Spring 2016 Econ. 250
(Macroeconomics)
Dr. Harpal S. Grewal
Exam. II Name:____________________________________ Score:______________ Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1.
a.
b.
c.
d. For a good that is a luxury, demand
tends to be inelastic.
tends to be elastic.
has unit elasticity.
cannot be represented by a demand curve in the usual way. ____ 2.
a.
b.
c.
d. For a good that is a necessity,
quantity demanded tends to respond substantially to a change in price.
demand tends to be inelastic.
the law of demand does not apply.
All of the above are correct. ____ 3.
a.
b.
c.
d. Which of the following is likely to have the most price inelastic demand?
chocolate
Godiva chocolate
Hershey’s chocolate
All three would have the same elasticity of demand because they are all related. Table 5-2
Price
$100
$80
$60
$40
$20
$0
____ Quantity
0
10
20
30
40
50 4.
Refer to Table 5-2. Using the midpoint method, if the price falls from $40 to $20, the absolute value
of the price elasticity of demand is
a. 20.
b. 10.
c. 2.33.
d. 0.43.
Table 5-4
Price
$10
$12
$14
$16 Total
Revenue
$100
$108
$112
$112 ____ 5.
a.
b.
c.
d. Refer to Table 5-4. Demand is unit elastic when quantity demanded changes from
10 to 9.
9 to 8.
8 to 7.
There is not enough information given to determine the correct answer. ____ 6.
a.
b.
c.
d. On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
midpoint of the demand curve.
lower end of the demand curve.
upper end of the demand curve.
It is impossible to tell without knowing prices and quantities demanded. ____ 7.
You have just been hired as a business consultant to determine what pricing policy would be
appropriate in order to increase the total revenue of a bakery. The first step you would take would be to
a. increase the price of every loaf of bread in the store.
b. look for ways to cut costs and increase profit for the bakery.
c. determine the price elasticity of demand for the bakery's products.
d. determine the price elasticity of supply for the bakery’s products. ____ 8.
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the
money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup,
but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic,
what is your advice to her?
a. Leave the price at 25 cents and be patient.
b. Raise the price to increase total revenue.
c. Lower the price to increase total revenue.
d. There isn't enough information given to answer this question.
Figure 5-4
A Price B Demand
C ____ Quantity 9.
Refer to Figure 5-4. Suppose the point labeled B is the “halfway point” on the demand curve and it
corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is
a. less than 1 but greater than zero.
b. equal to 1.
c. greater than 1.
d. equal to zero. ____ 10.
a.
b.
c.
d. For which pairs of goods is the cross-price elasticity most likely to be positive?
peanut butter and jelly
bicycle frames and bicycle tires
pens and pencils
college textbooks and iPods ____ 11.
a.
b.
c.
d. If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would
increase by 4.2%.
increase by 6%.
decrease by 4.2%.
decrease by 6%. ____ 12.
a.
b.
c.
d. When a supply curve is relatively flat,
sellers are not very responsive to changes in price.
supply is relatively inelastic.
supply is relatively elastic.
Both a and b are correct. ____ 13.
If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of
supply is about
a. 0.63, and supply is elastic.
b. 0.63, and supply is inelastic.
c. 1.60, and supply is elastic.
d. 1.60, and supply is inelastic. ____ 14.
Suppose the government has imposed a price ceiling on laptop computers. Which of the following
events could transform the price ceiling from one that is not binding into one that is binding?
a. Improvements in production technology reduce the costs of producing laptop computers.
b. The number of firms selling laptop computers decreases.
c. Consumers' income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases. ____ 15.
a.
b.
c.
d. A shortage results when a
nonbinding price ceiling is imposed on a market.
nonbinding price ceiling is removed from a market.
binding price ceiling is imposed on a market.
binding price ceiling is removed from a market. ____ 16.
a.
b.
c.
d. If the government removes a binding price floor from a market, then the price received by sellers will
decrease, and the quantity sold in the market will decrease.
decrease, and the quantity sold in the market will increase.
increase, and the quantity sold in the market will decrease.
increase, and the quantity sold in the market will increase. Figure 6-8 10 price 9
8 S 7
6
5
4
3 D 2
1
5 ____ 17.
be
a.
b.
c.
d. 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 Refer to Figure 6-8. If the government imposes a price ceiling of $2 on this market, then there will
no shortage of the good.
a shortage of 40 units of the good.
a shortage of 60 units of the good.
a shortage of 85 units of the good. Figure 6-9
price
12
11
10 S 9
8
7
6
5
4
3
2
1 D
3 ____ 18.
a.
b.
c.
d. quantity 6 9 12 15 18 21 24 27 30 quantity Refer to Figure 6-9. A price ceiling set at
$4 will be binding and will result in a shortage of 3 units.
