1.

The negative movement from peak to trough of a business cycle is called an economic
contraction because over this segment of the business cycle real GDP is larger than the
previous period.
True
False
2. Suppose that in year 1, Jane's quantity demanded of bus rides is 17 per week, when the
price of each bus ride is $1.50 and her income is $20,000. In year 2, Jane's quantity
demanded of bus rides decreases to 10 per week, when the price of each bus ride is $1.50
and her income is $30,000. Using the midpoint method, what is Jane's income elasticity
of demand for bus rides between year 1 and year 2?
A) -1.3
B) B) -51.85
C) C) 40
D) D) -0.76
3. According to the table, what is Ohman's T-Shirt Factory's profit at the profit maximizing
point?
A) $400
B) $350
C) C) -$400
D) D) -$350
4.

What is the adult female labor force in South Pointe?

A. 76 million
B. 106 million
C. 171 million
D. 160 million

5.

A deflationary gap occurs when an economy is in an expansion.

True
False
6. Sticky wages induce firms to increase their production of goods and services when
the price level increases.
True
False
7. The circular flow diagram demonstrates that the expenditures on all goods and
services in the domestic economy equals the total income paid for the scarce factors
of production used to produce those final goods and services.
True
False
8. According to the table, if Tampa and Boston were to trade white beans and baked
beans, what is the range of possible prices (i.e., prices acceptable to both locations)
for a can of white beans?
A) 1/4 of a can of baked beans to 2/3 of a can of baked beans
B) 2/3 of a can of baked beans to 1 and 1/2 cans of baked beans
C) 4 cans of baked beans to 6 cans of baked beans
D) 1 and 1/2 cans of baked beans to 4 cans of baked beans
9.

According to the table, which location has a comparative advantage in the

production of a can of baked beans?
A) Tampa
B) Boston
C) neither Tampa nor Boston

D) more information is needed

10.

When there is an increase in the price level, consumers feel wealthier because each
nominal dollar can purchase more goods and services relative to before the price
level increase. This is called the wealth effect of a price level change.
True
False
11. The consumer price index and the producer price index are measures of
A) gross domestic product
B) inflation rate
C) the unemployment rate
D) the price level
12. What is the adult male unemployment rate in South Pointe?
A) 18%
B) 5.49%
C) 7.89%
D) 8.57%

13. Suppose the economy is in an inflationary gap. Which of the following public
policies would not help the economy get back to potential real GDP?
A) decrease unemployment insurance benefits
B) decrease marginal tax rate
C) increase the discount rate
D) have the Federal Reserve sell government bonds
14. A decrease in the required reserve deposit ratio causes the money supply to
decrease.
True
False

15. According to the graph, if the economy is producing 30 chainsaws and 490 sheets of
plywood, then the opportunity cost of producing an additional 10 chainsaws is:
A) 20 sheets of plywood
B) 30 sheets of plywood
C) 40 sheets of plywood
D) 50 sheets of plywood
E) 490 sheets of plywood

16. According to the figure, because of the imposition of this per-bag tax, the price
buyers now pay and the price sellers get to keep (net) equals:
A) $28 and $48, respectively
B) $39 and $28, respectively
C) $48 and $28, respectively
D) $39 and $39, respectively

17. The short run aggregate supply curve is upward sloping because of a combination of
the interest rate effect, the misperceptions effect, and the menu cost effect.
True
False
18. The following is called the national income identity
C + I + G - NX = Aggregate Expenditure = Nominal GDP.
True
False
19. Consider the apple juice and orange juice markets. Suppose the current market
price of a half gallon of apple juice is $2.50 and at this price 18 bottles of apple juice
are demanded. Also suppose the current market price for a half-gallon of orange
juice is $3.25 and at this price 17 bottles of orange juice are demanded. When the
price of a half-gallon of orange juice increases to $3.75, and the price of apple juice
remains unchanged, the quantity demanded of orange juice decreases to 14 bottles
and the quantity demanded of apple juice increases to 22 bottles. Using the midpoint
method, what is the cross price elasticity of the demand for apple juice with regard
to the price of orange juice?
A) 20
B) 14.29
C) 1.4
D) -0.71
20. The marginal cost of each unit between units 500 and 600 equals
A) 25 cents per unit
B) 11 cents per unit
C) $25 per unit
D) $11 per unit

