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introduction to microeconomics

Questions and Answers of Introduction To Microeconomics

In the text it was claimed that if f(x) is a homothetic technology and x and x' produce the same level of output, then tx and tx' must also produce the same level of output. Can you prove this
True or false? A differentiable function g(=) is a strictly increasing function if and only if g'(z) > 0.
What is the elasticity of scale of the CES technology. /(#1,12) =(={+={)?
If e(x) is the elasticity of scale ande, (x) is the output elasticity of factor i, show that e(x) = Di-1 6(x).
Define the output elasticity of a factor i to be 8f(x) Ti€1(x) =Ör, f(x)If f(x) = == ), what is the output elasticity of each factor?
What is the elasticity of substitution for the general CES technology y = (airi + a212)1/0 when a1 / 42?
True or false? If V (y) is a convex set, then the associated production set Y must be convex.
Describe how an open market purchase of $7 million by the Federal Reserve will affect the money supply. Assume bank reserves are limited.(a) Assuming a required reserve ratio of 5 percent, what is
(a) Draw a correctly labeled diagram of the supply and the demand for the U.S. dollar vis-à-vis the euro. Be sure to label all curves and axes.(b) Now suppose U.S. consumers significantly increase
Country X is in short-run equilibrium at a level of output below full employment.(a) Draw a correctly labeled graph of aggregate demand, shortrun aggregate supply, and long-run aggregate supply that
Imagine someone who is not looking for work because he is embarrassed in the interview process when his inability to read is revealed. However, this person would take just about any job that was
If nominal GDP = $1,500 and real GDP = $1,000, then the GDP deflator equals(A) −$500.(B) 66.67.(C) 150.(D) $500.
Potential GDP will fall, ceteris paribus, if(A) the unemployment rate rises.(B) the retirement age is lowered.(C) tariffs protecting domestic jobs are eliminated.(D) more immigration is allowed.(E)
Suppose the exchange rates are 0.5 British pound per dollar, 10 Mexican pesos per dollar, and 100 Chinese yuan per dollar.Further suppose that a Big Mac costs 3 dollars in America, 2 pounds in
Which of the following lists contains only policies that will close an inflationary gap?(A) Increase the money supply; run a federal budget deficit.(B) Decrease the money supply; run a federal budget
Which of the following lists contains only central bank actions that will decrease interest rates in a banking system that has limited reserves?(A) Raise the interest on bank reserves; lower the
GDP measures a country’s level of I. production.II. stability.III. income.(A) I only(B) II only(C) III only(D) I and II(E) I and III
In 2021, the United States had a trade deficit. Therefore,(A) net exports were positive.(B) net foreign purchases of U.S. assets were positive.(C) America’s government spent more than it took
An increase in the price level and a decrease in real GDP in the short run could be the result of(A) a decrease in aggregate supply.(B) a decrease in the money supply.(C) an increase in aggregate
Which of the following policies is most likely to bring about economic growth in the long run?(A) Imposing tariffs to protect domestic industries from foreign competition(B) Increasing taxes on
An important assumption underlying the idea that an increase in the money supply causes a proportional increase in the price level is that the(A) marginal propensity to consume is constant.(B) money
A decline in the demand for money could be the result of(A) higher prices.(B) more money placed in checking accounts.(C) higher returns on bonds.(D) fewer credit cards.(E) open market purchases by
Contractionary monetary policy implies which of the following about the discount rate, the nominal interest rate, and aggregate demand? Nominal Discount Rate Interest Aggregate Rate Demand (A)
If the cost of the basket of goods and services the Bureau of Labor Statistics uses to calculate the consumer price index rises from $200 in the base period to $400 in the current period, then the
In the long run, an economy in recession can return to full employment once nominal wages ______ and the price level ______.(A) decrease; decreases(B) decrease; increases(C) increase; remains
In the short run, a decrease in aggregate demand will cause the price level to ______ and real GDP to ______.(A) decrease; decrease(B) decrease; increase(C) remain unchanged; decrease(D) increase;
