A fiscal policy action to close an expansionary gap is to:
A. increase taxes.
B. increase transfer payments.
C. increase government purchases.
D. increase the marginal propensity to consume.
If the Fed wishes to increase nominal interest rates, it must engage in an open market
______ of bonds that ______ the money supply.
A. sale; increases
B. sale; decreases
C. sale; does not change
D. purchase; increases
Refer to the figure above. In this game, when both players use their dominant strategies:
A. profits are maximized.
B. Row Resorts earns a higher profit than does Column Cruises.
C. both firms do worse than they would have done had they played their dominated
strategies.
D. Column Cruises earns a higher profit than does Row Resorts.
The introduction of new technologies to production is ______ source of productivity
improvement.
A. the most important
B. the only
C. the least important
D. no longer a
If the price of TVs produced by the XYZ-TV Company falls from $1,000 to $750 per
TV set, then the:
A. supply of labor to the XYZ-TV Company increases.
B. supply of labor to the XYZ-TV Company decreases.
C. demand for labor by the XYZ-TV Company increases.
D. demand for labor by the XYZ-TV Company decreases.
An increase in the perceived riskiness of the stock of Company A ______ the risk
premium investors require to purchase Company A stock and ______ the price of
Company A stock.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
A perfectly competitive firm’s output price is $7 and the firm is producing 1,000 units
with a marginal cost of $7. The firm should
A. leave production and price unchanged.
B. increase price to increase profits.
C. increase production to increase profits.
D. decrease production to lower losses.
If monetary policy must be used to set the market equilibrium value of the exchange
rate equal to the official value, it
A. is no longer available to stabilize the domestic economy.
B. will be unable to stabilize the market equilibrium value of the exchange rate.
C. will simultaneously stabilize the domestic economy.
D. will increase the rate of growth in the economy.
A 65% chance of winning $10 and a 35% chance of losing $5 would be classified as
a(n)
A. better than fair gamble.
B. worse than fair gamble.
C. expected value.
D. fair gamble.
The argument that efficiency is an appropriate goal assumes that the gains from
enhancing efficiency:
A. will be equally distributed in the population.
B. will benefit the poor by more than the wealthy.
C. could potentially benefit everyone.
D. reduce income disparities in the population.
Based on the information in the table, if the public had not decided to hold more
currency in 1932, but the actions of the Federal Reserve and the banks remained the
same, the money supply at the end of 1932 would have been:
A. $33.8 billion
B. $34.2 billion
C. $35.9 billion
D. $37.5 billion
A financial intermediary that sells shares in itself to the public, and then uses the funds
to buy a wide variety of financial assets is called a:
A. commercial bank.
B. credit union.
C. stock exchange.
D. mutual fund.
A decrease in the capital gains tax on income generated through investment in new
capital will:
A. shift the demand for investment curve to the left.
B. shift the demand for investment curve to the right.
C. shift the supply of saving curve to the left.
D. shift the supply of saving curve to the right.
Suppose you have $200 with which you can buy shares of stock from two companies:
ABC Hot Chocolate Company and XYZ Lemonade. Each company’s stock currently
sells for $100 per share. If the temperature next year is lower than average, the stock
price for ABC will increase by $20, and the stock price for XYZ will not change. If the
temperature next year is higher than average, the stock price for XYZ will increase by
$20, and the stock price for ABC will not change. There is a 50% chance that it will be
colder than average next year, and a 25% chance that it will be warmer than average. If
you purchase two shares of ABC stock and no shares of XYZ stock, there is a ______
chance that your gain will be $40. Otherwise, your gain will be ______.
A. 50%; $0
B. 25%; $20
C. 75%; $30
D. 50%; $20
Refer to the table above. The marginal benefit of the 6th unit of activity is:
A. $1
B. $2
C. $4
D. $10
Individual supply curves generally slope __________ because _______.
