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At the long-run equilibrium output level, a monopolistically competitive firm’s average total cost curve When all resources used in production are not perfectly substitutable, Answer: D Which of the following is the Fed’s best strategy for dealing with demand shocks? […]

A person has an absolute advantage in producing a good if he can The economic behavior of government is constrained by Answer: A If the demand for good A is more elastic than the demand for good B, a small […]

The production possibility frontier in Figure 2-8 assumes that U.S. agricultural land is used either to raise cotton for clothing or to grow wheat. This is an example of a(n) Figure 2-8 Refer to Figure 8-1. If the real hourly […]

Which of following is an example of fiat money? a. US dollars b. Gold c. Diamonds d. Silver e. Fur The short-run macro model a. is an attempt to explain why the economy tends to perform better in the short […]

Consider the typical monopolistically competitive firm whose demand curve and cost structure is illustrated in Figure 11-5. Which of the following statements is correct in the long run? Budget constraints exist for consumers because Answer: C If labor were completely […]

Ceteris paribus, when households spend less but do not supply of all their additional saving to the loanable funds market, a. total spending will exceed below total income, satisfying Say’s law. b. total spending will drop below total income, violating […]

Which of the following is not an example of a commercial bank’s liabilities? a. Checking account deposits. b. Any type of demand deposit. c. Loans. d. a and b. e. None of the above. If British real GDP fell, there […]

For the average living standard of a nation to rise, the only thing that needs to happen is for nominal GDP to increase faster than the price level. A measure that economists use in order to keep track of employment […]

If unemployment is above the natural rate, GDP is below potential output. The demand curve facing the firm has been estimated as follows: Which of the following statements about the firm’s total revenue is correct? Answer: D If the marginal […]

Which of the following would be counted in U.S. GDP? a. the purchase of an old house b. the purchase of a new textbook c. the purchase of a $1,000 government savings bond d. washing your car in the driveway […]

Which of the following is the best example of a stock variable? a. U.S. GDP in 2008 b. The daily sales of economics textbooks c. Bill Gates’ annual salary from Microsoft Corporation d. The total wealth of the 50 richest […]

A new computer will generate $1,000 in net revenue for a firm during its first year, $500 during its second year, $250 during its third year, and nothing thereafter. If the interest rate is 10 percent (0.10) per year, what […]

What fraction of the labor force is cyclically unemployed when structural unemployment is 2 percent, frictional unemployment is 2.5 percent, seasonal unemployment is 1 percent, and the overall unemployment rate is 8 percent? a. 2.5 percent b. 13.5 percent c. […]

At any quantity at which the demand curve lies above the supply curve, The federal funds rate is not just targeted by the Fed but is determined by the Fed. Market forces are irrelevant. Answer: B When members of a […]

The concern of economists with respect to the trade deficit is whether it is a. sustainable at current levels. b. desirable at current levels. c. under-specified. d. overestimated. e. the result of the financial crisis. ]Which of the following would […]

In the classical model, a falling demand for labor will a. not cause unemployment because the labor market always clears b. cause a recession with lower employment and a lower real wage c. cause a recession with lower employment and […]

A perfectly competitive market usually achieves economic efficiency because In the short-run macro model, aggregate expenditures are found by which of the following formulas? a. AE = C + I + G + NX b. AE = I + T […]

The spreading of fixed costs over more output explains why the long-run average cost falls as output rises. The demand curve for a foreign currency a. slopes upward b. slopes downward c. is horizontal d. has a slope of 45 […]

For which of the following goods is demand most sensitive to interest rate changes? a. Refrigerators b. Shoes c. Corn d. Textbooks e. Motor oil If minimum average cost is the same over a large range of output, Answer: E […]

Everything else equal, as increase in investment in physical and human capital will mean lower living standards in the present, because the opportunity cost of investment is foregone consumer goods. Which of the following is not included in the M1 […]

The inflation rate a. explains how prices are reacting to economic policies b. indicates the level of prices charged by all firms in the economy c. measures the annual percent increase in the average level of prices d. measures how […]

If there is an excess demand for money, there is an excess a. supply of bonds and the price of bonds will increase. b. supply of bonds and the price of bonds will decrease. c. demand for bonds and the […]

The prices of stocks and bonds move a. in opposite directions to the Fed’s interest rate target b. in opposite directions to the spending patterns of Congress c. in similar directions to the Fed’s interest rate targets d. in similar […]

For a perfectly competitive firm, In Figure 7-4, marginal product of labor is diminishing for levels of employment Answer: C Answer: E How long are the terms of members of the Board of Governors in the Federal Reserve System? a. […]

If property rights are poorly defined The amount of a commodity that buyers in the market would like to purchase at a particular price is Answer: E A firm’s total revenue Answer: Answer: B A short-run decrease in real GDP […]

The economy’s money supply curve is vertical. When negative spending shocks occur, transfer payments automatically fall. Answer: B Suppose that production of the product in Figure 14-2 imposes a cost on society of $7.00 per unit. If the free market […]

Figure 7-7 shows a firm’s total variable cost for different daily output levels. In addition, the firm has total fixed cost of $50 per day. If output increases from 20 to 30 units, average total cost rises from Assume that […]

