38. Macroeconomic models:
A) assume that all wages and prices are sticky.
B) assume that all wages and prices are flexible.
C) make different assumptions to explain different aspects of the macroeconomy.
D) focus primarily on the optimizing behavior of households and firms.
39. The assumption of continuous market clearing means that:
A) sellers can sell all that they want at the going price.
B) buyers can buy all that they want at the going price.
C) in any given month, buyers can buy all that they want and sellers can sell all that
they want at the going price.
D) at any given instant, buyers can buy all that they want and sellers can sell all that
they want at the going price.
40. All of the following statements about sticky prices are true except:
A) in the short run, some wages and prices are sticky.
B) the sticky-price model describes the equilibrium toward which the economy slowly
gravitates.
C) for studying year-to-year fluctuations, most macroeconomists believe that price
stickiness is a better assumption than is price flexibility.
D) magazine publishers tend to change their newsstand prices only every three or four
years.
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41. The assumption of flexible prices is a more plausible assumption when applied to price
changes that occur:
A) from minute to minute.
B) from year to year.
C) in the long run.
D) in the short run.
42. An assumption of _______ is more plausible for studying the short-run behavior of the
economy, while an assumption of ______ is more plausible for studying the long-run,
equilibrium behavior of the economy.
A) deflation; inflation
B) inflation; deflation
C) flexible prices; sticky prices
D) sticky prices; flexible prices
43. When studying the short-run behavior of the economy, an assumption of ______ is more
plausible, whereas when studying the long-run equilibrium behavior of an economy, an
assumption of ______ is more plausible.
A) inflation; unemployment
B) unemployment; inflation
C) flexible prices; sticky prices
D) sticky prices; flexible prices
44. Which of the following is the best example of a sticky price?
A) the price of a barrel of oil
B) the price of the U.S. dollar in terms of euros
C) the price of a share of stock
D) the price of a soda in a vending machine
45. Which of the following is the best example of a flexible price?
A) the price of a cup of coffee in a coffee shop
B) the price of gasoline at a service station
C) the price of a ticket at a movie theater
D) the price of a book in a bookstore
46. Macroeconomists are like scientists in that they both:
A) design data and conduct controlled experiments to test their theories.
B) rely on data analyzed from experiments they set up in a laboratory.
C) are unlimited in their use of controlled experiments.
D) collect data, develop hypotheses, and analyze the results.
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47. Using a market-clearing model to analyze the labor market is ______ because wages
usually change ______.
A) realistic; frequently
B) realistic; infrequently
C) unrealistic; frequently
D) unrealistic; infrequently
48. Assume that the equation for demand for bread at a small bakery is Q d = 60 – 10P b +
3Y, where Q d is the quantity of bread demanded in loaves and Y is the average income in
the town in thousands of dollars.
a. If the average income in the town is 10, state the equation for Q d in terms of P b .
b. Draw a graph of the demand curve with Q d on the horizontal axis and P b on the vertical axis.
Label the curve DD.
49. Assume that the equation for demand for bread at a small bakery is Q d = 60 – 10P b +
3Y, where Q d is the quantity of bread demanded in loaves, P b is the price of bread in
dollars per loaf, and Y is the average income in the town in thousands of dollars.
Assume also that the equation for supply of bread is Q s = 30 + 20P b – 30P f , where Q s is
the quantity supplied and P f is the price of flour in dollars per pound. Assume finally
that markets clear, so that Q d = Q s .
a. If Y is 10 and P f is $1, solve mathematically for equilibrium Q and P b .
b
. If the average income in the town increases to 15, solve for the new equilibrium Q and P b .
50. The production function for an economy can be expressed as Y = F(K,L), where Y is real
GDP, K is the quantity of capital in the economy, and L is the quantity of labor in the
economy.
a. If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of
labor is 500?
b. What is/are the endogenous variable(s) in this model?
c
. What is/are the exogenous variable(s) in this model?
51. The quantity of coffee demanded, Q d , depends on the price of coffee, P c , and the price