$4 will be binding and will result in a shortage of 6 units.
$7 will be binding and will result in a surplus of 6 units.
$7 will be binding and will result in a surplus of 12 units. Figure 6-10 price
24
22
20 S 18
16
14
12
10
8
6
4
2 D
2 4 6 8 10 12 14 16 18 20 quantity ____ 19.
a.
b.
c.
d. Refer to Figure 6-10. A price floor set at
$6 will be binding and will result in a surplus of 8 units.
$6 will be binding and will result in a surplus of 4 units.
$16 will be binding and will result in a surplus of 12 units.
$16 will be binding and will result in a surplus of 6 units. ____ 20.
a.
b.
c.
d. When OPEC raised the price of crude oil in the 1970s, it caused the United States’
nonbinding price floor on gasoline to become binding.
binding price floor on gasoline to become nonbinding.
nonbinding price ceiling on gasoline to become binding.
binding price ceiling on gasoline to become nonbinding. ____ 21.
A tax on the sellers of coffee will increase the price of coffee paid by buyers,
a. increase the effective price of coffee received by sellers, and increase the equilibrium
quantity of coffee.
b. increase the effective price of coffee received by sellers, and decrease the equilibrium
quantity of coffee.
c. decrease the effective price of coffee received by sellers, and increase the equilibrium
quantity of coffee.
d. decrease the effective price of coffee received by sellers, and decrease the equilibrium
quantity of coffee. ____ 22.
If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars
would
a. decrease by less than $500.
b. decrease by exactly $500.
c. decrease by more than $500.
d. increase by an indeterminate amount. ____ 23.
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume
they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle.
Which of the following statements is correct?
a. The effective price received by sellers is $0.40 per bottle less than it was before the tax.
b. Sixty percent of the burden of the tax falls on sellers. c. This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity
of perfume.
d. All of the above are correct.
____ 24.
Suppose buyers of vodka are required to send $1.00 to the government for every bottle of vodka they
buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $0.60 per
bottle. Which of the following statements is correct?
a. This tax causes the supply curve for vodka to shift upward by $1.00 at each quantity of
vodka.
b. The price paid by buyers is $0.40 per bottle more than it was before the tax.
c. Sixty percent of the burden of the tax falls on buyers.
d. All of the above are correct. ____ 25.
Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are
required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the
a. demand curve will shift upward by $20, and the effective price received by sellers will
increase by $20.
b. demand curve will shift upward by $20, and the effective price received by sellers will
increase by less than $20.
c. supply curve will shift downward by $20, and the price paid by buyers will decrease by
$20.
d. supply curve will shift downward by $20, and the price paid by buyers will decrease by
less than $20.
Figure 6-23
20 price
S 18
16
14
12
10
8 D 6
4
2 D after tax
10 20 30 40 50 60 70 80 90 100 110 120 130 quantity ____ 26.
a.
b.
c.
d. Refer to Figure 6-23. The amount of the tax per unit is
$4.
$5.
$6.
$10. ____ 27.
a.
b.
c.
d. The price paid by buyers in a market will decrease if the government
increases a binding price floor in that market.
increases a binding price ceiling in that market.
decreases a tax on the good sold in that market.
All of the above are correct. ____ 28.
a.
b.
c.
d. The price received by sellers in a market will decrease if the government
increases a binding price floor in that market.
increases a binding price ceiling in that market.
decreases a tax on the good sold in that market.
None of the above is correct. ____ 29.
Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly
inelastic. If a tax is imposed in this market, then the
a. buyers will bear a greater burden of the tax than the sellers.
b. sellers will bear a greater burden of the tax than the buyers.
c. buyers and sellers are likely to share the burden of the tax equally.
d. buyers and sellers will not share the burden equally, but it is impossible to determine who
will bear the greater burden of the tax without more information. ____ 30.
the Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which (i)
(ii)
(iii)
(iv)
a.
b.
c.
d. supply is more elastic than the demand.
demand in more elastic than the supply.
tax is placed on the sellers of the product.
tax is placed on the buyers of the product. (i) only
(ii) only
(i) and (iv) only
(ii) and (iii) only ____ 31.
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants.
This change in behavior, by itself, has
a. reduced measured GDP.
b. not affected measured GDP.
c. increased measured GDP by the value of the restaurant meals.
d. increased measured GDP by the value added by the restaurant’s preparation and serving of
the meals. ____ 32.
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen,
commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals
is included in U.S. GDP?
a. Sam’s and Ellen’s.
b. Sam’s but not Ellen’s.
c. Ellen’s but not Sam’s.
d. Nether Sam’s nor Ellen’s. ____ 33.
A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers
his time and expenses to the homeowner. How much do these transactions add to GDP?
a. $500
b. $700
c. $1200
d. $1700 ____ 34.