The total cost to a firm of producing zero units of output is Human capital is defined as a. the skills and knowledge possessed by workers b. the tools used by labor c. equipment and machinery used to train workers […]

Refer to Figure 11-9. If YFErepresents the full employment level of output, the situation depicted at Y1in the graph is a. impossible to achieve because employment would exceed full employment b. one in which we would expect businesses to cut […]

Which of the following policies would most likely increase the money supply? a. Selling government bonds b. Raising the discount rate c. Lowering tax rates d. Lowering the required reserve ratio e. Decreasing the prime lending rate If private investment […]

As a large number of students graduate from college, which category of unemployment would increase? a. Seasonal unemployment b. Structural unemployment c. Frictional unemployment d. Cyclical unemployment e. They will have no effect on unemployment In the long run, the […]

Taking money from a wealthy individual in order to feed a destitute family would be a Pareto improvement. The efficient markets theory of stock prices, implies that Answer: E A family on a trip budgets $800 for restaurant meals and […]

The Fed issues bonds to raise money and uses it to finance the U.S. government’s budget deficit. A less elastic demand for a good could result from Answer: E If a variable other than the price level changes, the AD […]

Suppose the opportunity cost is a constant 500 TV sets for 1 car in Canada and 1,000 TV sets for 8 cars in Mexico. Then, if both countries specialize in accordance with their comparative advantage, the production of 1,000 extra […]

The budget line is useful for illustrating the notion of opportunity cost. The marginal revenue product of labor Answer: E Which of the following is not among the factors that lead to economic growth? a. Increases in employment b. Increases […]

The “vicious cycle of discrimination” refers to If net taxes decrease by $500 billion, both household disposable income and consumption spending will increase by $500 billion. Answer: B Economics is the study of choice under conditions of Answer: C The […]

Equilibrium GDP is reached when a. aggregate expenditure exceeds GDP b. aggregate expenditure is less than GDP c. aggregate expenditure equals the level of output d. the level of output is greater than aggregate expenditure e. the level of output […]

To be effective, countercyclical fiscal policy must be temporary. One way to increase labor force participation is to cut income tax rates. Which of the following is true given such a scenario? a. Cutting income tax rates increases labor force […]

Wage rates may vary among labor markets for each of the following reasons, except one. Which is the exception? A firm that sells its output and hires its labor in perfectly competitive markets Answer: D Even though households do not […]

If two economists disagree on an issue and their disagreement is based on personal value judgments, then this controversy is a normative one. The demand deposit multiplier is always less than 10. Answer: B The Federal Reserve Open Market Committee […]

Given the balance sheet below and assuming a required reserve ratio of 20 percent, how much (in dollar terms) is this bank holding in excess reserves? a. $3.5 million b. $8 million c. $15 million d. $19 million e. $35 […]

If there is a sudden increase in government spending, which of the following should the Fed do if it wants to keep the price level steady? a. Do nothing, since the self-correcting mechanism will adjust the economy b. Sell bonds […]

The incidence of an excise tax A bank can only fail if it is not in good financial health. Answer: B A firm in a monopolistically competitive market is similar to a monopolist in the sense that it Answer: B […]

The 2005-2008 Chinese policy with respect to the Yuan has been to a. allow its currency to float. b. allow its currency to rise in value quickly. c. allow its currency to rise in value slowly. d. allow its currency […]

If nominal GDP increased, which of the following could also have occurred? a. Both prices and real GDP decreased. b. Prices remained the same and real GDP decreased. c. Prices decreased and real GDP remained the same. d. Prices increased […]

A negative demand shock would lead to a decline in both the price level and output in the short run. After John’s income rose by 8 percent, the amount of chicken he consumed fell by 2 percent. This means that […]

A firm’s profit is The Bureau of Labor Statistics releases its employment report a. on the first Friday of every month. b. on the first Friday of every quarter. c. once every four months. d. on the first Friday every […]

The payments made to shareholders from a firm’s profits are called Figure 2-3 shows the production possibilities frontier for a music processing plant that can produce both compact disks and cassettes. The opportunity cost of moving from point A to […]

If we know that the exchange rate is 0.8 dollars per euro, then we know that the exchange rate of euros per dollars is a. 0.8 b. 1.8 c. 1.25 d. less than 1.0 e. 5 Assuming the economy was […]

Objections to free trade a. often come from those who are harmed by trade b. make no sense because everyone benefits from trade c. usually arise outside of the United States d. are not economically rational e. reflect a lack […]

Gold, silver and furs, when used as money, are referred to as a. fiat money b. precious money c. paper currency d. commodity money e. exchange money An excise tax on cigarettes Answer: C Deleveraging is the process of reducing […]

Refer to Figure 9-13. A decreased labor demand on the graph would a. increase total output b. decrease total output at a constant rate c. decrease total output at an increasing rate d. decrease total output at a decreasing rate […]

Consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure 11-1. In the short run the firm”s fixed costs are In the hard-landing scenario the ability of the Fed to respond a. is unlimited b. […]

Even a bank in good financial health can fail if there is a run on the bank. Transfer payments are included in government budgets as spending, but are not included in the government purchases category of GDP. Answer: A The […]

In order to build a table, a furniture company buys $50 worth of wood from a lumber company and $20 worth of hardware from a metal products firm. If the value added by the furniture company is $200, what price […]