21. Suppose the income elasticity of demand for subway rides is +0.1 for Johnny. This
number tells us that Johnny consider subway rides an inferior good.
True
False
22. Equilibrium exists where the price level is 1.25 and the money supply equals 21
billion. What is a new possible equilibrium when the Federal Reserve buys some
government bonds?
A) price level = 1.25, money supply = 21 billion
B) price level = 4 , money supply = 21 billion
C) price level = 9, money supply = 25 billion
D) price level = 2, money supply = 25 billion

23. Structural unemployment occurs because the number of jobs available in a labor
market is insufficient to provide jobs for all that want one.
True
False

24. To have a comparative advantage in something means that you have the lowest
opportunity cost relative to those with whom you are compared.
True
False
25. Suppose the price of pork, an input in the production of hot dogs, increases. Which
of the following accurately describes how the hotdog market is affected?
A) equilibrium price decreases and equilibrium quantity decreases
B) equilibrium price increases, and equilibrium quantity increases
C) equilibrium price increases and equilibrium quantity decreases
D) equilibrium price decreases, and equilibrium quantity increases
26. A permanent increase in productivity in the economy causes
A) the short run aggregate supply curve to shift to the north-west
B) the aggregate demand curve to shift to the south-west
C) the aggregate demand curve to shift to the north-east
D) the short run aggregate supply curve to shift to the south-east
27. What is the consumer price index in 2003, assuming 2001 is the base year?
A) 100
B) 104.35
C) 123.75
D) $49.50

28. The menu cost effect tells us that when there is a real price level decrease in the
economy, then businesses do not quickly change the prices of their products. This
behavior generates a real price decrease for their products, thereby decreasing the
quantities that they sell.
A) decrease transfer payment
B) lower the discount rate
C) increase the required reserve deposit ratio
D) increase marginal tax rates
29. What is the real GDP in year 1 in the Country of Vegetable, with year 2 as the base
year?

A)
B)
C)
D)

17.5lbs
$22.50
$76.63
$91.75

30. Assume that the economy is currently at potential real GDP. Which of the following
would put the economy in an inflationary gap?
A) temporary increase in wages
B) greater stock market wealth
C) higher business taxes
D) higher marginal taxes
31. According to the table, what is the opportunity cost of producing one can of baked
beans in Boston?
A) 8 cans of white beans
B) 4 cans of white beans
C) 2 cans of white beans
D) 1/4 of a can of white beans

32. According to the graph, as the economy moves from producing 100 chainsaws to 90
chainsaws, to 80 chainsaws, to 70 chainsaws, etc., the production of chainsaws is
decreasing by 10 chainsaws. What happens to the opportunity cost of producing
additional units of plywood as the economy moves north-west on the production
possibilities frontier?
A) it remains constant
B) it decreases
C) it increases
D) it increases and then decreases

33. Which of the categories listed in the table is NOT part of the M1 money supply
calculation?
A) credit card debt
B) small time deposits
C) money market mutual funds
D) savings deposits
E) all of the above

34. The long run aggregate supply curve shifts to the right when productivity permanently
increases.

True
False

35. The long run aggregate supply curve shifts to the right when productivity
permanently increases.
True
False

36. According to the table, if the Bank of Red Sox does not have excess reserves, what is
the reserve ratio?
A) 5%
B) 10%
C) 20%
D) 50%
E) 100%

37. Assume the economy is currently at potential real GDP. Which of the following
would put the economy in a deflationary gap?
A) optimistic business forecast
B) B) permanent deregulation
C) C) lower personal taxes
D) D) a fall in consumer confidence
38. According to the table, Kim's Shoe Shop's profit maximizing quantity is
A) 0
B) 10
C) 20
D) 30
E) 40

39. If a company's average total cost remains constant as output increases, then the
company has constant returns to scope.
True
False

40. According to the figure, if the Association of University Management Professors

imposes a price floor of $45 per hour, then the actual number of management
professors hired equals:
A) 32,000
B) 44,000
C) 56,000
D) 68,000
E) 80,000