Test Bank for Macroeconomics International Edition 5th Edition by Stephen D. Williamson – International Edition

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Macroeconomics, 5e (Williamson)

Chapter 1   Introduction

 

1) In 2011, the per-capita GDP in the United States, in 2005 dollars, was about

500. A) $17,500.
501. B) $27,500.
502. C) $43,000.
503. D) $47,500.

Answer:  C

Question Status:  Revised

 

2) Which of the following topics is NOT a primary concern of macroeconomists?

1. A) fluctuations in the level of economic activity
2. B) differences in standards of living across countries
3. C) relative wages of skilled and unskilled workers
4. D) unemployment

Answer:  C

Question Status:  Previous Edition

 

3) Which of the following questions is of most interest for MACROECONOMISTS?

1. A) Why is there inflation?
2. B) Why does the steel industry want tariffs?
3. C) What is the appropriate stance of antitrust policy?
4. D) Why do foreigners immigrate to the United States?

Answer:  A

Question Status:  Previous Edition

 

4) Primarily, macroeconomists use microeconomic principles to study

1. A) business cycles and trends in the stock market.
2. B) long-run economic growth and antitrust policies.
3. C) trends in the stock market and long-term economic growth.
4. D) long-run economic growth and business cycles.

Answer:  D

Question Status:  Previous Edition

 

5) Which is a question of interest in this book?

1. A) What causes illegal immigration?
2. B) What mechanism could force people to pollute less?
3. C) What causes economic fluctuations?
4. D) What is the effect of penalties on crime?

Answer:  C

Question Status:  New

 

 

6) Which is a question of interest in this book?

1. A) What causes growth in the long term?
2. B) How should a labor contract be structured?
3. C) How should a government be elected?
4. D) What is the impact of government provided health care?

Answer:  A

Question Status:  New

7) Which is a question of interest in this book?

1. A) Where is the stock market heading?
2. B) What is the optimal inflation rate?
3. C) How are stock options priced?
4. D) What are commodity futures?

Answer:  B

Question Status:  New

 

8) The two most important American business cycle events of the twentieth century were

1. A) the Great Depression and stagflation.
2. B) World War II and the Great Depression.
3. C) the productivity slowdown and the Great Depression.
4. D) government budget deficits and World War II.

Answer:  B

Question Status:  Previous Edition

 

9) Over the course of the twentieth century, the typical American

1. A) remained equally as rich.
2. B) became twice as rich.
3. C) became five times as rich
4. D) became eight times as rich.

Answer:  D

Question Status:  Previous Edition

 

10) Which of the following assertions is false?

1. A) The Great Depression was a typical business cycle.
2. B) Very rapid growth occurred during World War II.
3. C) Real GDP per capita dipped about 30% during the Great Depression.
4. D) On average, the U.S. economy grows at a rate of 2.1%.

Answer:  A

Question Status:  Previous Edition

 

 

11) The relationship between the growth rate of an economic variable, gt, and its level, yt, can be approximated by

1. A) gt= yt- yt – 1.
2. B) gt= logt– log yt – 1.
3. C) yt= log gt– log gt – 1.
4. D) log gt= yt– yt – 1.

Answer:  B

Question Status:  Revised

 

12) The business cycle component of the log of real per-capita GNP is equal to

1. A) log of actual real GNP – log of trend GNP.
2. B) log of trend GNP ÷ log of actual real GNP.
3. C) log of trend GNP – log of actual real GNP.
4. D) log of actual real GNP ÷ log of trend GNP.

Answer:  A

Question Status:  Previous Edition

13) For the study of economic growth, it is most helpful to examine movements in ________; for the study of business cycles, it is most helpful to examine movements in ________.

1. A) trend GNP; trend GNP
2. B) trend GNP; deviations from trend in GNP
3. C) deviations from trend in GNP; trend GNP
4. D) deviations from trend in GNP; deviations from trend in GNP

Answer:  B

Question Status:  Previous Edition

 

14) Over the twentieth century, growth in per-capita GNP was highest

1. A) immediately prior to the Great Depression.
2. B) during World War II.
3. C) during the 1960s.
4. D) during the 1980s.

Answer:  B

Question Status:  Previous Edition

 

15) When we say the U.S. economy has grown on average at 2.1%, we mean

1. A) the inflation rate.
2. B) the growth rate of nominal GDP.
3. C) the growth rate of per-capita nominal GDP.
4. D) the growth rate of per-capita real GDP.

Answer:  D

Question Status:  Previous Edition

 

 

16) A useful macroeconomic model

1. A) is extremely realistic.
2. B) is simple.
3. C) never generates testable hypotheses.
4. D) provides a lot of intricate details.

Answer:  B

Question Status:  Previous Edition

 

17) Macroeconomic models are

1. A) never wrong.
2. B) accurate descriptions of the economy.
3. C) simple abstractions of reality.
4. D) consistent with all economic data.