What can be said about the comparison between the unemployment benefits offered in Europe and in the United States? a. Unemployment benefits tend to be lower in Europe and are offered for shorter periods than in the United States b. […]

Objections to free trade a. arise because trade harms everyone b. arise when some groups within a nation are harmed by trade c. arise because importers and exporters are often the same people d. are inconsistent with economic rationality e. […]

When a positive externality exists, the marginal social demand curve Automatic stabilizers do not include a. taxes b. interest rates c. transfer payments d. forward-looking behavior e. enhancing the multiplier effect Answer: E Both tariffs and quotas a. benefit domestic […]

The labor demand curve slopes downward because a. firms wish to hire fewer workers as the wage rate increases b. households wish to hire fewer workers as the wage rate decreases c. firms wish to hire more workers as the […]

If the Fed wants to lower the interest rate, it will a. increase the money supply b. decrease the money supply c. increase money demand d. decrease money demand e. simply set a lower market interest rate Claire was trying […]

Referring to Figure 2-13, if you had to choose how to allocated $5 million and your objective was to save the most lives, you would Figure 2-13 Total Lives Saved After an excise tax is imposed on a good or […]

Since World War II, the U.S. economy has been characterized by a. extremely high rates of inflation b. decreases in the price level c. ongoing inflation d. zero inflation e. a continually falling rate of inflation When the Federal Reserve […]

The study of economics would be superfluous if __________ did not exist. For which of the following would purchasing power parity have the least relevance? a. Pens b. Toothpicks c. Paper clips d. Pencils e. Shoe shines Answer: E If […]

In the short run, an increase in the money supply will a. decrease the interest rate, increase real GDP, and decrease the price level b. increase the interest rate, decrease real GDP, and decrease the price level c. result in […]

The most liquid asset(s) of all is (are) a. cash in the hands of the public b. cash in the hands of banks c. demand deposits held by households and businesses at commercial banks d. travelers’ checks e. credit cards […]

What is the difference between actual investment (as defined in GDP) and planned investment? a. Planned investment does not include unplanned inventory changes; actual investment does. b. There is no difference; they are the same. c. Planned investment does not […]

If Chris can produce a service using fewer resources than Pat would, then Chris If the Federal Reserve sells $1,000 in bonds and, as a result, the money supply decreases by $2,500, what is the required reserve ratio? a. 0.4 […]

Economists assume that the goal of the firm is to Productivity efficiency in saving lives Answer: D According to the Coase Theorem Answer: B The rise in equilibrium GDP shifts the money demand curve to the left. Answer: B An […]

Suppose the required reserve ratio is 10 percent, but banks choose to hold an additional 15 percent of demand deposits as excess reserves. Under these conditions, the demand deposit multiplier will be a. 0 b. 4 c. 5 d. 6.67 […]

A fixed exchange rate a. is a declared rate that is maintained by central bank intervention in the foreign exchange market b. is a rate that is fixed by the forces of supply and demand c. is a rate that […]

The largest component of private investment expenditure is a. inventories b. the capital stock c. new home construction d. purchases of newly-produced plant and equipment e. government investment in private industries Suppose that in 2009, private investment spending was $500 […]

The two phases of the business cycle are a. high economic growth and low economic growth b. expansion and contraction c. expansion and depression d. high inflation and low inflation e. potential economic growth and actual economic growth Refer to […]

Why does increasing employment not necessarily increase living standards? a. Productivity always increases as employment increases. b. Living standards and employment are always positively related. c. Increasing employment may not be accompanied by higher real wages d. There is no […]

Road traffic A natural monopoly exists when Answer: C The federal funds rate is closely tied to many interest rates on many types of loans. Which one is the exception? a. Auto loan rates b. Adjustable rate mortgages c. Adjustable […]

Which of the following would shift the aggregate demand curve to the left? a. increases in government purchases, investment spending, autonomous consumption, taxes or the money supply b. decreases in government purchases, investment spending, autonomous consumption, or the money supply […]

Average variable cost is According to the classical model, if the government wanted to increase employment, it could do so by increasing its own spending. That would lead firms to produce more output, for which they would need to hire […]

In an economy without international trade, we can expect total output to equal a. consumption spending plus investment spending plus government purchases b. consumption spending minus leakages c. the sum of leakages and injections d. consumption spending plus investment spending […]

Fun Time Toys produced $60 million worth of toys in 2008. Because of a slow Christmas shopping season, only $50 million worth was sold to consumers, and the remaining $10 million worth went into inventories. Based on this information, how […]

Say’s Law a. cannot be satisfied if there is excess supply or demand in individual markets in the long run b. ensures that every firm will sell all of its output c. can be satisfied even if there is a […]

According to classical economics, a. the economy moves to full employment in the long run b. the economy is always at full employment in the short run c. the economy is rarely at full employment d. business cycles explain long-run […]

If there is a positive demand shock, which of the following would represent the most likely short and long-run outcomes? (Assume the economy was initially at full employment) a. In the short run, real GDP and the price level would […]

If a firm is not forced to take account of a negative externality it creates, it will produce the quantity at which If a price decrease results in no change in seller’s total revenue then Answer: E The national debt […]

