Essentials Of Economics (The Mcgraw-Hill Series In Economics) 3rd Edition

The quantity demanded of a product increases as its price declines because the: A. lower price shifts the demand curve rightward. B. lower price shifts the demand curve leftward. C. lower price results in an increase in supply. D. demand curve is downsloping. Answer: D. Answer: D. Answer: D. Assume you pay a tax

The cyclically adjusted deficit is the difference between annual government expenditures and tax revenues that would have occurred if the economy was: A. in a recession. B. at full employment. C. at the peak of a business cycle. D. at the trough of the business cycle. Answer: B. Answer: B. Answer: B. Refer to

There tends to be a high positive correlation between the rate of productivity growth and the rate of economic growth. Answer: TRUE Answer: TRUE Answer: TRUE In the short run, a competitive firm will not produce unless price is equal to average total costs. Answer: FALSE Answer: FALSE Answer: FALSE By using the

Answer the next question on the basis of the following table, which indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely floating exchange rates is in place. Suppose that Libra decided to import more U.S. products. We would expect

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient? A. It is making economic profits in the long run. B. Marginal cost equals average variable cost. C. It produces at the minimum average total cost. D. Its marginal revenue is less than average revenue. Answer:

How many Federal Reserve Banks are there? A. 1 B. 6 C. 12 D. 24 Answer: C. Answer: C. Answer: C. Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from

Which action taken by a worker would not be an investment in human capital? A. Enrolling in college. B. Enrolling in trade school. C. Purchasing exercise equipment. D. Purchasing stock in a pharmaceutical company. Answer: D. Answer: D. Answer: D. A purely competitive firm's output is currently such that its marginal cost is $4

Marginal product is: A. the increase in total output attributable to the employment of one more worker. B. the increase in total revenue attributable to the employment of one more worker. C. the increase in total cost attributable to the employment of one more worker. D. total product divided by the number of workers

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses

When the excess capacity problem under monopolistic competition becomes greater, there will be: A. a narrower range of consumer choice. B. fewer advertisements and promotions. C. a wider range of consumer choice. D. more entry by firms into the market. Answer: C. Answer: C. Answer: C. Allocative efficiency means that: A.the law of increasing opportunity

The functions of money are to serve as a: A. resource allocator, method for accounting, and means of income distribution. B. unit of account, store of value, and medium of exchange. C. determinant of consumption, investment, and government spending. D. factor of production, exchange, and aggregate supply. Answer: B. Answer: B. Answer: B. The

Refer to the above graph. The long-run aggregate supply curve would be represented by which line? A. 1 B. 2 C. 3 D. 4 Answer: D. Answer: D. Answer: D. The basic economic argument for greater income equality is that: A. an equal distribution of income is the logical outcome of any tax-transfer program. B. because citizens

Inflation is a rise in: A. the general level of prices over time. B. the standard of living over time. C. industrial production. D. real GDP. Answer: A. Answer: A. Answer: A. Refer to the above graph, which shows four different Lorenz curves (I, II, III, and IV). The movement from point b to

Competitive firms are price takers largely because of intensive advertising by their competitors. Answer: FALSE Answer: FALSE Answer: FALSE A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other. Answer: FALSE Answer: FALSE Answer: FALSE About one-fourth of all American households have annual incomes of $100,000 or more.

Refer to the above diagram. A surplus of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $.50. Answer: B. Answer: B. Answer: B. A natural monopoly exists when: A. unit costs are minimized by having one firm produce an industry's entire output. B. several

In a corporation, the interests of the owners, who seek to maximize profits, may differ from the interests of the managers, who seek prestige and high income. This divergence would be considered: A. a free-rider problem. B. a rationing problem. C. a limited liability problem. D. a principal-agent problem. Answer: D. Answer: D. Answer: D.