Answer:  C

Question Status:  Revised

 

18) The structure of a macroeconomic model involves all of the following except

1. A) the available technology.
2. B) the behavior of consumers and firms.
3. C) the preferences of consumers.
4. D) the available resources.

Answer:  B

Question Status:  Previous Edition

19) What characterizes a competitive equilibrium?

1. A) Markets are rationed.
2. B) Governments stay out of the market.
3. C) Economic agents are price-takers.
4. D) It is costly to experiment with policies.

Answer:  C

Question Status:  Previous Edition

 

20) What do we assume about households and firms?

1. A) They act irrationally.
2. B) They do what the government tells them to do.
3. C) They look after each other.
4. D) They optimize.

Answer:  D

Question Status:  Previous Edition

 

 

21) The development most responsible for the wide-spread introduction of macroeconomic models built upon solid microeconomic foundations was the

1. A) work of John Maynard Keynes.
2. B) rational expectations revolution.
3. C) popularization of supply-side economics.
4. D) development of the Keynesian coordination failure model.

Answer:  B

Question Status:  Previous Edition

 

22) According to the Lucas critique, changes in economic policy are likely to have important effects on

1. A) the available amounts of natural resources.
2. B) the behavior of consumers and firms.
3. C) the preferences of consumers.
4. D) none of the above

Answer:  B

Question Status:  Previous Edition

 

23) Current macroeconomic models use microeconomic principles because

1. A) they use the same language for all economists.
2. B) they highlight the sociological aspects of production.
3. C) the behavior of economic agents changes with policy.
4. D) we live in a democratic society and everybody has a say.

Answer:  C

Question Status:  Previous Edition

 

24) Which aspect of macroeconomics generates the most controversy?

1. A) economic growth
2. B) the causes of business cycles
3. C) supply and demand
4. D) competitive equilibrium

Answer:  B

Question Status:  Revised

25) What is the key feature that differentiates business cycle theories?

1. A) whether the theory was developed before or after the Great Depression.
2. B) whether the theory is Keynesian or non-Keynesian.
3. C) whether the theory also explains economic growth.
4. D) whether the theory explains how monetary policy works.

Answer:  B

Question Status:  New

 

 

26) According to real business cycle theory, the primary causes of business cycles are

1. A) shocks to aggregate demand.
2. B) monetary factors.
3. C) technology shocks.
4. D) waves of self-fulfilling optimism and pessimism.

Answer:  C

Question Status:  Previous Edition

 

27) According to Keynesian coordination failure theory, the primary causes of business cycles are

1. A) shocks to aggregate demand.
2. B) monetary factors.
3. C) technology shocks.
4. D) waves of self-fulfilling optimism and pessimism.

Answer:  D

Question Status:  Previous Edition

 

28) The macroeconomic models that are most supportive of the role of government policy aimed at smoothing business cycles are

1. A) real business cycle models.
2. B) endogenous growth models.
3. C) Keynesian models.
4. D) Solow growth models.

Answer:  C

Question Status:  Previous Edition

 

29) Two important theories of unemployment are

1. A) game theory and search theory.
2. B) search theory and the efficiency wage theory.
3. C) the efficiency wage theory and the quantity theory.
4. D) the quantity theory and game theory.

Answer:  B

Question Status:  Previous Edition

 

30) What is produced and consumed in the economy is determined jointly by

1. A) government policies and the economy’s productive capacity.
2. B) the economy’s productive capacity and the preferences of consumers.
3. C) the preferences of consumers and the behavior of business managers.
4. D) the behavior of business managers and government policies.

Answer:  B

Question Status:  Previous Edition

 

31) Improvements in a country’s standard of living are brought about in the long run by

1. A) technological progress.
2. B) growth in the population.
3. C) constructing more machines and buildings.
4. D) immigration policy.

Answer:  A

Question Status:  Previous Edition

 

32) Business cycles are

1. A) each unique, but all have a single cause.
2. B) each unique and they can have many causes.
3. C) similar, and they all have a single cause.
4. D) similar, but they can have many causes.

Answer:  D

Question Status:  Previous Edition

 

33) Credit markets are

1. A) bad, as they cause people to accumulate debt.
2. B) not important for the financial crisis.
3. C) important, but given too little attention in the past by macroeconomists.
4. D) markets that work perfectly.

Answer:  C

Question Status:  New

 

34) In the long run, inflation is caused by

1. A) aggressive labor unions.
2. B) greedy monopolists.
3. C) growth in the money supply.
4. D) global warming.

Answer:  C

Question Status:  Previous Edition

 

35) For macroeconomics, banks

1. A) are similar to other firms.
2. B) can be abstracted away.
3. C) play a key role.
4. D) are similar to households.

Answer:  C

Question Status:  Previous Edition

 

36) In the long run, the quantity of money

1. A) does not matter.
2. B) influences GDP.
3. C) influences unemployment.
4. D) influences the business cycle.

Answer:  A

Question Status:  Previous Edition

37) Regarding money, what matters most?