Suppose the real interest rate in a country rises. What can be expected to happen to the demand for this nation’s currency and, therefore, the value of its currency and net exports? Demand for
The shift depicted in the diagram above could have been caused by(A) better production methods in the gun industry.(B) an increase in the number of cows in the economy.(C) an increase in the number
If the economy experienced a decrease in real GDP and price level, this could best be explained by(A) a decline in labor productivity.(B) a technological advance.(C) a decline in investment.(D) an
Suppose a country produces only two goods, pizza and soda.Given the information in the table below, nominal GDP, real GDP, and the GDP deflator in 2005 are (assume 2004 is the base year): Pizza Soda
A change in government spending will have a greater short-run impact on real output when(A) the marginal propensity to consume is lower.(B) the velocity of money is lower.(C) the velocity of money is
Appropriate fiscal and monetary polices during the contractionary phase of the business cycle include(A) budget surpluses and higher discount rates.(B) tax reductions and open market purchases.(C)
If 200 computers with a retail value of $100,000 are domestically produced in 2005 but not sold until 2006, then GDP in 2005 is(A) $100,000 higher because of the computers.(B) 200 higher because of
If the economy is in disequilibrium where the price level is such that the aggregate quantity of products demanded exceeds the aggregate quantity of products supplied, then(A) prices will be driven
If the inflation rate is expected to increase in the immediate future, then(A) consumers will begin saving more now.(B) the velocity of money will fall.(C) this will put upward pressure on the
An increase in the federal deficit may affect the demand for loanable funds and therefore the real interest rate and investment spending. Which of the following gives the correct direction of these
The impact of an open market operation will be diminished if(A) the public prefers to hold less cash.(B) the velocity of money falls.(C) depository institutions decide to hold more excess
The international value of the dollar will appreciate if(A) American income falls relative to the rest of the world.(B) American interest rates fall relative to interest rates in other countries.(C)
An increase in the demand for money in the economy could result from(A) a recession.(B) a higher price level.(C) higher interest rates.(D) expected future inflation.(E) a decrease in the supply of
An increase in the price of forklifts imported into the United States from Belgium will(A) increase the consumer price index and the GDP deflator.(B) increase the consumer price index but not the GDP
Economy X is an open economy. Economy Y is closed.Expansionary monetary policy is(A) more effective in X because the policy will increase net exports.(B) more effective in X because the policy will
The equation of exchange demonstrates the neutrality of money only if the(A) velocity of money supply and the quantity of output are constant.(B) money supply and its velocity are equal.(C) velocity
Currency held by the public(A) is not part of the money supply, but currency held by banks is.(B) is part of M1 but not M2.(C) is part of the money supply, but currency held by banks is not.(D) and
Which of the following would reduce economic growth?(A) A decline in investment(B) An increase in immigration from abroad(C) A technological advance(D) An increase in the labor force(E) An increase
Suppose you observe an economy where prices are falling and real GDP is rising. This may have been caused by(A) stagflation.(B) an advance in technology.(C) an increase in government spending.(D) a
If the government of country Z increases spending by $12 million and raises tax collections by the same amount, then what will be the overall impact of these moves on real GDP in country Z?(A) Real
The population of country X is exactly the same as country Y, but country X produces twice as much output as country Y. We can conclude that(A) the people of country X are smarter than the people of
The economy depicted in the figure above is experiencing ________. In the absence of monetary or fiscal policy, the economy will eventually move to a point where the price level is ________.(A) a
Which of the following persons is (are) considered to be unemployed?I. Mary, who has quit her job to look for another II. John, who fulfilled his dream by retiring from work at age 45 III. Diane, who
Inflation(A) hurts creditors who do not anticipate it.(B) hurts creditors who anticipate it.(C) hurts debtors.(D) benefits debtors who do not anticipate it.(E) both A and D are correct.
