QN=1 (2212) (17719) When an economist points out that you and millions of other people are

interdependent, he or she is referring to the fact that we all

a. rely upon the government to provide us with the basic necessities of life.
b. rely upon one another for the goods and services we consume.
c. have similar tastes and abilities.
d. are concerned about one another’s well-being.

QN=2 (2209) (17747) A country that currently does not trade with other countries could benefit by
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.

QN=3 (17760) Refer to Figure 3-6. Daisy has an absolute advantage in the production of
(2223
)

a. both goods and a comparative advantage in the production of pies.

b. both goods and a comparative advantage in the production of tarts.
c. neither good and a comparative advantage in the production of pies.
d. neither good and a comparative advantage in the production of tarts.

QN=4 (17738) Refer to Table 3-6. Assume that Hilda and Carlos each has 90 hours available. Originally,
(2219 each person divided their time equally between the production of quilts and dresses. Now, each
) person spends all their time producing the good in which they have a comparative advantage. As a
result, the total output of dresses increased by
a. 3.5.
b. 4.5.
c. 5.5.
d. 9.0.

QN=5 (2208) (17731) Suppose that a worker in Radioland can produce either 4 radios or 1 television
per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per
year. Each nation has 100 workers. Also suppose that each country completely
specializes in producing the good in which it has a comparative advantage. If
Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year,
then each country's maximum consumption of new radios and televisions per year will
be
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland.
b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland.

QN=6 (2250) (17774) Household spending on education is counted in which component or

subcomponent of GDP?
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment

QN=7 (2257) (17782) GDP is defined as

a. the market value of all goods and services produced within a country in a given period
of time.
b. the market value of all goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.
c. the market value of all final goods and services produced within a country in a given
period of time.
d. the market value of all final goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.

QN=8 (17766) Refer to Table 23-6. Which of the following is not correct?
(2252
)

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.

QN=9 (2240) (17728) By definition, imports are

a. people who work in foreign countries.
b. goods in which a country has an absolute advantage.
c. limits placed on the quantity of goods leaving a country.
d. goods produced abroad and sold domestically.

QN=10 (2260) (17776) Which of the following statistic is usually regarded as the best single measure
of a society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit

QN=11 (2280) (17808) In an imaginary economy, consumers buy only sandwiches and magazines.
The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich
cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If
the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00

QN=12 (2269) (17773) Quality Motors is a Japanese-owned company that produces automobiles; all
of its automobiles are produced in American plants. In 2007, Quality Motors produced
$20 million worth of automobiles, with $12 million in sales to Americans, $6 million in
sales to Canadians, and $2 million worth of automobiles added to Quality Motors’
inventory. The transactions just described contribute how much to U.S. GDP for 2007?
a. $12 million
b. $14 million
c. $20 million
d. $34 million

QN=13 (2270) (17785) In the economy of Wrexington in 2008, nominal GDP was $20 billion and the
GDP deflator ratio was 500. What was Wrexington’s real GDP in 2008?
a. $2.5 million
b. $10 million
c. $40 million
d. $100 million

QN=14 (2285) (17807) In computing the consumer price index, a base year is chosen. Which of the
following statements about the base year is correct?
a. The base year is always the first year among the years for which computations are
being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in more
realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. The base year is always the year in which the cost of the basket was highest among the
years for which computations are being made.

QN=1 (17770) Refer to Table 23-5. In 2007, Batterland’s nominal GDP was
5
(2278)
a. $300.
b. $390.
c. $400.
d. $540.

QN=16 (2301) (17820) Scenario 24-4

Quinn has job offers in Wrexington and across the country in Charlieville. The
Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would
pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in
Charlieville is 90.

Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing power,
then she should
a. take the Charlieville job.
b. take the Wrexington job.
c. take either job because they both have the same purchasing power.
d. The answer cannot be determined from the information given because a salary is not
the same as purchasing power.

QN=17 (2303) (17792) When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.

QN=18 (2325) (17831) On a production function, as capital per worker increases, output per worker
a. increases. This increase is larger at larger values of capital per worker.
b. increases. This increase is smaller at larger values of capital per worker.
c. decreases. This decrease is larger at larger value of capital per worker.
d. decreases. This decrease is smaller at larger value of capital per worker.

QN=19 (2306) (17810) Indexation refers to

a. a process of adjusting the nominal interest rate so that it is equal to the real interest
rate.
b. using a law or contract to automatically correct a dollar amount for the effects of
inflation.
c. using a price index to deflate dollar values.
d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in
line with the GDP deflator.

QN=20 (2308) (17796) Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s
basket consists of 10 bushels of peaches and 15 bushels of pecans.

Refer to Table 24-1. If 2005 is the base year, then the CPI for 2005 was

a. 83.3.
b. 100.0.
c. 120.0.
d. 200.0.