1. A) that is exists.
2. B) that its quantity is known.
3. C) that coins are available.
4. D) that its quantity is stable.

Answer:  A

Question Status:  Previous Edition

 

38) The quantity of money in circulation in the United States is managed by

1. A) The Securities Exchange Commission.
2. B) The United States Treasury.
3. C) The Federal Reserve System.
4. D) Wall Street.

Answer:  C

Question Status:  Previous Edition

 

39) Considering the future

1. A) is irrelevant to macroeconomics.
2. B) is key to macroeconomic modelling.
3. C) has a limited impact on macroeconomic analysis.
4. D) matters only under special circumstances.

Answer:  B

Question Status:  Previous Edition

 

40) International trade between two countries

1. A) benefits only the receiving country.
2. B) benefits only the sending country.
3. C) benefits both countries.
4. D) benefits neither country.

Answer:  C

Question Status:  Previous Edition

 

41) Unemployment, at the aggregate level.,

1. A) is avoidable.
2. B) is part of a well-functioning economy.
3. C) is always a sign of market failure.
4. D) would not happen with good policy.

Answer:  B

Question Status:  Previous Edition

 

42) A trade-off between aggregate output and inflation

1. A) is theoretically possible, but has never been observed in practice.
2. B) may exist in the short run, but not in the long run.
3. C) may exist in the long run, but not in the short run.
4. D) exists in both the short run and the long run.

Answer:  B

Question Status:  Previous Edition

43) A good measure of productivity is

1. A) the interest rate.
2. B) the inflation rate.
3. C) aggregate output divided by employment.
4. D) the growth rate of aggregate output.

Answer:  C

Question Status:  Previous Edition

 

44) Which is not a cause for business cycles considered by macroeconomists?

1. A) shocks to money supply
2. B) greed
3. C) shocks to technological ability
4. D) variations in optimism

Answer:  B

Question Status:  Revised

 

45) A productivity slowdown was observed from the

1. A) early 1950s to the late 1960s.
2. B) early 1960s to the early 1970s.
3. C) late 1960s to the early 1980s.
4. D) mid-1980s to the late 1990s.

Answer:  C

Question Status:  Previous Edition

 

46) Two plausible hypotheses to explain the productivity slowdown are

1. A) measurement problems and adjustments to new technologies.
2. B) large government budget deficits and large balance of trade deficits.
3. C) globalization of capital markets and reductions in tariffs.
4. D) adjustments to new technologies and failures in the educational system.

Answer:  A

Question Status:  Previous Edition

 

47) The Beveridge curve is

1. A) a positive relationship between unemployment and the inflation rate.
2. B) a positive relationship between the government deficit and aggregate output.
3. C) a negative relationship between the vacancy rate and the unemployment rate.
4. D) a positive relationship between the inflation rate and the nominal interest rate.

Answer:  C

Question Status:  New

 

48) The Beveridge curve shifted outward during what period?

1. A) during the Great Depression.
2. B) during the Great Moderation.
3. C) after January 2008.
4. D) between January 2000 and December 2007.

Answer:  C

Question Status:  New

49) The major contributor to the long-run improvement of a country’s standard of living is

1. A) low inflation.
2. B) growth in government.
3. C) population growth.
4. D) technological progress.

Answer:  D

Question Status:  Previous Edition

 

50) Unemployment is good from a social point of view because

1. A) it keeps wages in check.
2. B) it allows for better matches between workers and firms.
3. C) it provides free time.
4. D) it keeps the least efficient workers out.

Answer:  B

Question Status:  Previous Edition

 

51) The U.S. government budget was

1. A) continuously in surplus from 1959 to the late 1990s.
2. B) in surplus for most of the period from 1959-1970, but was in deficit for most of the period from 1970 to the late 1990s.
3. C) in deficit for most of the period from 1959-1970, but was in surplus for most of the period from 1970 to the late 1990s.
4. D) continuously in deficit from 1959 to the late 1990s.

Answer:  B

Question Status:  Previous Edition

 

52) Over the long run, taxes and government expenses have

1. A) remained relatively stable.
2. B) decreased.
3. C) increased.
4. D) drifted apart.

Answer:  C

Question Status:  Previous Edition

 

53) A government deficit occurs when

1. A) the government spends more than what it gets in taxes.
2. B) public goods are worth less than what was paid for them.
3. C) a government loses an election.
4. D) the government still has Treasury bonds to reimburse.

Answer:  A

Question Status:  Previous Edition

 

 

54) In the 2008-09 recession, the government deficit

1. A) stayed roughly constant.
2. B) decreased.
3. C) increased.
4. D) would have increased if the government had intervened.