Which of the following would be considered to be the most liquid? A. Checkable deposits. B. Small time deposits. C. Money market mutual funds. D. Savings deposits. Answer: A. Answer: A. Answer: A. Refer to the above diagram. When output increases from Q1 and the price level decreases from P1, this change will: A. be

Advantages of specialization do not include: A. increased production of economic goods with no increase in resources. B. the more efficient use of scarce resources. C. increased ability to utilize the division of labor. D. less interdependence. Answer: D. Answer: D. Answer: D. What "backs" the money supply? A. The U.S. government's ability to keep

The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession. Answer: TRUE Answer: TRUE Answer: TRUE The government receives all of the benefits associated with the production of a public good. Answer: False Answer: False Answer: False The concave, or bowed-out, shape of the production possibilities

Which is one of the conditions that must be realized before a seller finds that price discrimination is workable? A. The demand for the product is perfectly elastic so any price can be charged for the product. B. The seller must be able to segregate buyers based on a willingness to pay. C.

Resources are efficiently allocated when production occurs at that output at which: A. P equals MR. B. P equals AVC. C. P exceeds MR. D. P equals MC. Answer: D. Answer: D. Answer: D. Refer to the above graph. Under purely competitive conditions in the sale of output and hiring of labor services, the

Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The level of investment spending in the economy is $90 billion. What should the

Which product is most likely to be most price elastic? A. Milk B. Gasoline C. Clothing D. Automobiles Answer: D. Answer: D. Answer: D. To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs. Answer:

Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people. Answer: True Answer: True Answer: True The market demand curve for a pure public good shows the total value that all individuals place on each unit of the good. Answer: True Answer: True Answer: True If two

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: A. technological progress has occurred. B. economies of scale are being realized. C. the firm is encountering diminishing returns. D. diseconomies of scale are being encountered. Answer: B. Answer: B. Answer: B. A

The nondiscriminating monopolist's demand curve: A. is less elastic than a purely competitive firm's demand curve. B. is perfectly elastic. C. coincides with its marginal revenue curve. D. is perfectly inelastic. Answer: A. Answer: A. Answer: A. Which of the following will lead to an increase in aggregate demand? A. A decrease in the price

The table below shows the cyclically adjusted budget deficit as a percentage of GDP over a five-year period. Refer to the above information. In which year was fiscal policy expansionary? A. Year 2 B. Year 3 C. Year 4 D. Year 5 Answer: B. Answer: B. Answer: B. If the dollar depreciates in value relative

When the Federal Reserve acts to ease money and credit in the economy, then the aggregate: A. supply curve will shift to the right. B. supply curve will shift to the left. C. demand curve will shift to the right. D. demand curve will shift to the left. Answer: C. Answer: C. Answer: C.

The downward-sloping demand curve of a monopolistic competitor: A. reflects product differentiation. B. becomes horizontal in the long run. C. indicates collusion among the members of the product group. D. ensures that the firm will produce at minimum average cost in the long run. Answer: A. Answer: A. Answer: A. Answer the next question

The long-run supply curve for a competitive, decreasing-cost industry is downward sloping. Answer: TRUE Answer: TRUE Answer: TRUE The unemployment rate for managerial and professional workers tends to be high. Answer: FALSE Answer: FALSE Answer: FALSE The selling of stock is debt financing for a corporation. Answer: FALSE Answer: FALSE Answer: FALSE If the prices of

Which of the following will likely accompany an expansionary money policy? A. A higher prime interest rate. B. A lower Federal funds rate. C. A higher discount rate. D. Higher income tax rates. Answer: B. Answer: B. Answer: B. Assume that a government is considering a new social program and may choose to include

The four factors of production are land, labor, capital, and government services. Answer: FALSE Answer: FALSE Answer: FALSE Monetary policy is subject to less political pressure than fiscal policy. Answer: TRUE Answer: TRUE Answer: TRUE Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP. Answer:

Relatively high rates of U.S. inflation will increase the supply of, and decrease the demand for, dollars in foreign currency markets. Answer: TRUE Answer: TRUE Answer: TRUE The transactions demand for money will decrease when aggregate income decreases. Answer: TRUE Answer: TRUE Answer: TRUE Commercial banks monetize claims when they

If there is no comparative advantage between two countries: A. one country must be more productive in producing all goods than the other. B. the benefits resulting from trade are increased. C. there are no gains from specialization and trade. D. each country should specialize in the production of a particular commodity. Answer: C.