The more narrowly we define a good, the easier it is to find substitutes, and Which of the following policies would increase the demand for loanable funds and thus investment spending? a. A reduction in the investment tax credit. b. […]

A negative demand shock decreases the price level in the short run. Approximately how often is the Consumer Price Index (CPI) market basket updated? a. Every 10 years b. Every 25 years c. Every year d. Every 2 years e. […]

Which of the following best describes the history of the U.S. price level from 1970 to 2008? a. The price level increased during the 1970s and 1980s, but decreased during the 1990s. b. The price level increased during the 1970s […]

The vertical intercept of the consumption function measures autonomous consumption. It represents the combined impact on consumption spending of all factors other than disposable income. If businesses become very pessimistic and reduce spending, which of the following is the most […]

Federal subsidies to higher education have the effect of Suppose there are no firms, only the government and households. What would the total demand for funds curve look like in such a world? a. Downward sloping b. Perfectly horizontal c. […]

Money is a. an asset that is widely accepted as a means of payment in the economy b. any asset that is convertible into cash c. an asset that is backed by a precious metal such as gold or silver […]

The skills and knowledge possessed by workers are referred to as a. labor capital b. human technology c. labor tools d. labor technology e. human capital Which of the following jobs is most likely to have a positive compensating wage […]

Equilibrium real GDP is a. independent of the price level b. determined solely in the loanable funds market c. controlled by the Fed d. directly related to the interest rate e. the level of output at which total spending equals […]

A quota typically increases the volume of imports, whereas a tariff typically decreases the volume of imports. The means of payment function of money refers to the common unit for measuring how much something is worth Answer: B If the […]

Which of the following is true in the classical model? a. A spontaneous increase in spending can cause an increase in output and employment. b. An increase in output and employment can cause a decrease in spending. c. A spontaneous […]

If the CPI overstates the true rate of inflation, then a. the economy will grow more slowly than if inflation was measured accurately b. the economy will grow more rapidly than if inflation was measured accurately c. social security payments […]

When the U.S. government runs a deficit, it usually does the following: a. It buys government bonds from the public b. It asks the Treasury Department to print money to pay for the deficit c. It sells new government bonds […]

Refer to Figure 8-1. According to the graph, the equilibrium real hourly wage and quantity of labor employed, respectively, are a. $10, 110 million workers b. $8, 130 million workers c. $8, 150 million workers d. $6, 150 million workers […]

The classical model does a good job of explaining short-run fluctuations in the level of economic activity. Suppose that a perfectly competitive market is in equilibrium. Then, Answer: B A firm’s total cost of production Answer: B The equilibrium interest […]

Which of the following would not cause a movement along the AD curve? a. An increase in the price level. b. A decrease in the price level. c. A change in the interest rate caused by a change in the […]

People and organizations have to make choices about how to allocate time and money because An individual’s wealth constraint is determined by a. the individual’s level of education b. the facts that wealth is given and so she must give […]

Which of the following is a role of a financial intermediary? a. Increasing risk to lenders b. Combining a large number of loans of small borrowers into a small number of deposits of large savers c. Decreasing liquidity for savers […]

A new tool that the Fed started using in late 2008 was that it began to pay interest on the reserves banks hold in their federal reserve accounts. The change in cost resulting from producing one additional unit of output […]

Use the table below to find the marginal propensity to save. a. 0 b. 0.25 c. 0.5 d. 0.75 e. 0.80 The natural rate of unemployment never changes. Answer: B A difference in wage rates that results from a difference […]

Net exports a. are the second largest component of total spending b. are already included in measures on consumption, investment, and government spending c. are a source of total spending on U.S. output d. are always positive; i.e., total exports […]

Wealth in the hands of Americans has been a. rising because of the trade deficit b. rising in spite of the trade deficit c. falling because of the trade deficit d. falling in spite of the trade deficit e. falling […]

Economies with poorly defined property rights are often inefficient because A new moving van will increase a moving company’s yearly revenue by $15,000. Its useful life is three years. If the interest rate is 10 percent (0.1) per year, which […]

The Phillips curve a. illustrates the economy’s production possibilities b. measures the Fed’s willingness to stick with a particular interest rate target c. represents the Fed’s choices between inflation and unemployment d. demonstrates the need for a zero inflation rate […]

The average percentage markup in the economy a. is of special interest in microeconomics b. fluctuates greatly from year to year c. depends on competitive conditions in the economy d. depends on the level of GDP e. increases as the […]

Although there are barriers to entry in a monopolized industry, there are usually many close substitutes for the monopolist’s product. Every economic system requires a means for determining resource allocation. Answer: A Jacob is torn between two jobs, grounds keeper […]

When there are implicit costs of production, If the required reserve ratio is 0.2, the demand deposit multiplier is a. 0.2 b. 0.8 c. 1.25 d. 5.0 e. 8.0 Answer: D If U.S. GDP drops and South Korean GDP remains […]

A firm’s labor demand curve is derived from the supply of the goods and services it produces. If the Federal Reserve sells a $2,000 bond to a bond dealer who pays with a check written on an account at Second […]

Use the table below to calculate the CPI in 2007. Assume the base year is 2007 and the cost of the market basket in the base year is $275.50. The CPI in 2007 is a. 100 b. 126 c. 115 […]