Answer:  C

Question Status:  New

55) The idea that government budget deficits do not matter under certain circumstances is

1. A) called the Friedman-Lucas theory.
2. B) called the Ricardian equivalence theorem.
3. C) attributed to Edward Prescott and Finn Kydland.
4. D) preposterous.

Answer:  B

Question Status:  Previous Edition

 

56) In the second half of the twentieth century, the U.S. inflation rate was at its highest in the period from

1. A) 1960 to the early 1970s.
2. B) the mid-1970s to the early 1980s.
3. C) the mid-1980s to the early 1990s.
4. D) 1990-2000.

Answer:  B

Question Status:  Previous Edition

 

57) Average labor productivity is defined as

1. A) per-capital real GDP divided by employment.
2. B) nominal GDP divided by employment.
3. C) per-capita nominal GDP divided by employment.
4. D) real GDP divided by employment.

Answer:  D

Question Status:  Revised

 

58) A government surplus is

1. A) when it spends more than its income.
2. B) when it owes more than what it is owed.
3. C) when its income is higher than its spending.
4. D) when it is owed more than what it owes.

Answer:  C

Question Status:  Previous Edition

 

 

59) Government debt is different from individual debt because

1. A) the government can always tax to reduce it.
2. B) the government cannot declare bankruptcy.
3. C) the government does not need to pay interest.
4. D) the government can decide the interest rate.

Answer:  A

Question Status:  Revised

 

60) The real interest rate is

1. A) always equal to the pure rate of time preference.
2. B) equal to the rate of inflation minus the nominal rate of interest.
3. C) equal to the nominal rate of interest minus the rate of inflation.
4. D) less important for decision making than the nominal rate of interest.

Answer:  C

Question Status:  Previous Edition

61) The real interest rate is

1. A) always positive.
2. B) always negative.
3. C) variable.
4. D) zero.

Answer:  C

Question Status:  Revised

 

62) When there is positive inflation

1. A) the nominal interest rate is approximately equal to the real interest rate.
2. B) the real interest rate is greater than the nominal interest rate.
3. C) the nominal interest rate is greater than the real interest rate.
4. D) the real interest rate is negative.

Answer:  C

Question Status:  Revised

 

63) Real interest rates were negative during most of the

1. A) 1960s.
2. B) 1970s.
3. C) 1980s.
4. D) 1990s.

Answer:  B

Question Status:  Previous Edition

 

64) An increase in energy prices is a likely cause of

1. A) Great Depression.
2. B) Korean War inflation.
3. C) the recession in 1973-1975.
4. D) the Great Moderation.

Answer:  C

Question Status:  Revised

 

65) Which period was not a recession in the United States?

1. A) 1974-1975
2. B) 1990-1991
3. C) 1984-1985
4. D) 2001

Answer:  C

Question Status:  Previous Edition

 

66) Which was the deepest recession in the United States before the recession of 2008-09?

1. A) 1978-1979
2. B) 1981-1982
3. C) 1990-1991
4. D) 2001

Answer:  B

Question Status:  Revised

67) The most likely explanation of the recession of 1981-1982 was

1. A) an increase in energy prices.
2. B) a collapse in investment spending.
3. C) that it was an unfortunate byproduct of a decrease in inflation.
4. D) a dramatic decrease in stock prices.

Answer:  C

Question Status:  Previous Edition

 

68) A likely explanation for the 2008-2009 recession is

1. A) an increase in energy prices.
2. B) financial market problems.
3. C) a drastic reduction in government expenses.
4. D) an increase in taxes.

Answer:  B

Question Status:  Revised

 

69) Asymmetric information is:

1. A) information revealed by economic agents turns out to be wrong.
2. B) inflation forecasts are systematically to high or too low.
3. C) some economic agents have more information than others.
4. D) the government knows less about the economy than households and firms.

Answer:  C

Question Status:  Previous Edition

 

 

70) Limit commitment occurs when

1. A) collateral is required to get a loan.
2. B) one cannot borrow as much as necessary to conduct business.
3. C) one cannot be forced to repay a loan.
4. D) the bank can sell your loan to another bank.

Answer:  C

Question Status:  Previous Edition

 

71) Inflation is defined as

1. A) the rate of increase in the government budget deficit.
2. B) the increase in the money supply.
3. C) the rate of change in the average level of prices.
4. D) the nominal interest rate minus the price level.

Answer:  C

Question Status:  Revised

 

72) When a country has a current account deficit, the country

1. A) is borrowing from abroad.
2. B) is lending abroad.
3. C) must have a government budget surplus.
4. D) must have a government budget deficit.

Answer:  A

Question Status:  Revised

73) Between 1947 and 2011,

1. A) Exports decreased and imports decreased.
2. B) Exports and imports increased.
3. C) The current account surplus rose.
4. D) The current account deficit fell.