QN=21 (2346) (17870) If the government's expenditures exceeded its receipts, it would likely
a. lend money to a bank or other financial intermediary.
b. borrow money from a bank or other financial intermediary.
c. buy bonds directly from the public.
d. sell bonds directly to the public.
QN=22 (2348) (17849) Which of the following is not always correct for a closed economy?
a. National saving equals private saving plus public saving.
b. Net exports equal zero.
c. Real GDP measures both income and expenditures.
d. Private saving equals investment.

QN=2 (17836) Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker
3 increases because of
(2331)

a. increasing returns to capital.

b. increasing returns to labor.
c. diminishing returns to capital.
d. diminishing returns to labor.

QN=24 (2329) (17840) Which of the following is correct?

a. Although levels of real GDP per person vary substantially from country to country, the
growth rate of real GDP per person is similar across countries.
b. Productivity is not closely linked to government policies.
c. The level of real GDP per person is a good gauge of economic prosperity, and the
growth rate of real GDP per person is a good gauge of economic progress.
d. Productivity may be measured by the growth rate of real GDP per person.

QN=25 (2355) (17853) The source of the supply of loanable funds is

a. saving, and the source of the demand for loanable funds is investment.
b. consumption, and the source of the demand for loanable funds is investment.
c. investment, and the source of the demand for loanable funds is saving.
d. the interest rate, and the source of the demand for loanable funds is saving.

QN=26 (2363) (17881) The labor force equals the

a. number of people employed.
b. number of people unemployed.
c. number of people employed plus the number of people unemployed.
d. adult population.

QN=27 (2382) (17876) When a union raises the wage above the equilibrium level, it
a. reduces both the quantity of labor supplied and the quantity of labor demanded,
resulting in unemployment.
b. reduces the quantity of labor supplied and raises the quantity of labor demanded,
resulting in unemployment.
c. raises the quantity of labor supplied and reduces the quantity of labor demanded,
resulting in unemployment.
d. raises both the quantity of labor supplied and the quantity of labor demanded,
resulting in unemployment.

QN=28 (2385) (17896) 1. If all workers and all jobs were the same such that all workers were
equally well suited for all jobs, then there would be no
a. cyclical unemployment.
b. frictional unemployment.
c. natural rate of unemployment.
d. structural unemployment.

QN=29 (2356) (17868) When a country saves a larger portion of its GDP than it did before, it will have
a. more capital and higher productivity.
b. more capital and lower productivity.
c. less capital and higher productivity.
d. less capital and lower productivity.

QN=30 (2364) (17895) A firm may pay efficiency wages in an attempt to

a. (i) reduce incentives to shirk.
b. (ii) reduce turnover.
c. (iii) attract a well-qualified pool of applicants.
d. All of (i), (ii), and (iii) are correct.

QN=31 (2366) (17878) Which of the following is not an explanation for the existence of structural
unemployment?
a. efficiency wages
b. job search
c. minimum-wage laws
d. unions

QN=32 (2395) (17905) The ease with which an asset can be

a. traded for another asset determines whether or not that asset is a unit of account.
b. transported from one place to another determines whether or not that asset could
serve as fiat money.
c. converted into a store of value determines the liquidity of that asset.
d. converted into the economy’s medium of exchange determines the liquidity of that
asset.

QN=33 (2411) (17912) If you deposit $100 of currency into a demand deposit at a bank, this action by
itself
a. does not change the money supply.
b. increases the money supply.
c. decreases the money supply.
d. has an indeterminate effect on the money supply.

QN=34 (2404) (17919) Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency

QN=35 (2441) (17933) Wealth is redistributed from creditors to debtors when inflation was expected
to be
a. high and it turns out to be high.
b. low and it turns out to be low.
c. low and it turns out to be high.
d. high and it turns out to be low.

QN=36 (2431) (17950) Tara deposits money into an account with a nominal interest rate of 6 percent.
She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara’s after-tax real
rate of interest
a. will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
b. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
c. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
d. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
QN=37 (2423) (17944) When deciding how much to save, people care most about
a. after-tax nominal interest rates.
b. after-tax real interest rates.
c. before-tax real interest rates.
d. before-tax nominal interest rates.

QN=3 (17947) Refer to Figure 30-2. At the end of 2007 the relevant money-demand curve was the one
8 labeled MD2. At the end of 2008 the relevant money-demand curve was the one labeled MD1.
(2434) Assuming the economy is always in equilibrium, what was the economy’s approximate inflation rate
for 2008?

a. -43 percent
b. -57 percent
c. 57 percent
d. 75 percent

QN=39 (2444) (17930) When the money market is drawn with the value of money on the vertical axis,
a decrease in the price level causes a
a. movement to the right along the money demand curve.
b. movement to the left along the money demand curve.
c. shift to the right of the money supply curve.
d. shift to the left of the money supply curve.
QN=40 (2435) (17956) Suppose each good costs $5 per unit and Megan holds $40. What is the real
value of the money she holds?
a. $40. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold more dollars.
b. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold more dollars.
c. $40. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold fewer dollars.
d. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold fewer dollars.