If the marginal propensity to consume equals 0.75 and government spending increases by $100 million, then overall real GDP can be expected to(A) decrease by $133.33 million.(B) increase by $133.33
If interest rates rise relatively more in country A than in country B, then the value of country A’s currency will(A) appreciate.(B) depreciate.(C) remain unchanged.(D) change indeterminately.(E)
Which of the following would lead to a decrease in the money in a banking system with limited reserves?(A) The central bank lowers the discount rate.(B) The central bank sells government securities
An appropriate fiscal policy to remedy a recession is to(A) increase government spending and taxes.(B) reduce government spending and taxes.(C) increase government spending and reduce taxes.(D)
Suppose real GDP increases. We can conclude without a doubt that(A) prices are higher.(B) there has been a technological advance.(C) production is higher.(D) prices and output are greater.(E) the
In the short run, an increase in the price level reduces the quantity of goods and services demanded in the economy because I. consumers’ incomes cannot go as far now that prices have risen.II.
Which of the following is NOT included in GDP?(A) Federal government purchases of goods and services(B) Imports(C) State and local government purchases of goods and services(D) Exports(E) The change
An Italian company opens a shoe factory in the U.S. The production from this shoe factory is included in(A) the Italian GDP.(B) the U.S. GDP.(C) both the Italian and U.S. GDP.(D) both the Italian and
In the circular-flow diagram households send ________ to firms in return for ________.(A) resources; spending(B) spending; resources(C) resources; wages and profits(D) goods and services; wages(E)
Which of the following shifts the production possibilities frontier outward?(A) A decrease in the price level(B) An increase in labor productivity(C) An increase in the money supply(D) A decrease in
Consider the diagram above. In the short run, stagflation will move the economy from point B to(A) point A.(B) point A and then back to point B.(C) point C.(D) point D.(E) point E.
As a result of automatic stabilizers, during economic expansions government expenditures(A) and taxes fall.(B) and taxes rise.(C) rise and taxes fall.(D) fall and taxes rise.(E) remain stable.
Suppose taxes are cut in an economy that is in equilibrium at full employment. In the long run the tax cut will(A) raise real output and raise the price level.(B) lower real output and raise the
At P′ in the diagram above,(A) inventories will be unintentionally drawn down, and the price level will fall.(B) inventories will be unintentionally increased, and the price level will fall.(C)
Given the table below, which statement is true?Labor hours needed to produce a unit of:(A) France has the absolute advantage in both products.(B) France should specialize in and export wine, while
Assume bank reserves are limited and the reserve requirement is 5 percent. If the Fed sells $10 million worth of government securities in an open market operation, then the money supply can
In the short run, contractionary monetary policy causes aggregate demand to ______, output to ______, and the price level to ______. Aggregate Price Demand Output Level (A) Increase Increase Increase
Given the graph above, the opportunity cost of 4 additional units of butter as the economy moves from A to B is(A) 7 units of butter.(B) 30 units of guns.(C) 60 units of guns.(D) unobtainable.(E)
You buy 100 shares in XYZ Corporation on the Internet, and your broker charges you $29.95.(A) This will increase the investment component of GDP and therefore overall GDP.(B) This has no effect on
Consider an economy at full employment equilibrium. In the long run an increase in the money supply results in(A) a proportional increase in the quantity of output.(B) stagflation.(C) an increase in
Given your response above, how will the imports and exports of each country be affected?