Answer:  B

Question Status:  New

 

 

Macroeconomics, 5e (Williamson)

Chapter 5   A Closed-Economy One-Period Macroeconomic Model

 

1) An economy that has no interaction with the rest of the world is called

1. A) an isolated economy.
2. B) a closed economy.
3. C) a parochial economy.
4. D) a rogue nation.

Answer:  B

Question Status:  Previous Edition

 

2) An economy that engages in international trade is called

1. A) a cooperative economy.
2. B) a modern economy.
3. C) an engaged economy.
4. D) an open economy.

Answer:  D

Question Status:  Previous Edition

 

3) A closed economy is characterized by

1. A) the absence of trade with other economies.
2. B) the absence of use of money for transactions.
3. C) no growth in population.
4. D) a Cobb-Douglas production function.

Answer:  A

Question Status:  Previous Edition

 

4) In an economic model, an exogenous variable is

1. A) a stand-in for more complicated variables.
2. B) determined by the model itself.
3. C) determined outside the model.
4. D) a variable that has no effect on the workings of the model.

Answer:  C

Question Status:  Previous Edition

 

5) In an economic model, an endogenous variable is

1. A) a stand-in for more complicated variables.
2. B) determined by the model itself.
3. C) determined outside the model.
4. D) a variable that has no effect on the workings of the model.

Answer:  B

Question Status:  Previous Edition

 

 

6) In a one-period economic model, the government budget constraint requires that government spending

1. A) = taxes + transfers.
2. B) = taxes + borrowing.
3. C) > 0.
4. D) = taxes.

Answer:  D

Question Status:  Previous Edition

7) Which of the following relationships does not hold in the one-period model?

1. A) G=T
2. B) Y=C+G
3. C) Y=zF(K,N)
4. D) π=Y-wN-C

Answer:  D

Question Status:  Previous Edition

 

8) Fiscal policy refers to a government’s choices over its

1. A) expenditures, taxes, transfers, and borrowing.
2. B) expenditures, taxes, issuance of money, and borrowing.
3. C) expenditures, foreign affairs, issuance of money, and borrowing.
4. D) issuance of money, taxes, environmental regulations, and foreign affairs.

Answer:  A

Question Status:  Previous Edition

 

9) Fiscal policy encompasses all of the following except

1. A) expenditures by the government.
2. B) monetary injection by the government.
3. C) taxation by the government.
4. D) borrowing by the government.

Answer:  B

Question Status:  Previous Edition

 

10) Making use of an economic model is a process of

1. A) solving hundreds of simultaneous equations.
2. B) running experiments to determine how changes in the endogenous variables will change the exogenous variables.
3. C) running experiments to determine how changes in the exogenous variables will change the endogenous variables.
4. D) resolving inconsistencies in the actions of economic agents.

Answer:  C

Question Status:  Previous Edition

 

 

11) Which of the following is not a property of a competitive equilibrium?

1. A) markets clear.
2. B) consumers and firms optimize given market prices.
3. C) the government budget constraint is satisfied.
4. D) increasing total factor productivity.

Answer:  D

Question Status:  New

 

12) A competitive equilibrium is a state of affairs in which

1. A) markets clear, and output is maximized.
2. B) output is maximized, and all agents are equally well-off.
3. C) all agents are equally well-off and agents are price-takers.
4. D) economic agents are price takers and markets clear.

Answer:  D

Question Status:  Previous Edition

13) For a competitive equilibrium to occur, all of the following has to happen except

1. A) agents are price takers.
2. B) the government sets taxes at zero.
3. C) markets clear.
4. D) the actions of all agents are consistent.

Answer:  B

Question Status:  Previous Edition

 

14) In a general equilibrium model

1. A) all markets but one clear.
2. B) there are no fluctuations.
3. C) all prices are exogenous.
4. D) all prices are endogenous.

Answer:  D

Question Status:  Previous Edition

 

15) In a competitive equilibrium all these relationships hold but one. Which one?

1. A) Nd=Ns
2. B) Y=G+C
3. C) G=T
4. D) w=z

Answer:  D

Question Status:  Previous Edition

 

16) In the one-period competitive model we have been studying

1. A) both consumption and total factor productivity are exogenous.
2. B) consumption is exogenous and total factor productivity is endogenous.
3. C) consumption is endogenous and total factor productivity is exogenous.
4. D) both consumption and total factor productivity are endogenous.

Answer:  C

Question Status:  Previous Edition

 

17) A relationship that shows the technological possibilities for an economy as a whole is called a

1. A) production function.
2. B) utility possibilities frontier.
3. C) production possibilities frontier.
4. D) budget constraint.

Answer:  C

Question Status:  Previous Edition

 

18) The production possibilities frontier in the one-period model is a

1. A) behavioral relationship between consumption and leisure.
2. B) behavioral relationship between consumption and government spending.
3. C) technological relationship between consumption and leisure.
4. D) technological relationship between consumption and government spending.