A. downward; individual’s become more efficient with practice
B. upward; profits increase with quantity
C. downward; inputs are cheaper when purchased in high volume
D. upward; the easiest tasks are completed first
Refer to the figure above. The profit maximizing price for the monopolist is:
A. C.
B. G.
C. B.
D. E.
The marginal product of labor is the additional:
A. wage paid for an additional hour of work.
B. wage paid for an additional worker employed.
C. labor employed to produce one more unit of output.
D. output produced by one more worker.
If a monopolist finds that its marginal revenue exceeds its marginal costs at the current
level of output, it should:
A. do nothing; it has maximized profits.
B. contract production until the difference between marginal revenues and marginal
costs is larger.
C. expand output until marginal revenue equals marginal costs.
D. expand output until price equals marginal costs.
A decrease in the price the firm receives for its output will cause the firm to:
A. expand output and earn smaller profits.
B. cut wages and payments to factors of production.
C. leave output unchanged and earn smaller profits.
D. reduce output and earn smaller profits or larger losses.
Refer to the figure above. This graph suggests that the private market provides
incentives to:
A. eliminate the externalities generated by paper production.
B. under-produce paper relative to the social optimum.
C. over-produce paper relative to the social optimum.
D. over-price paper relative to the social optimum.
Two firms can choose from five different technologies to reduce their pollution: A, B,
C, D and E. The amount of pollution emitted by each technology and the cost of the
technologies are shown in the table. Both firms have adopted technology A and
currently emit 4 tons apiece. The government is considering two plans to reduce
pollution: a 50% reduction by both firms or selling pollution permits. One permit
entitles the owner to emit one ton of pollution. Without a permit, no pollution can be
emitted.
A government regulation that requires both firms to reduce pollution by 50% results in
process ___________ being adopted and the private costs are __________.
A. A; $575
B. B; $650
C. C; $790
D. D; $1100
If workers received a 5 percent wage increase and the rate of inflation was 10 percent,
then their real wage:
A. increased.
B. decreased.
C. remained constant.
D. equaled the nominal wage.
Shocks to aggregate demand _____ require the Fed to choose between inflation and
output stability, while shocks to aggregate supply ____ require the Fed to choose
between inflation and output stability.
A. do; do
B. do; do not
C. may or may not; may or may not
D. do not; do
Refer to the figure above. At a price of $15, what is the consumer surplus for the buyer
of the first unit?
A. 0
B. 15
C. 5
D. 25
Holding other factors constant, if a tax increase moves the government budget from
deficit to surplus, then the real interest rate will ______ and the equilibrium quantity of
national saving and investment will ____.
A. increase; increase
B. decrease; decrease
C. increase; not change
D. decrease; increase
The figure above shows a supplier’s opportunity cost. The relationship between price
and the quantity produced is _______ making this curve slope ____.
A. positive, downward
B. positive, upward
C. negative, downward
D. negative, upward
Refer to the figure above. Moving from Point B to Point C, this restaurant would be:
A. making more pizzas and more salads.
B. making more pizzas and fewer salads.
C. making fewer pizzas and more salads.
D. operating more efficiently.
The market for bagels contains two firms: BagelWorld (BW) and Bagels’R’Us (BRU).
The owners of the two firms decide to fix the price of bagels. The table shows the total
profits the firms will earn if they abide by the price setting agreement or if they cheat on
the agreement.
Refer to the figure above. This game has __________ with __________.
A. a Nash equilibrium; both firms abiding by the agreement
B. no equilibrium; no prediction about which strategy will be chosen
C. a Nash equilibrium; both firms cheating
D. a Nash equilibrium; Bagel World cheating and Bagels ‘R’ Us abiding
Any value of the nominal interest rate chosen by the Federal Reserve implies a specific
value for ______.
A. potential output
B. the money supply
C. government purchases
D. the budget deficit
If coal mining produces a negative externality in the form of polluted streams then, at
the market equilibrium, the:
A. price of coal is too high.
B. quantity of coal produced is too small.
C. quantity of coal produced is too high.
D. supply curve lies to the left of the regulated supply curve.
When commercial banks borrow reserves from the Fed, the quantity of reserves in the
banking system ______ and, ultimately, the money supply _____.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases