If steel workers obtain a substantial wage increase, employment in the steel industry
will be most likely to fall if
a. the demand curve for steel is highly inelastic.
b. the demand curve for steel is highly elastic.
c. the demand curve for steel workers is highly inelastic.
d. there are no good substitutes for steel.
New residential housing is counted in GDP as
a. a durable consumption good.
b. a household durable good.
c. an investment good.
d. an inventory expansion.
e. a long-term durable good.
The fact that a gallon of gasoline commands a higher market price than a gallon of
water indicates that
a. gasoline is an economic good but water is not.
b. the marginal utility of gasoline is greater than the marginal utility of a gallon of
water.
c. the average utility of a gallon of gasoline is greater than the average utility of a gallon
of water.
d. the total utility of gasoline exceeds the total utility of water.
The civilian labor force includes those individuals who are
a. unemployed and looking for work.
b. staying home to care for other family members.
c. attending school and not working at a job.
d. retired.
Use the figure below to answer the following question(s).
Figure 11-1
Refer to Figure 11-1. Consider the short-run aggregate supply curve SRAS. What is the
segment between a and b called?
a. the new classical range
b. the Keynesian range
c. the flexible wage and price range
d. the balanced budget range
Keynesian analysis stresses that a tax cut that increases the government’s budget deficit
(or reduces its budget surplus)
a. is appropriate during a period of inflation.
b. will increase the money supply.
c. will stimulate aggregate supply and, thereby, promote employment.
d. will stimulate aggregate demand and, thereby, promote employment.
Most economists agree that
a. fiscal policy is a more effective stabilization tool than monetary policy.
b. it is difficult to time discretionary changes in macro-policy in a manner that will
promote stability.
c. monetary policy should focus on reducing unemployment, while fiscal policy should
focus on the control of inflation.
d. discretionary macro-policy can easily be instituted in a manner that will promote
economic stability.
The branch of economics that attempts to understand the outcomes observed in the
public sector by examining the incentives faced by the individual actors involved (such
as voters, politicians, and bureaucrats) is known as
a. private choice analysis.
b. public choice analysis.
c. government operations analysis.
d. incentive analysis.
A disadvantage of team production compared to contracting out is that
a. transaction costs are often higher with team production.
b. the level of specialized knowledge required by team production is greater than with
contracting out.
c. the problem of shirking must be more carefully addressed with team production.
d. team production increases the cost of production in most situations.
The aggregate demand curve is downward sloping because
a. an increase in the price level will cause an increase in spending on goods and
services.
b. at lower price levels, real wealth decreases, causing a decrease in the quantity
demanded of goods and services.
c. at lower price levels, interest rates increase, causing a decrease in the quantity
demanded of goods and services.
d. at lower price levels, net exports increase, causing an increase in quantity demanded
of goods and services.
An improvement in a country’s legal system that enhanced the ability of citizens to
protect their property rights and enforce contracts would result in which of the
following changes to the country’s production possibilities curve?
a. a movement from a point on the curve to a point outside the curve
b. a movement from one point to another point along the curve
c. an outward shift of the curve
d. a movement from a point on the curve to a point inside the curve
Which of the following about price discrimination is true?
a. A price-discriminating seller will charge consumers with an elastic demand a lower
price than consumers with an inelastic demand.
b. A firm must face a horizontal demand curve for its product in order to engage in
effective price discrimination in a market.
c. Price discrimination always harms consumers and helps sellers in the short run but in
the long run, consumers benefit at the expense of sellers.
d. A seller must have a monopoly in order to gain from price discrimination.
Excess reserves of banks equal
a. actual reserves minus required reserves.
b. actual reserves minus demand deposits.
c. assets minus the liabilities of the banks.
d. required reserves minus actual reserves.
A profit-maximizing monopolist that produces in the short run will
a. produce the level of output where marginal revenue exceeds marginal cost by the
largest amount.
b. increase output as long as the marginal revenue exceeds the marginal cost of
producing that unit.
c. produce the level of output where average total cost is at a minimum.
d. increase price as long as the average revenue exceeds the average total cost.
e. produce the level of output where average revenue exceeds average total cost by the
largest amount.
According to the law of supply,
a. producers are willing to supply larger amounts of a good as its price increases.
b. a direct relationship exists between the price of a good and the amount buyers choose
to buy.
c. an inverse relationship exists between the price of a good and the amount buyers
wish to buy.
d. an inverse relationship exists between the price of a good and the amount producers
supply.
Which of the following is accurate regarding government expenditures in the United
States?
a. The federal government spends considerably more than state and local governments
combined.
b. The federal government spends more than local governments but less than state
governments.
c. Local governments spend more than state governments, which in turn, spend more
than the federal government.
d. Since 1930, total government expenditures as a share of GDP have declined.