Answer:  C

Question Status:  Previous Edition

19) The production possibilities frontier represents

1. A) all combinations of consumption and leisure for fixed output.
2. B) all equally affordable combinations of consumption and leisure for a given wage.
3. C) all technologically feasible combinations of consumption and leisure.
4. D) all equally liked combinations of consumption and leisure.

Answer:  C

Question Status:  Revised

 

20) Which of the following is not a reason for solving the model with a PPF?

1. A) It merges the household and firm problems into one graph.
2. B) It is simpler to solve the social planner problem.
3. C) It highlights the fact that the marginal rate of substitution should equal the marginal rate of transformation.
4. D) It highlights the fact that firms make no profit in equilibrium.

Answer:  D

Question Status:  Previous Edition

 

21) The PPF determines

1. A) all possible outcomes for a given wage.
2. B) the set of feasible outcomes.
3. C) given leisure, how much consumption a household wants.
4. D) the share of consumption in output.

Answer:  B

Question Status:  Revised

 

 

22) PPF is the

1. A) price parity formula.
2. B) possible production function.
3. C) producer’s preferred frontier.
4. D) production possibilities frontier.

Answer:  D

Question Status:  Previous Edition

 

23) The rate at which one good can be converted technologically into another is called

1. A) the marginal rate of transformation.
2. B) the marginal rate of substitution.
3. C) the marginal product of labor.
4. D) the rate of conversion.

Answer:  A

Question Status:  Previous Edition

 

24) Points on the production possibilities frontier have the property that they

1. A) are inherently unattainable.
2. B) show the maximum amount of leisure that can be consumed for given amounts of goods consumed.
3. C) show the maximum amount of goods that can be consumed for given amounts of government spending.
4. D) show the maximum amount of leisure that can be consumed for given amounts of hours worked.

Answer:  B

Question Status:  Previous Edition

25) A competitive equilibrium has all of the following properties except

1. A) MPN= slope of PFF.
2. B) MRS1,C = MRT1,C.
3. C) MRT1,C= MPN.
4. D) MPN= w.

Answer:  A

Question Status:  Previous Edition

 

26) A competitive equilibrium is Pareto optimal if there is no way to rearrange or to reallocate goods so that

1. A) anyone can be made better off.
2. B) no one can be made worse off.
3. C) someone can be made better off without making someone else worse off.
4. D) someone can be made better off without making everyone else worse off.

Answer:  C

Question Status:  Previous Edition

 

 

27) Which of the following is not equal to the others in equilibrium?

1. A) the real wage
2. B) the marginal rate of substitution between leisure and consumption
3. C) the marginal product of labor
4. D) the price of consumption

Answer:  D

Question Status:  Previous Edition

 

28) A Pareto optimum is a point that

1. A) a malevolent dictator would choose.
2. B) a cooperative coalition of some altruistic consumers would choose.
3. C) a cooperative coalition of some socially responsible firms would choose.
4. D) a social planner would choose.

Answer:  D

Question Status:  Previous Edition

 

29) A Pareto optimum requires all of the following except

1. A) = -slope of PPF.
2. B) MRS1,C = MRT1,C.
3. C) MRS1,C = MPN.
4. D) MPN= w.

Answer:  D

Question Status:  Previous Edition

 

30) Much of the writings of Adam Smith are in close agreement with

1. A) the necessity of trade restrictions.
2. B) the first fundamental theorem of welfare economics.
3. C) the second theorem of welfare economics.
4. D) both B and C above.

Answer:  B

Question Status:  Previous Edition

31) The first fundamental theorem of welfare economics states that

1. A) under certain conditions, a competitive equilibrium is Pareto optimal.
2. B) a competitive equilibrium is always Pareto optimal.
3. C) under certain conditions, a Pareto optimum is a competitive equilibrium.
4. D) a Pareto optimum is always a competitive equilibrium.

Answer:  A

Question Status:  Previous Edition

 

 

32) The second fundamental theorem of welfare economics states that

1. A) under certain conditions, a competitive equilibrium is Pareto optimal.
2. B) a competitive equilibrium is always Pareto optimal.
3. C) under certain conditions, a Pareto optimum is a competitive equilibrium.
4. D) a Pareto optimum is always a competitive equilibrium.

Answer:  C

Question Status:  Previous Edition

 

33) The concept of Pareto optimality is a

1. A) utopian concept.
2. B) useful concept because it guarantees economic equality.
3. C) useful concept because it defines economic efficiency.
4. D) useful concept that carefully balances a society’s desires for equality and efficiency.

Answer:  C

Question Status:  Revised

 

34) A competitive equilibrium

1. A) is always economically efficient.
2. B) is efficient only if there is an externality.
3. C) is economically efficient only given some special conditions.
4. D) does not exist without government taxation.

Answer:  C

Question Status:  New

 

35) Under a Pareto Optimum

1. A) it is always possible to improve someone’s welfare.
2. B) it is never possible to improve someone’s welfare.
3. C) one can only reduce someone’s welfare.
4. D) it is impossible to reduce someone’s welfare.