Monopolistically competitive firms have a: A. horizontal demand curve. B. perfectly inelastic demand curve. C. perfectly elastic demand curve. D. downward-sloping demand curve. Answer: D. Answer: D. Answer: D. Investment, as defined in national income accounts, would include: A. additions to business inventories. B. personal consumption expenditures on durable goods. C. government construction of new highways and

Refer to the table above. Starting at a $5 price, at what price range does demand become inelastic? A. $1-2 B. $2-3 C. $3-4 D. $4-5 Answer: B.At $2-3, the change is (30 - 40)/(30 + 40) = 0.143 and the percent in price is (3 - 2)/(3 + 2) = 0.20. Thus, elasticity

Which factors contributed to a further reduction in the money supply in addition to the withdrawal of currency from banks during the 1930-1933 bank panic? A. Bank purchases of government bonds to meet liquidity demands. B. Bank sales of government bonds to meet liquidity demands. C. An increase in the required reserve ratio. D.

Price elasticity of supply decreases the longer the time period. Answer: FALSE Answer: FALSE Answer: FALSE When the public debt is held by foreigners, it is not a real burden on real domestic output. Answer: FALSE Answer: FALSE Answer: FALSE Depreciation of the dollar relative to foreign currencies will tend to increase net exports and aggregate demand.

The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is: A. 6 million. B. 24 million. C. 42 million. D. 44 million. Answer: D.Calculating the unemployment rate requires dividing the number of unemployed into the labor force. In this

In a fractional reserve banking system: A. bank panics cannot occur. B. the monetary system must be backed by gold. C. banks can create money through the lending process. D. the Federal Reserve has no control over the amount of money in circulation. Answer: C. Answer: C. Answer: C. A firm is observed using

The above diagram implies that whenever a firm's demand curve is downsloping: A. price discrimination is not possible. B. monopolists will be more efficient than competitors. C. the demand and marginal revenue curves will coincide. D. marginal revenue is less than price. Answer: D. Answer: D. Answer: D. With a regressive tax system, as

Refer to the above graphs. Which pairs of budget constraints represent only a decrease in the price of X, but no change in income and no change in the price of Y? A. Graph A B. Graph B C. Graph C D. Graph D Answer: B. Answer: B. Answer: B. Which of the following

Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: A. $175 million for firm A and $175 million for firm B. B. $250 million for firm A and $250 million for firm B. C. $200 million for firm A and $325 million

Other things equal, if a full-employment economy reallocated a substantial quantity of its resources to capital goods, we would expect: A. present consumption to rise. B. future consumption to fall. C. a lower rate of growth of real GDP. D. labor productivity to rise. Answer: D. Answer: D. Answer: D. Surpluses from Social Security: A.

A basic characteristic of a command system is that: A. wages paid to labor are higher. B. government owns most economic resources. C. markets function mostly free from government intervention. D. government planners play a limited role in deciding what goods will be produced. Answer: B. Answer: B. Answer: B. The value of corporate

The Federal Reserve alters the amount of the nation's money supply by: A. reducing the liabilities of the banking system. B. controlling the assets of the nation's largest banks. C. minting coins and printing currency that is distributed to banks. D. manipulating the size of excess reserves held by commercial banks. Answer: D. Answer:

The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy. Answer: TRUE Answer: TRUE Answer: TRUE An expansionary monetary policy may be more effective than a restrictive monetary policy because commercial banks may decide to hold a large quantity of