Which of the following examples of household spending is categorized as investment rather than
consumption?
a. expenditures on durable goods such as automobiles and refrigerators b. expenditures on intangibles items such as medical care
c. expenditures on new housing
d. All of the above are correct.
____ 35.
In the economy of Ukzten in 2010, consumption was $3000, GDP was $5500, government purchases
were $1000, imports were $2000, and investment was $1000. What were Ukzten’s exports in 2010?
a. -$1500
b. $500
c. $1500
d. $2500 ____ 36.
Which of the following is not a correct statement about the growth of real GDP in the U.S. economy?
a. Real GDP in 2009 was almost four times its 1965 level.
b. Growth was steady between 1965 and 2009.
c. Continued growth in real GDP enables the typical American to enjoy greater economic
prosperity than his or her parents and grandparents did.
d. The output of goods and services produced grew on average about 3 percent per year
between 1965 and 2009. ____ 37.
a.
b.
c.
d. ____ 38.
Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112,
112 to 118, or 118 to 124?
a. 106 to 112
b. 112 to 120
c. 118 to 126
d. All of these changes produce the same rate of inflation. ____ 39.
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 ____ 40.
The price index was 92 in 2000, and the inflation rate was 13 percent between 1999 and 2000. The
price index in 1999 was
a. 79.
b. 81.4.
c. 103.96.
d. 105. ____ 41.
In the basket of goods that is used to compute the consumer price index, which of the following
categories of consumer spending is the smallest?
a. food & beverages
b. recreation
c. housing GDP per person tells us the income and expenditure of the
richest person in the economy.
poorest person in the economy.
average person in the economy.
entire economy. d. apparel
____ 42.
If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to
increase by about
a. 0.3 percent.
b. 1.7 percent.
c. 3.4 percent.
d. 10 percent. ____ 43.
a.
b.
c.
d. ____ 44.
In general, if a consumer good is produced domestically and consumed domestically, an increase in
its price will have which of the following effects?
a. The consumer price index will increase relatively more than will the GDP deflator.
b. The consumer price index and the GDP deflator will increase by the same amount.
c. The consumer price index will increase relatively less than will the GDP deflator.
d. One cannot generalize about the increase in the consumer price index relative to the
increase in the GDP deflator. ____ 45.
a.
b.
c.
d. ____ 46.
One of the differences between the GDP deflator and the consumer price index is
a. the GDP deflator includes income earned by American citizens working in foreign
countries and the consumer price index is based solely on purchases made in the U.S.
b. the consumer price index basket of goods is updated constantly by the Bureau of Labor
Statistics whereas the GDP deflator is updated only occasionally.
c. the consumer price index includes items not included in the GDP deflator such as airplanes
purchased by the Air Force.
d. the GDP deflator reflects prices for all goods and services produced domestically and the
consumer price index reflects prices for some goods and services bought by consumers. ____ 47.
Which of the following statements is true?
a. Even if we know the values of the consumer price index for the years 2009 and 2010, we
cannot calculate the inflation rate for 2010 if we do not know which year is the base year.
b. If we know the base year is 1990, and if we know the value of the consumer price index
for the year 2010, then we have all the information we need to calculate the inflation rate
for 2010.
c. If we know the base year is 2000, and if we know the value of the consumer price index
for the year 1995, then we have all the information we need to calculate the inflation rate
for 1995.
d. If we know the base year is 2000, and if we know the value of the consumer price index
for the year 1995, then we have all the information we need to calculate the percentage
change in the cost of living between 1995 and 2000. The goal of the consumer price index is to measure changes in the
costs of production.
cost of living.
relative prices of consumer goods.
production of consumer goods. If the price of Spanish olives imported into the United States decreases, then
both the GDP deflator and the consumer price index will decrease.
neither the GDP deflator nor the consumer price index will decrease.
the GDP deflator will decrease, but the consumer price index will not decrease.
the consumer price index will decrease, but the GDP deflator will not decrease. ____ 48.
Suppose the CPI was 108 in 1967, and suppose one must spend $936 today to obtain the same basket
of goods and services that could be bought for $200 in 1967. Then today’s CPI is
a. 116.67.
b. 131.08.
c. 397.44.
d. 505.44. ____ 49.
a.
b.
c.
d. ____ 50.
Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2
percent, then after one year,
a. Sophia will have 3 percent more money, which will purchase 5 percent more goods.
b. Sophia will have 3 percent more money, which will purchase 7 percent more goods.
c. Sophia will have 5 percent more money, which will purchase 3 percent more goods.
d. Sophia will have 5 percent more money, which will purchase 7 percent more goods. As long as prices are rising over time, then
the nominal interest rate exceeds the real interest rate.
the real interest rate exceeds the nominal interest rate.
the real interest rate is positive.
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.

 

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