QN=41 (2465) (17975) In an open economy, gross domestic product equals $2,450 billion,
consumption expenditure equals $1,390 billion, government expenditure equals $325
billion, investment equals $510 billion and net capital outflow equals $225 billion.
What is national saving?
a. $225 billion
b. $510 billion
c. $735 billion
d. $1,390 billion

QN=42 (2454) (17964) Sonya, a citizen of Denmark, produces boots and shoes that she sells to
department stores in the United States. Other things the same, these sales
a. increase U.S. net exports and have no effect on Danish net exports.
b. decrease U.S. net exports and have no effect on Danish net exports.
c. increase U.S. net exports and decrease Danish net exports.
d. decrease U.S. net exports and increase Danish net exports.

QN=43 (2457) (17980) A Japanese firm buys lumber from the United States and pays for it with yen.
Other things the same, Japanese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.

QN=44 (2487) (18003) If the supply of dollars in the market for foreign-currency exchange shifts left,
then the exchange rate
a. rises and the quantity of dollars exchanged falls.
b. rises and the quantity of dollars exchanged does not change.
c. rises and the quantity of dollars exchanged rises.
d. falls and the quantity of dollars exchanged does not change.

QN=45 (2496) (17991) A trade policy is a government policy

a. directed toward the goal of improving the tradeoff between equity and efficiency.
b. that directly influences the quantity of goods and services that a country imports or
exports.
c. intended to exploit the tradeoff between inflation and unemployment by altering the
budget deficit.
d. concerning employment laws.

QN=46 (2507) (18021) Recessions in China and India would cause

a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.

QN=47 (2506) (18038) If speculators gained greater confidence in foreign economies so that they
wanted to buy more assets of foreign countries and fewer U.S. bonds,
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.

QN=48 (2517) (18039) Which of the following can explain the upward slope of the short-run
aggregate supply curve?
a. nominal wages are slow to adjust to changing economic conditions
b. as the price level falls, the exchange rate falls
c. an increase in the money supply lowers the interest rate
d. an increase in the interest rate increases investment spending

QN=49 (2548) (18045) In the long run, fiscal policy primarily affects
a. aggregate demand. In the short run, it affects primarily aggregate supply.
b. aggregate supply. In the short run, it affects primarily saving, investment, and growth.
c. saving, investment, and growth. In the short run, it affects primarily aggregate
demand.
d. saving, investment, and growth. In the short run, it affects primarily aggregate supply.

QN=50 (2542) (18060) Other things the same, automatic stabilizers tend to
a. raise expenditures during expansions and recessions.
b. lower expenditures during expansions and recessions.
c. raise expenditures during recessions and lower expenditures during expansions.
d. raise expenditures during expansions and lower expenditures during recessions.
For Examination Department Only

Answer of Paper Code=ECO121_SU21_2[1006]

***************************************************************

MULTIPLE CHOICES QUESTIONS:(Mark=50)

[id=2212, Mark=1]1. B

[id=2209, Mark=1]2. D

[id=2223, Mark=1]3. B

[id=2219, Mark=1]4. A

[id=2208, Mark=1]5. B

[id=2250, Mark=1]6. C

[id=2257, Mark=1]7. C

[id=2252, Mark=1]8. B

[id=2240, Mark=1]9. D

[id=2260, Mark=1]10. C

[id=2280, Mark=1]11. B

[id=2269, Mark=1]12. C

[id=2270, Mark=1]13. C

[id=2285, Mark=1]14. C

[id=2278, Mark=1]15. A

[id=2301, Mark=1]16. A

[id=2303, Mark=1]17. A

[id=2325, Mark=1]18. B

[id=2306, Mark=1]19. B

[id=2308, Mark=1]20. B

[id=2346, Mark=1]21. D

[id=2348, Mark=1]22. D

[id=2331, Mark=1]23. C

[id=2329, Mark=1]24. C
[id=2355, Mark=1]25. A

[id=2363, Mark=1]26. C

[id=2382, Mark=1]27. C

[id=2385, Mark=1]28. B

[id=2356, Mark=1]29. A

[id=2364, Mark=1]30. D

[id=2366, Mark=1]31. B

[id=2395, Mark=1]32. D

[id=2411, Mark=1]33. A

[id=2404, Mark=1]34. B

[id=2441, Mark=1]35. C

[id=2431, Mark=1]36. B

[id=2423, Mark=1]37. B

[id=2434, Mark=1]38. D

[id=2444, Mark=1]39. B

[id=2435, Mark=1]40. B

[id=2465, Mark=1]41. C

[id=2454, Mark=1]42. D

[id=2457, Mark=1]43. C

[id=2487, Mark=1]44. A

[id=2496, Mark=1]45. B

[id=2507, Mark=1]46. B

[id=2506, Mark=1]47. C

[id=2517, Mark=1]48. A

[id=2548, Mark=1]49. C

[id=2542, Mark=1]50. C