According to the crowding-out effect, expansionary fiscal policy will lead to
a. higher interest rates, an appreciated dollar, and reduced net exports.
b. higher interest rates, an appreciated dollar, and increased net exports.
c. reduced interest rates, an appreciated dollar, and reduced net exports.
d. reduced interest rates, an appreciated dollar, and increased net exports.
Which of the following is true?
a. Monetary policy influences long-term real interest rates more than short-term interest
rates.
b. Short-term interest rates are primarily determined by real factors and the expected
inflation.
c. A shift to a more expansionary monetary policy will tend to reduce short-term interest
rates.
d. A shift to a more expansionary monetary policy will tend to reduce the expected rate
of inflation in the future.
Use the figure to answer the following question(s).
Figure 10-9
What is the maximum economic profit this firm depicted in Figure 10-9 will be able to
earn?
a. zero profit
b. $200 profit
c. $400 profit
d. $600 profit
If a single firm in a price-taker market lowers its price below the market equilibrium
price,
a. it will get a larger share of the market.
b. it will lose revenue without increasing the quantity it can sell.
c. other firms will lower their prices.
d. other firms will be driven out of the industry.
Figure 17-6
The domestic country is China.
Refer to Figure 17-6. With trade, China will
a. import 100 pencil sharpeners.
b. import 250 pencil sharpeners.
c. export 150 pencil sharpeners.
d. export 250 pencil sharpeners.
As the Medicare program is expanded to cover the cost of prescription drugs for the
elderly, other things constant, this will lead to
a. an increase in demand and higher prices for prescription drugs.
b. an increase in demand and lower prices for prescription drugs.
c. reduction in demand and lower prices for prescription drugs.
d. reduction in demand and higher prices for prescription drugs.
The Fed is institutionally independent. A major advantage of this is that monetary
policy
a. is subject to regular congressional scrutiny.
b. will often offset fiscal policy.
c. is not controlled by politicians.
d. is usually coordinated with fiscal policy.
In recent years, the largest trading partners of the United States have been
a. Germany, France, Spain, and the United Kingdom.
b. Canada, Mexico, China, and Japan.
c. Canada, Brazil, Argentina, and Chile.
d. Russia, Venezuela, Saudi Arabia, and Indonesia.
During the last sixty years, the broad stock market (Standard and Poor’s 500 Index)
yielded an average annual nominal rate of return of approximately ____ and real rate of
return of approximately ____.
a. 5 percent; 2 percent
b. 10 percent; 7 percent
c. 17 percent; 9 percent
d. 9 percent; 17 percent
Compensation where the top performer receives much higher rewards than other
competitors, even if the others perform at only slightly lower levels, is called
a. a compensating differential.
b. round-robin pay.
c. tournament pay.
d. base pay.
Consider a consumer who purchases two goods, X and Y. If the price of good Y falls,
then the substitution effect by itself will
a. cause the consumer to buy more of good Y and less of good X.
b. cause the consumer to buy more of good X and less of good Y.
c. not affect the amount of goods X and Y that the consumer buys.
d. result in an upward-sloping demand for good Y because of the substitution effect.
The most important source of gain from the division of labor is
a. the repeal of the law of comparative advantage.
b. the reduction in work effort because incentives are adversely affected.
c. the increase in the number of jobs since more labor is used to produce goods.
d. the benefits that result from specialization, adoption of mass production techniques,
and exchange.
Use the figure to answer the following question(s).
Figure 10-2
If the cost and demand conditions of this competitive price-searcher firm depicted in
Figure 10-2 are representative of the market, what will happen in the future?
a. Firms will go out of business, and the market price will rise.
b. The current market price will tend to persist into the future.
c. New firms will enter the market, and demand facing this firm will decline.
d. The firms in this industry probably will collude in order to increase their profitability.
If the general level of prices is lower than business decision makers anticipated when
they entered into long-term contracts for raw materials and other resources, which of
the following is most likely to occur?
a. an economic boom
b. highly attractive profit margins
c. output less than the economy’s long-run potential
d. a sharp increase in imports
Older Americans living on a pension and therefore on a fixed income, tend to be made
a. better off when prices rise.
b. better off when the inflation rate rises.
c. worse off when prices rise.
d. worse off when prices fall.
If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to
spend more on gas, this would best be explained by
a. the substitution effect.
b. the income effect.
c. the highly elastic demand for gasoline.
d. all of the above.
What percentage of the non-farm labor force in the United States belonged to a labor
union in 2012?
a. less than 10 percent
b. approximately 11 percent
c. approximately 28 percent
d. more than 40 percent
What will actual unemployment be (in relation to the natural rate) in each of the
following cases? Use a graph of the modern Phillips curve in your answer.
a. Decision makers underestimate inflation.
b. Decision makers overestimate inflation.
c. Decision makers correctly forecast inflation.