Answer:  C

Question Status:  Previous Edition

 

36) A competitive equilibrium may fail to be Pareto optimal due to all of the following except

1. A) inequality.
2. B) externalities.
3. C) distorting taxes.
4. D) non-price-taking firms.

Answer:  A

Question Status:  Previous Edition

 

37) An externality is any activity for which an individual firm or consumer does not take into account all

1. A) of the ramifications of its actions on others.
2. B) associated costs.
3. C) associated benefits.
4. D) associated costs and benefits.

Answer:  D

Question Status:  Previous Edition

 

38) A competitive equilibrium fails to be a Pareto Optimum with a distorting tax because

1. A) the consumer’s budget constraint has an additional kink.
2. B) the firm is no longer maximizing profits.
3. C) the government wastes its revenue.
4. D) the consumer faces a different effective wage than the firm.

Answer:  D

Question Status:  Revised

 

39) The presence of a distorting tax on wage income can result in

1. A) MPN< MRT1,C.
2. B) MRT1,C< MRS1,C.
3. C) MPN< w.
4. D) MRS1,C < MPN

Answer:  D

Question Status:  Previous Edition

 

40) Relative to the social optimum, monopoly power tends to lead to

1. A) underproduction.
2. B) overproduction.
3. C) too much leisure.
4. D) too little leisure.

Answer:  A

Question Status:  New

 

41) An increase in government spending shifts the PPF

1. A) upward, but does not change its slope.
2. B) upward, and also changes its slope.
3. C) downward, but does not change its slope.
4. D) downward, and also changes its slope.

Answer:  C

Question Status:  Previous Edition

 

 

42) An increase in government spending

1. A) increases consumption, increases hours worked, and increases the real wage.
2. B) reduces consumption, increases hours worked, and increases the real wage.
3. C) reduces consumption, increases hours worked, and reduces the real wage.
4. D) reduces consumption, reduces hours worked, and reduces the real wage.

Answer:  C

Question Status:  Previous Edition

43) An increase in government spending

1. A) increases consumption and output.
2. B) increases consumption, decreases output.
3. C) decreases consumption, increases output.
4. D) decreases consumption and output.

Answer:  C

Question Status:  Previous Edition

 

44) Changes in government spending are not likely causes of business cycles because changes in government spending predict

1. A) countercyclical real wages.
2. B) procyclical real wages.
3. C) countercyclical employment.
4. D) procyclical employment.

Answer:  A

Question Status:  Revised

 

45) Changes in government spending are not likely causes of business cycles because changes in government spending predict

1. A) countercyclical consumption.
2. B) procyclical consumption.
3. C) countercyclical employment.
4. D) procyclical employment.

Answer:  A

Question Status:  Revised

 

46) Which feature of the business cycle does the one-period model replicate with shocks to government expenditures?

1. A) procyclical employment
2. B) procyclical consumption
3. C) procyclical real wages
4. D) countercyclical prices

Answer:  A

Question Status:  Previous Edition

 

 

47) An increase in total factor productivity shifts the PPF

1. A) upward, but does not change its slope.
2. B) upward, and also changes its slope.
3. C) downward, but does not change its slope.
4. D) downward, and also changes its slope.

Answer:  B

Question Status:  Previous Edition

 

48) An increase in total factor productivity

1. A) increases consumption, increases output, and increases the real wage.
2. B) reduces consumption, increases output, and increases the real wage.
3. C) reduces consumption, increases output and reduces the real wage.
4. D) reduces consumption, reduces output, and reduces the real wage.

Answer:  A

Question Status:  Previous Edition

49) Suppose total factor productivity increases. Which of the following is incorrect?

1. A) Households are better off.
2. B) Consumption goes up.
3. C) The real wage goes down.
4. D) Output goes up.

Answer:  C

Question Status:  Revised

 

50) In response to an increase in total factor productivity

1. A) both the substitution effect and the income effect suggest that hours worked should increase.
2. B) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease.
3. C) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase.
4. D) both the substitution effect and the income effect suggest that hours worked should decrease.

Answer:  B

Question Status:  Previous Edition

 

51) Changes in total factor productivity are plausible causes of business cycles because productivity-induced business cycles correctly predict

1. A) real wages and total hours must be procyclical.
2. B) real wages and consumption must be procyclical.
3. C) total hours worked and consumption must be procyclical.
4. D) consumption and government spending must be procyclical.

Answer:  B

Question Status:  Previous Edition

 

 

52) Changes in total factor productivity are plausible causes of business cycles because

1. A) of the welfare theorems.
2. B) the U.S. government is following supply-side economic policy.
3. C) the model matches many stylized facts.
4. D) prices are countercyclical.