In the classical model, government purchases or tax cuts are appropriate policies to raise GDP. The free rider problem occurs when Answer: A Less-risky professions tend to enjoy compensating wage differentials. Answer: B A contract Answer: B One factor that […]

“Rising prices” and “rising inflation” mean the same thing. If autonomous consumption decreases, which of the following is the most likely effect in the short run? a. a decrease in output, an increase in money demand, and an increase in […]

If the marginal propensity to consume is 0.75 and investment spending decreases by $20 billion, what will be the overall effect on GDP? a. GDP will decrease by $20 billion b. GDP will increase by $15 billion c. GDP will […]

Which of the following can happen? a. Prices are rising and the inflation rate is negative but rising. b. Prices are falling and the inflation rate is positive and falling. c. Prices are falling and the inflation rate is positive […]

In the following index, which year is most likely to be the base period: 2003 = 123.3; 2004 = 145.3; 2005 = 111.4; 2006 = 100; 2007 = 93? a. 2003 b. 2004 c. 2005 d. 2006 e. 2007 The […]

Consider Figure 11-10 above. If the full employment level of output is $9 trillion, which of the following is true? a. The economy is currently operating at the full employment level b. The economy is currently operating below than the […]

The demand for labor depends upon each of the following, except one. Which is the exception? When a bank needs to increase its reserves, it will a. call in all its loans b. stop paying interest on its saving accounts […]

Which of the following would be most likely to cause a rightward shift of the demand for shares of Planet X, Inc.’s stock? If the interest rate at which you can lend funds is percent per year, then the present […]

Consider the following three bonds, Bond F, Bond J and Bond P. Bonds F and P mature in 1 year while Bond J matures in 4 years. Bond F and J have a face value of $10,000 while Bond P […]

What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1? Figure 16-1 Number of workers needed to produce one unit of each of the following goods: a. Colombia has a comparative advantage in […]

The least-cost rule for firms states that in the long run, firms will If the interest rate increases, the money demand curve a. shifts to the right. b. shifts to the left. c. neither shifts nor changes slope. d. gets […]

Which of the following is an example of a positive externality? Figure 2-5 shows five different points along the production possibilities frontier for a country that produces rockets and cruise ships. If the country is currently operating at point C […]

In the classical model, beginning from an equilibrium in which the government is running a budget surplus, an increase in government spending will a. lower the wage rate b. increase the supply of loanable funds c. cause total spending to […]

Some of the inaccuracies in measuring GDP are attributable to a. monopolization b. ignoring production by U.S.-owned plants abroad c. the underground economy and quality changes d. tax evasion and inflation e. short-term changes in spending If output is below […]

Figure 10-1 shows the demand schedule facing the only gas station in a small Midwestern town. The station does not price discriminate. Which of the following statements is correct? If Cathy has a bond that will pay $1,000 one year […]

Wages often respond slowly to changes in output. The demand curve that a monopolist faces Answer: E The money demand curve indicates the total quantity of money demanded in the economy at each a. price level b. level of GDP […]

In the short-run macro model, adjustment toward equilibrium is facilitated by price changes. Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act. Answer: A The order of Soviet dictator Joseph Stalin to farmers in the 1930s […]

Economists consider the minimum wage to be a Economic growth policies always involve a. trade-offs b. lower taxes c. higher government spending d. more investment e. more transfer payments Answer: A The phenomenon of wages in many industries changing very […]

Refer to Figure 8-4. Based on these graphs, what is the total quantity of loanable funds demanded at an interest rate of 5 percent? a. $0.8 trillion b. $1.0 trillion c. $1.4 trillion d. $1.8 trillion e. $2.2 trillion In […]

Diseconomies of scale tend to occur in large firms because A monopoly is a Answer: E When opportunity costs rise as more of a good is consumed, the production possibilities frontier will be concave (bowed out) with respect to the […]

If an excise tax is imposed on shoes, The production possibilities frontier is useful for demonstrating both scarcity and productive inefficiency. Answer: A According the AS/AD model, in the long run, expansionary monetary policy will a. increase both real GDP […]

Assuming the economy was in equilibrium, use the following information to determine the total amount of funds demanded in the loanable funds market. a. $0.3 trillion b. $2.2 trillion c. $2.5 trillion d. $3.0 trillion e. $5.2 trillion What could […]

Figure 4-1 shows the supply and demand for socks. If a price floor of $10 per pair is imposed by the government, the number of pairs actually purchased will be Patents allow manufacturers to block the entry of new firms […]

Your aunt gives you a PepsiCo bond with face value of $5,000. It will mature in two years. Currently, the interest rate is 10 percent (0.10) per year. How will the value of the bond change if the interest rate […]

If the Fed buys bonds in an open market operation, which of the following is most likely to occur? a. the equilibrium level of GDP will decrease. b. the money supply will decrease. c. the aggregate demand curve will shift […]

Which of the following would not be included in the consumption component of GDP? a. Movie ticket sales b. Purchase of a new home c. Medical bills d. Clothing purchases e. Home electricity bills Which of the following statements about […]

If the dollar price of a foreign currency increases, there will be a(n) a. rightward movement along the supply of foreign exchange curve b. leftward movement along the supply of foreign exchange curve c. leftward shift of the supply of […]