A peak in the business cycle: A. occurs when the unemployment rate is its greatest. B. occurs when the inflation rate is its lowest. C. is a temporary maximum point. D. is a temporary minimum point. Answer: C. Answer: C. Answer: C. If the price of labor falls relative to the price of capital,

The public debt is the accumulation of all deficits and surpluses that have occurred through time. Answer: TRUE Answer: TRUE Answer: TRUE An expansionary monetary policy lowers the Federal funds rate, increases the money supply, and lowers other interest rates. Answer: TRUE Answer: TRUE Answer: TRUE The larger the number of firms in

The wages and salaries that people earn differ partly because of differences in: A. wealth. B. ability. C. Social Security payments. D. in-kind transfer payments. Answer: B. Answer: B. Answer: B. Economic resources in the capitalist system are brought together by: A. government units. B. entrepreneurs. C. labor unions. D. the managerial elite. Answer: B. Answer: B. Answer:

The Federal Open Market Committee (FOMC): A. provides advice on banking policy to the Fed. B. monitors regulatory banking laws for member banks. C. sets policy on the sale and purchase of government bonds by the Fed. D. follows the actions and operations of financial markets to keep them open and competitive. Answer: C. Answer:

Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing: A. a positive GDP gap. B. a negative GDP gap. C. inflation. D. an adverse supply shock. Answer: B. Answer: B. Answer: B. In the short run the individual competitive

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The per-unit cost of production is: A. $0.25. B. $0.50. C. $0.75. D. $2.00. Answer: C.Per-unit production cost = Total input cost/Units of output = (60 * 30)/2400 =

A monopolistically competitive industry is like a purely competitive industry in that: A. each industry produces a standardized product. B. nonprice competition is a feature in both industries. C. neither industry has significant barriers to entry. D. firms in both industries face a horizontal demand curve. Answer: C. Answer: C. Answer: C. Refer to

The federal backing for the money in the United States comes from: A. providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation. B. pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency. C. control over the

Money functions as a store of value if it allows you to: A. measure the value of goods in a reliable way. B. make exchanges in a more efficient manner. C. delay purchases until you want the goods. D. increase your confidence in money. Answer: C. Answer: C. Answer: C. If a firm is

One important reason why the U.S. government is not likely to go bankrupt even with a large public debt is that it has: A. the ability to refinance debt as it comes due by selling new bonds. B. s strong military to protect it from creditors. C. the capacity to pay off its outstanding

The cornerstone of antitrust policy in the United States is generally considered to be the Sherman Antitrust Act of 1890. Answer: TRUE Answer: TRUE Answer: TRUE In the cause-effect chain, a restrictive money policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand. Answer: FALSE Answer:

The ability-to-pay principle of taxation: A. has been declared unconstitutional because it deprives individuals of property without due process of law. B. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. C. suggests that the tax burden should vary directly with people's income and

Which combination of fiscal policy actions would most likely be offsetting? A. Increase in taxes and government spending B. Decrease in taxes and increase in government spending C. Increase in taxes but no change in government spending D. Decrease in taxes but no change in government spending Answer: A. Answer: A. Answer: A. A

Cost-push inflation may be caused by: A. a decline in per-unit production costs. B. a decrease in wage rates. C. a negative supply shock. D. an increase in resource availability. Answer: C. Answer: C. Answer: C. GDP in an economy is $11,130 billion. Consumer expenditures are $7735 billion, government purchases are $1989 billion, and

From November 1993 to December 1994, the Democratic Republic of the Congo experienced an inflation rate of 69,502 percent. This economic condition would best be described as: A. a cost-of-living adjustment. B. anticipated inflation. C. cost-push inflation. D. hyperinflation. Answer: D. Answer: D. Answer: D. When external or spillover benefits occur in the production

Differences in ability are one reason for income differences in the United States. Answer: TRUE Answer: TRUE Answer: TRUE A monopolist will always charge the highest price it can get. Answer: FALSE Answer: FALSE Answer: FALSE A price ceiling in a competitive market will result in persistent surpluses of a product. Answer: FALSE Answer:

