c.
The goods and services that are typically bought by consumers as determined by government surveys
Correct
d.
The least expensive and the most expensive goods and services in each major category of consumer
expenditures
Feedback
The correct answer is: The goods and services that are typically bought by consumers as determined
by government surveys

Question 107
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When the consumer price index falls, the typical family

a.
can offset the effects of rising prices by saving more.

b.
can spend fewer dollars to maintain the same standard of living.
Correct

c.
finds that its standard of living is not affected.

d.
has to spend more dollars to maintain the same standard of living.
Feedback
The correct answer is: can spend fewer dollars to maintain the same standard of living.

Question 108
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Micheal, a U.S. citizen, travels to Jamaica and buys a newly manufactured motorcycle made there. His
purchase is included in

a.
U.S. GDP, but it is not included in Jamaica's GDP.

b.
both Jamaica's GDP and U.S. GDP.

c.
Jamaica's GDP, but it is not included in U.S. GDP.
Correct

d.
neither Jamaica's GDP nor U.S. GDP.
Feedback
The correct answer is: Jamaica's GDP, but it is not included in U.S. GDP.

Question 109
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The law of supply states that, other things equal, when the price of a good

a.
falls, the quantity supplied of the good rises.

b.
rises, the supply of the good falls.

c.
rises, the quantity supplied of the good rises.

d.
falls, the supply of the good rises.
Incorrect
Feedback
The correct answer is: rises, the quantity supplied of the good rises.

Question 110
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An increase in the price of bread produced domestically will be reflected in

a.
the consumer price index but not in the GDP deflator.

b.
neither the GDP deflator nor the consumer price index.

c.
both the GDP deflator and the consumer price index.
Correct

d.
the GDP deflator but not in the consumer price index.
Feedback
The correct answer is: both the GDP deflator and the consumer price index.

Question 111
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Your professor loves her work, teaching math. She has been offered other positions in the corporate world
that would increase her income by 15 percent, but she has decided to continue working as a professor. Her
decision would not change unless the marginal
a.
cost of teaching increased.
Correct

b.
cost of a corporate job increased.

c.
benefit of a corporate job decreased.

d.
benefit of teaching increased.
Feedback
The correct answer is: cost of teaching increased.

Question 112
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Government policies that improve equality usually increase efficiency at the same time.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 113
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The producer price index measures the cost of a basket of goods and services bought by firms rather than
consumers.
Select one:
True
False
Feedback
The correct answer is 'True'.

Question 114
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Suppose that in Peru total annual output is worth $750 million and people work 40 million hours. In
Oman, total annual output is worth 650 million and people work 20 million hours. Productivity is higher

a.
in Oman. Most variation in the standard of living across countries is due to differences in productivity.
Correct

b.
in Peru. Differences in productivity explain very little of the variation in the standard of living across
countries.

c.
in Oman. Differences in productivity explain very little of the variation in the standard of living across
countries.

d.
in Peru. Most variation in the standard of living across countries is due to differences in productivity.
Feedback
The correct answer is: in Oman. Most variation in the standard of living across countries is due to
differences in productivity.

Question 115
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Question text
The basic principles of economics suggest that

a.
government should become involved in markets when trade between countries is involved.

b.
markets are seldom, if ever, a good way to organize economic activity.

c.
government should never become involved in markets.

d.
government should become involved in markets when those markets fail to produce efficient or fair
outcomes.
Correct
Feedback
The correct answer is: government should become involved in markets when those markets fail to
produce efficient or fair outcomes.