Suppose two counties, Alpha and Beta, trade freely and allow investments to flow across their borders as well. Draw two graphs—one for the supply and demand for Alpha’s currency and one for the
If the demand for U.S. exports rises while U.S. tastes for foreign goods falls off, then(A) the value of the dollar will tend to appreciate.(B) the value of the dollar will tend to depreciate.(C)
If the demand for dollars rises while the supply of dollars falls, then the(A) dollar will appreciate.(B) dollar will depreciate.(C) exchange rates will be affected but not the value of the
If prices rise in the United States relative to other countries, then(A) the value of the dollar will tend to appreciate.(B) the value of the dollar will tend to depreciate.(C) exchange rates will be
If interest rates rise in the United States relative to other nations, then(A) the value of the dollar will tend to appreciate.(B) the value of the dollar will tend to depreciate.(C) exchange rates
In the balance of payments, the trade balance(A) is ignored.(B) appears in the capital and financial account.(C) appears in the current account.(D) is included in the official reserves.(E) is counted
Expansionary fiscal policy(A) increases unemployment in an open economy.(B) lowers the nominal interest rate, which results in currency appreciation.(C) is less effective in an open economy.(D) will
With a managed float(A) countries occasionally intervene in foreign exchange markets.(B) countries never have to intervene in foreign exchange markets.(C) countries must constantly intervene to
If a country has a negative value on its current account, then it must(A) pay that amount to its trading partners.(B) have a positive value of equal magnitude on its capital and financial account.(C)
If the value of the U.S. dollar depreciates, ceteris paribus, then U.S.(A) imports will increase.(B) unemployment will increase.(C) net exports will decrease.(D) exports will increase.(E) net exports
Suppose expansionary monetary policy raises national income and the price level in an economy. As a result, net exports ______. Therefore, the expansionary monetary policy is ______ effective than if
Tariffs and quotas on imports(A) result in lower domestic prices.(B) sometimes raise and sometimes lower the amount of the product sold domestically.(C) reduce the amount of the product sold
Tariffs and quotas on imports(A) result in higher domestic prices.(B) promote trade between nations.(C) do not necessarily affect domestic prices.(D) affect domestic prices: the former raises them
One strategy a corporation may use to gain market share in a foreign market is(A) raising the price of its product.(B) convincing its government to put an import tariff on the product.(C) convincing
If Americans suddenly develop a passion for India’s exports, then the Indian rupee will ______ against the dollar and the American dollar will ______ against the rupee.(A) appreciate; hold
When a country has a balance of trade deficit(A) it must make up the difference by shipping gold to its creditors.(B) its exports exceed its imports.(C) its currency will appreciate.(D) corrective
If the government does nothing in the face of a recessionary gap, would wages and resources prices be expected to increase or decrease in the long run? Explain. Which curve of the aggregate
Should government spending be increased or decreased to close a recessionary gap? Show how this change in government spending is reflected in the diagram drawn for question 1.
Draw an aggregate supply/aggregate demand diagram that portrays a recessionary gap. Be sure to label the axes of your diagram and the aggregate demand curve, the short-run aggregate supply curve, and
An income tax cut may not affect the macroeconomy very much if(A) consumers spend a good portion of their tax reduction on domestic goods.(B) consumers spend a good portion of their tax reduction on
If government spending is reduced, then unemployment ______ and inflation ______.(A) increases; increases(B) increases; decreases(C) remains unchanged; remains unchanged(D) decreases; decreases(E)
Which of the following would cause unemployment and prices to rise?(A) A climate event that wipes out a portion of the economy’s natural resources(B) An increase in the money supply(C) An increase
A simultaneous increase in government spending of $200 and an increase in income tax collections of $200 ______ aggregate demand by ______. Assume an MPC of 0.8.(A) does not affect; any amount(B)
Automatic, or built-in, stabilizers cause government tax collections to ______ during recessions and ______ during expansions.(A) increase; increase(B) increase; decrease(C) remain unchanged; remain
Crowding out is when(A) fiscal policy outperforms monetary policy.(B) interest rates fall due to government borrowing.(C) government borrowing raises interest rates, causing cuts in business
Suppose the government decreases taxes by $8 million and the MPC = 0.75. If there is a full multiplier effect, then this will cause aggregate demand to(A) increase by $8 million.(B) decrease by $8
Suppose government spending decreases by $8 million and the MPC = 0.75. If there is a full multiplier effect, then this will cause aggregate demand to(A) increase by $8 million.(B) decrease by $8
One drawback of using fiscal policy to close a recessionary gap is that(A) unemployment will rise.(B) taxes will have to be raised.(C) the equilibrium price level will rise.(D) government spending on
To close an inflationary gap(A) the aggregate demand curve should be shifted to the right.(B) the aggregate demand curve should be shifted to the left.(C) the aggregate supply curve should be shifted

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