Which statement about inflation is correct? A. Families are always hurt by inflation. B. Inflation "subsidizes" those who receive relatively fixed money income. C. The redistributive effects of inflation are arbitrary with respect to people and groups in society. D. Inflation will decrease the real value of property assets and increase the real value

Under oligopoly, a kinked-demand curve would explain why firms: A. avoid price wars. B. undertake new investment. C. have different levels of efficiency. D. are approximately the same size. Answer: A. Answer: A. Answer: A. Which factor has most contributed to the increased concentration in the U.S. beer industry? A. Increased demand for strong beers. B.

A barrier to entry that significantly contributes to the establishment of a monopoly would be: A. patents. B. X-inefficiency. C. price-taking behavior. D. diseconomies of scale. Answer: A. Answer: A. Answer: A. Refer to the above table. When the firm produces three units of output, it makes an economic: A. profit of $3. B. loss of

Dumping of goods abroad: A. constitutes a general case for permanent tariffs. B. may be part of a firm's price discrimination strategy. C. may be part of a nation's strategy to rectify its trade deficit. D. drives up prices of the dumped goods. Answer: B. Answer: B. Answer: B. The empirical data indicate that

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that: A. the demand for oranges will necessarily rise. B. the equilibrium quantity of oranges will rise. C. the amount of oranges that will be available at various prices has declined. D. the price of oranges will fall. Answer:

The statement that "tariffs are needed to protect American firms from foreign producers that sell excess goods in the American market at less than cost" would be most closely associated with which tariff argument? A. Cheap foreign labor B. Protection against dumping C. Diversification for stability D. Increased domestic employment Answer: B. Answer: B.

In the long run: A. all costs are variable costs. B. all costs are fixed costs. C. variable costs equal fixed costs. D. fixed costs are greater than variable costs. Answer: A. Answer: A. Answer: A. What does TARP stand for? A. Toxic Asset Rescue Program. B. Troubled Asset Relief Program. C. Tarnished Asset Revenue Program. D. Tinged

As the firm in the above diagram expands from plant size #3 to plant size #5, it experiences: A. increasing returns. B. economies of scale. C. diseconomies of scale. D. constant costs. Answer: C. Answer: C. Answer: C. If personal income taxes and business taxes increase, then this will: A. increase aggregate demand and aggregate

Economists who believe the recent productivity acceleration may be permanent claim that the above-normal economic growth in the United States between 1995 and 2009 was caused by: A. increases in the rate of personal saving. B. increased entrepreneurial activity, application of information technology, and global competition. C. rising federal budget surpluses that reduced

Suppose the world economy is composed of just two countries: A and B. Each can produce steel or chemicals but at different levels of economic efficiency. The domestic production possibilities curves are shown in the graphs below. Refer to the above graphs and information. It can be seen that: A. country B

A large public debt will not bankrupt the federal government because it can refinance the debt or increase taxes to pay it. Answer: TRUE Answer: TRUE Answer: TRUE The gross domestic product (GDP) is the market value of all goods and services produced by the economy in one year. Answer:

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is: A. pound. B. 4 pounds. C. $.25. D. $1.00. Answer: A.If 1 pound = $4, $1 = 1/4 pound. Answer: A.If 1 pound = $4, $1 = 1/4 pound. Answer: A. If 1 pound = $4, $1 = 1/4

If nominal GDP in one year is $5000 billion and the price index is 135, the real GDP that year is $3704 billion. Answer: TRUE Answer: TRUE Answer: TRUE Only the bondholders of a corporation have the right to vote for a corporation's directors. Answer: FALSE Answer: FALSE Answer: FALSE Economies of scale

The total volume of business sales in our economy is several times as large as the GDP because: A. the GDP does not take taxes into account. B. the GDP excludes intermediate transactions. C. the GDP grossly understates the value of our annual output. D. total sales are in money terms and GDP is