Suppose that the government reduces income taxes. Which of the following is the most likely result? a. An increase in human capital investment b. A decrease in consumption c. An increase in government spending d. A decrease in government spending […]

Ongoing inflation means the Fed must respond to a. an upward-shifting AS curve b. a downward-shifting AS curve c. changing interest rate targets d. a depression e. a lower real interest rate If the demand curve facing a firm shifts […]

You have a bond that you can redeem for $10,000 one year from now. The interest rate is 10 percent (0.10) per year. How much is the bond worth today? Suppose that the equilibrium interest rate is 8 percent, but […]

Suppose that a consumer’s original budget line was AB in Figure 5-4, but it has now changed to line AC. Which of the following must have occurred? Figure 5-6 shows the demand curve for chicken. Between points L and M, […]

The Fed’s goal is a. moderate and stable inflation b. zero inflation c. a low price level d. an inflation rate that diminishes over time e. low and stable inflation Rent control is an example of a price ceiling. Which […]

The 4-year term of the president of the Fed is coterminous with the 4-year term of the president of the U.S. The CPI’s approach is to a. track the cost of the CPI market basket, which is the collection of […]

Henry decides to quit his job, take his $60,000 in savings, and open a dry cleaning store. Figure 8-1 shows the revenues and expenditures for his first year of operation. Which of the following items would be included in the […]

Statistical discrimination In the Full Employment and Balanced Growth Act of 1978, Congress set a target rate of unemployment. The nation achieves this target rate a. in most years b. at least once a year c. only rarely d. in […]

In the short run, those who are hurt by the minimum wage are Which of the following is a reason why a particular job may pay a higher-than-average wage rate? Answer: D An appreciating currency is always a sign of […]

Economists monitor economic growth by keeping track of a. the stock market b. population growth c. the total quantity of goods and services produced in the United States each year d. the inflation rate e. the distribution of income among […]

The Classical model a. is now discredited b. was developed by John Maynard Keynes c. has been completely displaced by the short-run macro model d. helps us to understand the performance of the economy in the long run e. is […]

If the percentage change in quantity demanded is smaller (in absolute value) than the percentage change in price, then demand is Which of the following is a potential barrier to entry? Answer: D A decrease in the price of a […]

The effect of a change in the price of tea on the quantity of coffee demanded is measured by the Which of the following is a reason why the labor demand curve would shift rightward? a. A decrease in the […]

In Figure 5-3, the price elasticity of demand between points T and U is the same as between points V and W. If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased, and the […]

How are the prices of various goods and services determined for the Consumer Price Index (CPI)? a. By an extensive annual household survey b. By an extensive monthly survey of stores, apartments, and owner-occupied homes c. By an extensive annual […]

If a firm is a price taker, then the demand curve it faces is perfectly Relative to GDP, interest on the national debt a. has grown at a steady rate during the last 40 years b. has remained constant in […]

In the same city, one job currently pays $6 more per hour than another job. The two jobs have equivalent training requirements, but labor is not migrating toward the higher-paying occupation. Both markets are perfectly competitive. Which of the following […]

When the market estimate of a company’s riskiness increases the market adjusts by For any change in net taxes, we can calculate the resulting change in equilibrium GDP by using the following formula: a. change in GDP = -MPC/(1 – […]

Which of the following is an example of a negative externality? Suppose Mike and Renee are the only two people in a very simple economy and that they produce and exchange two goods, soda and pretzels. Which of the following […]

A profit-maximizing, single-price monopoly must lower its price in order to sell more output. If autonomous consumption is $1,000, the MPC is 0.75, net taxes are $500, investment spending is $800, and government purchases equals $500, and NX = $0, […]

The trend of shorter working days and longer vacations is expected to reversed in most wealthy countries in the future. Use the table below to determine autonomous consumption spending. a. $0 b. $100 c. $180 d. $200 e. $1,000 Answer: […]

Stagflation is caused by a. a negative supply shock. b. a positive supply shock. c. a negative demand shock. d. a positive demand shock. e. none of the above. In Figure 14-1, which area represents consumer surplus? Answer: B Answer: […]

When a mall Santa Claus loses his job at the end of the Christmas season, this is an example of a. frictional unemployment b. structural unemployment c. frictional unemployment d. seasonal unemployment e. economic unemployment The total debt includes amounts […]

Figure 7-8 shows three different cost curves, labeled A, B, and C. Which of these curves is most likely to represent marginal cost? Production is productively efficient when Answer: B What can be said about the firm shown in Figure […]

The term laissez faire can be translated a. “leave it alone” b. “make it equitable (fair)” c. “take an active role” d. “markets work” e. “free of problems” Net exports are a. total exports minus total imports b. what foreigners […]

Transfer payments provide benefits to a. all those in need b. those who have paid into governmental funds through their workplace c. those who are eligible recipients d. those who provide some service to the government e. anyone transferring from […]

Which of the following might explain why the government would create a price floor for a certain good? The equation GDP = C + I + G + NX best describes the a. the output approach to measuring GDP b. […]

Jordan wants to sell her wedding gown for $250, but her cousin Jessica offered her $375 for it. If the gown is sold for $375, what is Jordan’s producer’s surplus Specialization and exchange result in Answer: B The real interest […]

