ECON-E202 Test 3

Elasticity is A. a measure of how much buyers and sellers respond to changes in market conditions. B. the study of how the allocation of resources affects economic well-being. C. the maximum amount that a buyer will pay for a good. D. the value of everything a seller must give up to produce a good.

A. a measure of how much buyers and sellers respond to changes in market conditions.

Suppose that the money supply increases. In the short run, this increases prices according to A. both the short-run Phillips curve and the aggregate demand and aggregate supply model. B. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. C. the short-run Phillips curve, but not the aggregate demand and aggregate supply model. D. the aggregate demand and aggregate supply model but not the short-run Phillips curve.

A. both the short-run Phillips curve and the aggregate demand and aggregate supply model.

President Barrack Obama and Congress cut taxes and raised government expenditures during the recent financial crisis. According to the aggregate supply and aggregate demand model which of these policies would tend to reduce unemployment? A. both the tax cut and the increase in government expenditures B. the tax cut but not the increase in government expenditures C. the increase in government expenditures but not the tax cut D. neither the increase in government expenditures nor the tax cut

A. both the tax cut and the increase in government expenditures

If policymakers decrease aggregate demand, then in the short run the price level A. falls and unemployment rises. B. and unemployment fall. C. and unemployment rise. D. rises and unemployment falls.

A. falls and unemployment rises.

An example of normative analysis is studying A. how market forces produce equilibrium. B. surpluses and shortages. C. whether equilibrium outcomes are socially desirable. D. income distributions.

A. how market forces produce equilibrium.

The misery index is calculated as the A. inflation rate plus the unemployment rate. B. unemployment rate minus the inflation rate. C. actual inflation rate minus the expected inflation rate. D. natural unemployment rate times the inflation rate

A. inflation rate plus the unemployment rate.

Which of the following is likely to have the most price elastic demand? A. lattés B. doctor's visits C. eggs D. natural gas

A. lattés

Rent-control laws dictate A. the exact rent that landlords must charge tenants. B. a maximum rent that landlords may charge tenants. C. a minimum rent that landlords may charge tenants. D. both a minimum rent and a maximum rent that landlords may charge tenants.

B. a maximum rent that landlords may charge tenants.

When studying how some event or policy affects a market, elasticity provides information on the A. equity effects on the market by identifying the winners and losers. B. magnitude of the effect on the market. C. speed of adjustment of the market in response to the event or policy. D. number of market participants who are directly affected by the event or policy.

B. magnitude of the effect on the market.

Price controls are usually enacted A. as a means of raising revenue for public purposes. B. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. C. when policymakers detect inefficiencies in a market. D. All of the above are correct.

B. when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

A nonbinding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. A. (i) only B. (iii) only C. (i) and (iii) only D. (ii) and (iv) only

C. (i) and (iii) only

Which of the following is not correct? A. Economists have two roles: scientist and policy adviser. B. As scientists, economists develop and test theories to explain the world around them. C. Economic policies rarely have effects that their architects did not intend or anticipate. D. As policy advisers, economists use their theories to help change the world for the better.

C. Economic policies rarely have effects that their architects did not intend or anticipate.

If aggregate demand shifts because of a wave of optimism about stock prices, those who favor a pol-icy that "leans against the wind" would advocate the A. Federal Reserve increase the money supply or the government increase taxes. B. Federal Reserve increase the money supply or the government decrease taxes. C. Federal Reserve decrease the money supply or the government increase taxes. D. Federal Reserve decrease the money supply or the government decrease taxes.

C. Federal Reserve decrease the money supply or the government increase taxes.

Minimum-wage laws dictate A. the exact wage that firms must pay workers. B. a maximum wage that firms may pay workers. C. a minimum wage that firms may pay workers. D. both a minimum wage and a maximum wage that firms may pay workers.

C. a minimum wage that firms may pay workers.

To say that a price ceiling is binding is to say that the price ceiling A. results in a surplus. B. is set above the equilibrium price. C. causes quantity demanded to exceed quantity supplied. D. All of the above are correct.

C. causes quantity demanded to exceed quantity supplied.

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars? A. an accumulation of dirt in the interior of rental cars B. poor engine maintenance in rental cars C. free gasoline given to people as an incentive to a rent a car D. slow replacement of old rental cars with newer ones

C. free gasoline given to people as an incentive to a rent a car

In the long run, inflation A. and unemployment are primarily determined by labor market factors. B. and unemployment are primarily determined by the rate of money supply growth. C. is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors. D. is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.

C. is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was A. high, so there was upward pressure on wages and prices. B. high, so there was downward pressure on wages and prices. C. low, so there was upward pressure on wages and prices. D. low, so there was downward pressure on wages and prices.

C. low, so there was upward pressure on wages and prices.

When a binding price ceiling is imposed on a market to benefit buyers, A. no buyers actually benefit. B. some buyers benefit, but no buyers are harmed. C. some buyers benefit, and some buyers are harmed. D. all buyers benefit.

C. some buyers benefit, and some buyers are harmed.

Phillips found a negative relation between A. output and unemployment. B. output and employment. C. wage inflation and unemployment. D. None of the above is correct.

C. wage inflation and unemployment.

Which of the following is likely to have the most price elastic demand? A. dental floss B. milk C. salt D. diamond earrings

D. diamond earrings

Which of the following is not an example of a public policy? A. rent-control laws B. minimum-wage laws C. taxes D. equilibrium laws

D. equilibrium laws

In general, elasticity is a measure of A. the extent to which advances in technology are adopted by producers. B. the extent to which a market is competitive. C. how firms' profits respond to changes in market prices. D. how much buyers and sellers respond to changes in market conditions.

D. how much buyers and sellers respond to changes in market conditions.

The principal lag for monetary policy A. and fiscal policy is the time it takes to implement policy. B. and fiscal policy is the time it takes for policy to change spending. C. is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending. D. is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.

D. is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.

The Federal Reserve will tend to tighten monetary policy when A. interest rates are rising too rapidly. B. it thinks the unemployment rate is too high. C. the growth rate of real GDP is quite sluggish. D. it thinks inflation is too high today, or will become too high in the future.

D. it thinks inflation is too high today, or will become too high in the future.