A weakness of the market system of resource allocation is that
a. such economies tend to be stagnant
b. most participants in such an economy have low standards of living
c. there are no limits on an individual’s freedom of action
d. it does not address the problem of initial inequities in endowments
e. its participants are free to act according to their desires
A short-run decrease in real GDP will
a. increase the price of non-labor inputs, increase input requirements per unit of output,
and increase the price level
b. increase the price of non-labor inputs, decrease input requirements per unit of output,
and decrease the price level
c. decrease the price of non-labor inputs, decrease input requirements per unit of output,
and decrease the price level
d. increase the price of non-labor inputs, decrease input requirements per unit of output,
and increase the price level
e. decrease the price of non-labor inputs, increase input requirements per unit of output,
and increase the price level
The rise in bank failures in the late 1980s and early 1990s occurred
a. at Federally-charted banks only.
b. because Congress repealed many of the provisions of deposit insurance regulation.
c. at state-chartered banks, which are less closely regulated than other banks.
d. because the Federal Reserve began to monitor banks less often.
e. because they were insured by the Federal Deposit Insurance Corporation instead of
state agencies.
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 B to C is
Figure 2-3
a. 20 cassettes
b. 120 compact disks
c. 100 cassettes
d. 60 compact disks
e. 180 compact disks
If the Fed sells bonds in an open market operation, which of the following is most likely
to occur?
a. The equilibrium level of GDP decreases
b. The money supply increases
c. The interest rate falls
d. The aggregate expenditure line shifts upward
e. The open market operation is said to be expansionary.
Countercyclical fiscal policy is viewed by most economists
a. as the perfect instrument for preventing boom and bust economies
b. as a useful but imperfect instrument for reacting to boom and bust economies
c. having no impact in the short run or long run.
d. doing more damage than good in both the short run and long run.
e. as having an impact only in the long run.
A measure that economists use in order to keep track of employment is
a. the price level
b. real GDP per person
c. real GDP
d. the growth rate of output
e. the unemployment rate
Jim is negotiating a contract for a labor union. The union wants to increase members’
real wages by 4 percent. The inflation rate is predicted to be 7 percent. To attain the
union’s goal, Jim needs to negotiate a raise in the nominal
a. wage of 4 percent
b. wage of 7 percent
c. wage of 11 percent
d. rate of 3 percent
e. rate of 28 percent
If a demand shock causes an economy to operate at a point above potential GDP, then
a. the aggregate supply curve will shift to return the economy to the original point of
equilibrium
b. the economy will correct itself through rising wages and prices
c. this short-run equilibrium point will become the new long-run equilibrium GDP
d. the economy will correct itself through falling wage rates and prices
e. the shock is said to be a negative demand shock
If the demand for baseball cards rises and the supply curve does not shift, then the price
a. will rise and quantity will fall
b. and quantity will rise
c. will fall and quantity will rise
d. and quantity will fall
e. will rise, but quantity may rise or fall
The employment-population ratio is
a. percentage of the population unemployed
b. percentage of the population employed
c. the same as the unemployment rate
d. always greater than 1
e. percentage of the population employed by the private sector
The human costs of unemployment are
a. insignificant
b. not as important as the economic costs of unemployment
c. equal to the economic costs of unemployment
d. not measured in dollars, but are extremely important considerations
e. the opportunity cost of lost output
Changes in government spending or taxes designed to stimulate the economy are
examples of
a. fiscal policy
b. monetary policy
c. supply management policy
d. classical policy
e. regulatory policy
A country currently is using all its land to produce wheat and grapes. However, the land
most suited to growing grapes is being used to produce wheat, and the land most suited
to growing wheat is being used to produce grapes. Which of the following statements is
true?
a. The country is operating outside of its production possibilities frontier.
b. The country is operating along its production possibilities frontier.
c. Wheat production must be sacrificed if the country increases grape production.
d. Grape production must be sacrificed if the country increases wheat production.
e. The country is operating inside its production possibilities frontier.
Classical economists believed that production could be stuck below its full employment
level for a long period of time.
The official measure of unemployment may underestimate actual unemployment
because
a. people may lie when reporting they are looking for jobs
b. the treatment of involuntary part-time workers and discouraged workers is
misleading
c. the population sample employed by the Labor Department is too small to be
representative
d. some individuals who should be receiving unemployment benefits do not receive
them
e. individuals who are unable to work are not included
A rightward shift of the economy’s labor supply curve would result from a(n)
a. cut in income tax rates or an increase in welfare benefits to the needy
b. cut in income tax rates or a cut in benefits to the needy
c. increase in income tax rates or a cut in benefits to the needy
d. increase in income tax rates or an increase in benefits to the needy
e. cut in income tax rates or a freeze on benefits to the needy
The study of how consumers and producers interact in individual markets is
a. macroeconomics
b. labor economics
c. microeconomics
d. econometrics
e. development economics
Grant has four hours of time to divide between studying for a physics exam and a
geology exam. Figure 1-1 shows his estimates of the grades (on a scale of 0 to 100) that
he could earn from studying a particular number of hours on each subject. If he plans on
spending two hours studying each subject, what would be his opportunity cost of an
additional hour studying physics?
a. 10 points on his geology exam
b. 20 points on his geology exam
c. 80 points on his geology exam
d. 25 points on his physics exam
e. 85 points on his physics exam