If the required reserve ratio is 0.25 and the First National Bank holds $10 million in demand deposits and $2.5 million in reserves, how much more money is the bank capable of creating? a. $0 b. $0.625 million c. $1.875 […]

Which of the following mechanisms helps output to return to potential after a demand shock? a. Change in business mentality b. Change in nominal wage rate c. Large changes in the capital stock d. Inability of the price level to […]

Which of the following helps explain low growth rates of many less developed countries? a. Good law enforcement b. Political stability c. Low population growth rates d. Excellent legal systems e. Near-subsistence levels of per capita output The feature of […]

Refer to Figure 7-1. Based on the figure, a. the price level has fallen since 1965 b. the price level in 1985 was lower than in 1980 c. the price level fell from 1980 to 1990 d. the price level […]

A monopoly For the two year period ending in 2008-2009, what has been the number of bank failures? a. About 500 b. About 2,000 c. Fewer than 150 d. More than 5,000 e. Fewer than 1,000 Answer: C Which combination […]

As China switches from catch-up growth to discovery-based growth, the pace of worldwide discoveries will increase and this will raise living standards a. in the countries that China trades with. b. in China and its neighboring countries. c. in the […]

Most corporations do not pay back their debt. If a firm is experiencing diminishing marginal returns to labor, Answer: A Negative externalities produce inefficiency but positive externalities do not. Answer: B To say that the housing market is in equilibrium […]

In the classical model with an open economy, an increase in government purchases always causes complete crowding out. Even if employers are not prejudiced, employee or customer discrimination will tend to be reinforced by market forces and may lead to […]

Suppose the same basket of goods costs $100 in the U.S. and 50 pounds in Britain. According to purchasing power parity, if the two countries’ price levels do not change, what will be the exchange rate? a. 2 dollars/pound b. […]

What is true of both expansions and recessions? a. There is a poorer than normal match between workers and their jobs. b. The labor market clears. c. The economy operates at its potential output. d. Cyclical unemployment is zero. e. […]

Assume that Spain can produce a commodity using fewer resources than any other country. Spain will export this commodity even if other countries have a lower opportunity cost of producing it. Suppose the Federal Reserve wants to increase the money […]

Suppose that a local supermarket sells apples and oranges for 50 cents apiece, and at these prices is able to sell 100 apples and 200 oranges per week. One week, the supermarket lowered the price per apple to 40 cents […]

The law of demand says that In the classical model, when an open economy has balanced trade, Say’s law holds. Answer: A Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls […]

A monopoly’s Which of the following is a distinguishing characteristic of oligopolies? Answer: C Cyclical unemployment a. is short-term joblessness experienced by those who are between jobs b. is joblessness created by a mismatch between available jobs and workers’ skills […]

Ink jet printers are a normal good only if, as income falls by a certain percentage, the quantity demanded rises by an even greater percentage. In real-world markets Answer: C The national debt must be paid back in the future. […]

Refer to Figure 8-2. The economy is at full employment if a. the quantity of labor supplied exceeds the quantity demanded b. the quantity of labor demanded exceeds the quantity supplied c. 130 million workers are employed d. the real […]

A pure public good is one that is If the Bank of Japan buys yen to prevent the yen from appreciating, a. it is probably also trying to profit from that operation b. it is probably also trying to maintain […]

In the short-run macro model, an increase in government spending a. may reduce real GDP b. partially crowds out private investment spending c. usually crowds out exports d. usually crowds out spending on services e. requires an increase in taxes […]

A tariff a. is usually set by domestic producers of a good b. can be either a fixed dollar amount or a percentage of a good’s value c. decreases domestic price for a good, holding all else constant d. improves […]

When money is used to compare the costs of different goods and services, it is functioning as a. a unit of account b. a means of payment c. fiat money d. a store of wealth e. legal tender Which of […]

If the Fed wishes to raise the interest rate, it will a. increase the money supply b. decrease the money supply c. increase money demand d. decrease money demand e. simply set a higher market interest rate If the government […]

During the expansion phase of a business cycle a. employment and output are both at a peak b. employment and output are both rising c. employment is falling and output is rising d. unemployment is rising and output is falling […]

Nominal federal spending is a a. good indicator of how responsibility the federal government is b. good indicator of the overall economy’s performance c. measure of the public’s concern for the educational needs of the country d. warning sign that […]

Who owns a commercial bank? a. Its depositors b. Its stockholders c. Lenders d. Savers e. The Federal Reserve The long-run Phillips curve is downward-sloping. Answer: B Households make their savings available to borrowers through a. resource markets b. the […]

The Fed’s efforts to attain full employment are complicated by a. the persistence of cyclical unemployment b. the instability of the inflation rate c. new legislation that attempts to avoid financial panics d. the difficulty of determining what normal unemployment […]

The natural rate of unemployment a. is a specific unemployment rate that can be a target for the Fed b. changes as the inflation rate changes c. is natural because it does not change from period to period d. is […]

The Federal Deposit Insurance Corporation helps to reduce the number of bank failures because a. of its rule that individuals cannot make a run on a bank b. it promises to reimburse up to $10,000 of lost deposits in an […]

Suppose a major computer virus struck the nation’s computers and all hard drives were erased. What would happen in the labor market? a. The real wage would increase and so would employment. b. The real wage would not change, but […]

Crowding out refers to a(n) a. decrease in the amount of goods produced after too many goods have crowded onto the market b. business tactic used to steal a competitor’s customers c. increase in one sector’s spending caused by an […]

The return to owners for innovation and risk taking is a firm’s Price ceilings are primarily targeted to help __________, while price floors generally benefit __________. Answer: E Suppose that a consumer used to be at point R on budget […]

If the Federal Reserve buys $1,000 in bonds and the reserve requirement ratio is 0.5, what happens to the money supply and the net worth of all banks? a. The money supply decreases by $2,000 and net worth increases by […]

Which of the following could shift the labor supply curve and increase employment? a. An increase in the number of firms b. An increase in income tax rates c. Increased spending on welfare programs d. Increased federal funding for education […]

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008, we can conclude that a. the prices of all consumer goods were higher in 2008 than in 2007 b. the prices of all consumer goods were lower […]

Which of the following is the main weakness of the classical model? a. It assumes that the labor supply curve is vertical. b. It assumes that the labor supply curve is horizontal. c. It assumes that the labor market clears. […]

The world’s total output will be greater the more self-sufficient each of the world’s economies becomes. If the Fed wanted to prevent a change in money demand from affecting real GDP, which of the following responses would it choose? a. […]

What is the difference between an intermediate good and a final good? a. Final goods are adjusted for depreciation, intermediate goods are not. b. Final goods are adjusted for changes in the value of the dollar, intermediate goods are not. […]

Assuming the economy was in equilibrium, use the following information to calculate the total value of leakages. Total leakages are a. $2.5 trillion b. $2.7 trillion c. $3.0 trillion d. $5.2 trillion e. $5.7 trillion Which of the following describes […]

Assume net exports are -$220, consumption is $5,000, tax revenues are $1,000, government purchases are $1,500, and 2003 GDP, calculated by the expenditure approach, is $8,000. We can conclude that a. private investment was $1,940 b. public investment was $310 […]

Which of the following factors may lead to an underestimation of the significance of unemployment when evaluating the overall unemployment rate? a. Involuntary full-time employment b. An increase in the number of military personnel c. Discouraged workers d. An increase […]

A low rate of inflation, whereby prices increase so slowly from week to week that we hardly notice the change, is referred to as a. zero inflation b. creeping inflation c. nominal inflation d. real inflation e. episodic inflation If […]

For any value of the MPC (marginal propensity to consume), the formula for the expenditure multiplier is a. 1/(1 – MPC) b. 1/MPC c. 1/(MPC – 1) d. (1 + MPC)/MPC e. 1/(1 + MPC) A nation’s comparative advantage a. […]

An increase in the demand for bonds will increase both the price of bonds and the quantity of bonds held. If the market supply curve slopes upward Answer: A The law of diminishing marginal utility Answer: B Answer: B Because […]

The standard measure of the money stock, M1, refers to a. checking account balances, travelers’ checks, and cash in the hands of the public b. cash in the hands of the public, demand deposits, and small time deposits c. cash […]

Money is a. only assets such as gold and silver b. only fiat in nature c. anything that is generally accepted as a means of payment d. acceptable as a means of payment because the government guarantees that it must […]

Which of the following goods and services would be excluded from the CPI? a. Legal services b. Used cars c. French wines sold in the U.S. d. Restaurant meals e. Shares of stock in U.S. corporations The relationship between the […]

In a perfectly competitive market, the good or service cannot differ substantially among sellers. Average total cost is Answer: C An increase in the capital stock causes labor productivity to a. decrease and the standard of living to increase b. […]

The marginal propensity to consume is always a. a negative number b. larger than 1.0 c. larger than 10 d. greater than zero and less than 0.5 e. greater than zero and less than 1.0 If the reserve requirement is […]

What is the value of a newly issued 3-year bond with a face value of $5,000 and no coupon payments? Assume the interest rate is 8 percent (0.08) per year. If the Fed wishes to maintain its interest rate target […]

Classical economists believed that a. the government should play an active role in controlling the economy b. the government can best help the economy by leaving it alone c. the economy is controlled by the government d. laissez faire will […]

Which of the following is a characteristic of perfect competition? The formula for labor productivity is given by a. employment / output. b. output / population. c. output / employment. d. population / output. e. output / number of firms. […]

The price/earnings (PE) ratio of a stock is found by Instead of throwing away a worn-out pair of jeans, a cowboy trades them in for $12. The jeans are resold for $45 to someone who likes to project a rugged […]

In recent years, each 1 percent drop in output is associated with the loss of more than a. five million jobs b. one million jobs c. half a million jobs d. two hundred thousand jobs e. one hundred thousand jobs […]

If the marginal propensity to consume is 0.75 and government spending decreases by $2,000 billion, what is the change in GDP? a. -$2,000 billion b. -$8,000 billion c. $2,000 billion d. $1,500 billion e. $8,000 billion If the labor demand […]

The difference between microeconomics and macroeconomics is that a. microeconomics deals with only small numbers while macroeconomics is always dealing with numbers in the billions and trillions b. microeconomics deals with the economy as a whole while macroeconomics deals with […]