Answer:  C

Question Status:  Previous Edition

 

53) Real business cycle theory argues that the primary cause of business cycles is fluctuations in

1. A) preferences.
2. B) government spending.
3. C) the importance of externalities.
4. D) total factor productivity.

Answer:  D

Question Status:  Previous Edition

54) The variable G considered in the model encompasses

1. A) government expenses on goods.
2. B) government expenses on goods and services.
3. C) government expenses on goods and services as well as transfers.
4. D) government expenses on goods and services as well as transfers and public debt service.

Answer:  B

Question Status:  Previous Edition

 

55) A one-unit increase in government expenditures should, according to the model, increase GDP by

1. A) 0.
2. B) between zero and one unit.
3. C) one unit.
4. D) more than one unit.

Answer:  B

Question Status:  Revised

 

56) If the government replaces a lump sum tax with a proportional labor income tax, then

1. A) employment and output increase.
2. B) employment increases and output decreases.
3. C) employment decreases and output increases.
4. D) employment and output decrease.

Answer:  D

Question Status:  Previous Edition

 

 

57) Proportional income taxation is distorting because

1. A) people do all they can to avoid paying taxes.
2. B) the competitive equilibrium is not Pareto optimal.
3. C) firms do all they can to avoid paying taxes.
4. D) the government budget constraint does not hold.

Answer:  B

Question Status:  Previous Edition

 

58) With a linear production function in labor only, which of the following must be true?

1. A) The representative household works as much as possible.
2. B) The representative firm makes large profits.
3. C) The real wage equals total factor productivity.
4. D) The marginal product of labor exceeds the real wage.

Answer:  C

Question Status:  Previous Edition

 

59) How does an increase in the proportional labor income tax modify the consumer’s budget constraint?

1. A) a parallel move up
2. B) a parallel move down
3. C) the slope decreases (constraint gets steeper)
4. D) the slope increases (constraint gets flatter)

Answer:  D

Question Status:  Revised

60) At the competitive equilibrium with a positive proportional labor income tax

1. A) the real wage after tax exceeds the marginal product of labor.
2. B) the real wage after tax equals the marginal product of labor.
3. C) the real wage after tax is lower than the marginal product of labor.
4. D) We cannot say.

Answer:  C

Question Status:  Previous Edition

 

61) At the competitive equilibrium with a positive proportional labor income tax

1. A) the real wage before tax exceeds the marginal product of labor.
2. B) the real wage before tax equals the marginal product of labor.
3. C) the real wage before tax is lower than the marginal product of labor.
4. D) We cannot say.

Answer:  B

Question Status:  Previous Edition

 

 

62) The tax base is

1. A) the average tax rate.
2. B) the tax rate for the base year.
3. C) the object being taxed.
4. D) the lowest tax rate.

Answer:  C

Question Status:  Previous Edition

 

63) When the tax rate increases, the tax revenue

1. A) always increases.
2. B) does not change.
3. C) always decreases.
4. D) may increase or decrease.

Answer:  D

Question Status:  Previous Edition

 

64) The Laffer curve is a curve showing

1. A) output as a function of the tax rate.
2. B) tax revenue as a function of the tax rate.
3. C) government expenses as a function of how liberal the government is.
4. D) the tax rate as a function of government expenses.

Answer:  B

Question Status:  Previous Edition

 

65) Supply-side economists argue that

1. A) one should get rid of all taxes.
2. B) tax rates should not be progressive.
3. C) increasing tax rates always hurts tax revenue.
4. D) one can increase tax revenue by decreasing the tax rate.

Answer:  D

Question Status:  Previous Edition

66) In the model of public goods

1. A) government spending is pure waste
2. B) private consumption and government spending are equal.
3. C) consumers benefit from private goods and public goods.
4. D) the government provides goods at no cost to the public.

Answer:  C

Question Status:  New

 

67) In the model of public goods

1. A) GDP is fixed.
2. B) there is a production function.
3. C) labor supply matters.
4. D) public goods production is proportional to labor input.

Answer:  A

Question Status:  New

 

68) In the model of public goods, when the government chooses public goods provision optimally

1. A) there is no public goods production.
2. B) public goods are provided in an amount equal to private goods.
3. C) the marginal rate of substitution of private goods for public goods equals the marginal rate of transformation.
4. D) GDP is maximized.

Answer:  C

Question Status:  New

 

69) If GDP increases in the model of public goods

1. A) people are richer, so they need less public goods.
2. B) there is substitution from private goods to public goods.
3. C) if the government provides public goods optimally, public and private goods production both increase.
4. D) all of the increase in GDP goes into public goods.

Answer:  C

Question Status:  New

 

70) If public goods can be produced more efficiently, then

1. A) public goods increase, and private goods may increase or decrease.
2. B) public goods production stays the same, and private goods increase.
3. C) public goods and private goods both increase.
4. D) public goods production falls, and private goods production rises.

Answer:  A

Question Status:  New