The Industrial Revolution refers to the period 1950-1970, which was characterized by
rapid manufacturing sector growth in the United States.
a. True
b. False
The appropriate fiscal policy stance depends, at least partly, on the
a. stance of trade policy.
b. stance of monetary policy.
c. party in power in Congress.
d. party in power in the presidency.
Figure 4-4
Assume that Figure 4-4 shows demand for orange juice. An increase in the price of soda
will change demand from
a. D1 to D2.
b. D2 to D1.
c. D3 to D2.
d. D3 to D1.
A monopolistically competitive firm in the long run will
a. have a demand curve tangent to its AC.
b. have a demand curve below its AC.
c. have a demand curve above its AC.
d. operate where excessive profit can be achieved.
The actual deficit is a poor measure of the government fiscal policy because it changes
independently of intentional government policies.
a. True
b. False
The new growth theory emphasizes the critical role of ____ in modern economic
growth.
a. new machinery
b. new knowledge
c. new natural resources
d. new government programs
In Latin America, countries like Brazil and Mexico have found it necessary to grant
their central banks more independence in order to
a. maintain higher levels of political stability.
b. promote economic growth and employment.
c. counteract high rates of inflation.
d. deal with the consequences of globalization.
When analyzing how money affects income, we are analyzing the way in which a
a. stock affects another stock.
b. stock affects a flow.
c. flow affects another flow.
d. flow affects a stock.
During the Great Depression of the 1930s, unemployment peaked at _____%.
a. 5 percent
b. 10 percent
c. 20 percent
d. 25 percent
e. 30 percent
Following deregulation in the airline industry
a. small carriers have gone out of business but large carriers have not.
b. large carriers have gone out of business but small carriers have not.
c. both large carriers and small carriers have gone out of business.
d. neither large carriers nor small carriers have gone out of business.
To predict the effects of a tax cut on consumption spending, economists must have
some estimate of the
a. income effect.
b. substitution effect.
c. relative price effect.
d. marginal propensity to consume.
Which of the following will tend to occur if price controls are imposed on a product?
a. persistent shortages
b. illegal markets
c. illicit channels of distribution
d. industry investment slows or stops
e. All of the above are correct.
The purpose of fiscal policy should be to
a. balance the budget to be fiscally responsible.
b. balance aggregate supply and aggregate demand.
c. keep taxes low to keep voters happy.
d. minimize government spending to avoid wasting money.
When the difference between potential GDP and actual GDP increases, the nation
usually suffers from increased inflation.
a. True
b. False
The advantage of a system of fixed exchange rates over one where exchange rates are
flexible is that
a. the government gains more control over the economy.
b. floating exchange rates impose risks on importers and exporters from unpredictable
exchange rates.
c. exchange controls become unnecessary.
d. fiscal and monetary policy can focus more on domestic conditions.
An efficient allocation of resources is demonstrated by a point
a. above the production possibilities frontier.
b. below the production possibilities frontier.
c. on the production possibilities frontier.
d. near the middle of the production possibilities frontier.
The sum of all factor payments in the economy yields
a. gross domestic product.
b. national income.
c. disposable income.
d. net domestic product.
In ____, each competing firm is determined to sell at a price that is lower than the
prices of its rivals, often regardless of whether that price covers the pertinent cost.
a. market skimming
b. a monopoly
c. a price war
d. perfect competition
Give a complete but concise definition of the following terms.
a. perfect competition
b. perfectly competitive firm’s demand curve
c. shutdown point
d. long-run equilibrium in perfect competition
The concept of aggregate supply is a
a. fixed number.
b. schedule.
c. predetermined amount of output.
d. All of the above are correct.
Oligopolists use advertising as a way of differentiating their products.
a. True
b. False
Total fixed cost
a. increases as output increases.
b. declines as output increases.
c. is always zero.
d. remains constant even if the firm shuts down.
Which of the following could trigger demand-side inflation?
a. a decrease in the money supply
b. an increase in taxes
c. an increase in government spending
d. an increase in interest rates
The demand for labor is a derived demand. Employers hire workers until the
a. wage rate equals the average product of labor.
b. wage rate equals the marginal revenue product of labor.
c. last worker hired adds nothing to total output.
d. average product of labor is zero.
The slope of the budget line is determined only by the prices of the commodities
purchased.
a. True
b. False
For a ____, if incomes rise and prices do not change, quantity demanded will increase.
a. normal good
b. inferior good
c. Giffen good
d. substitute good
If demand is elastic, an increase in price will increase total revenue.
a. True
b. False
The experience of the Soviet Union proves that higher education
a. always leads to productivity increases.
b. always raises per capita GDP growth.
c. has different effects.
d. has positive effects.
The president has influence on Federal Reserve policy because
a. he can veto any Fed policy.
b. he appoints the board members and the chair.
c. he can fire the chair.
d. he can replace board members at any time.
Average cost equals
a. change in total cost/change in quantity.
b. total cost/quantity.
c. total cost − total variable cost.
d. total cost − total fixed cost.
What is the effect of supply-side inflation on the short-run Phillips curve?
What is the federal funds rate? What are the main determinants of the federal funds
rate?
Provide two circumstances where monopoly may offer efficiency advantages over
competition.
The cross elasticity between two goods has been measured at −1.2. How are the goods
related? Explain. Give an example of goods for which this might be a reasonable
measure of cross elasticity.
Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need
rescue. Coast Guard boats, supported by tax revenue, are often used for rescue. Is it
likely that there will be an efficient amount of boating and rescuing?
Explain the reasoning behind the shutdown rules. When is it appropriate to operate with
a loss?
How can it be that the U.S. spends more on education than many other nations, and
achieves far worse results? What may be the underlying reason?
Explain the rules for finding maximum profit using total revenue and total cost and
marginal revenue and marginal cost.
Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value.
The Lexus sells for 6,000,000 Japanese yen in Tokyo and the Mercedes sells for 50,000
euros in Stuttgart. Using the purchasing power parity theory, explain the exchange rate
between the yen and the euro.
What is fiat money? Why is fiat money important in the United States today?
How does correlation differ from causation? Give an example of each to illustrate your
answer.
What is mercantilism? What are the draw backs of this doctrine?
Explain the relationship between the minimum wage and the unemployment rate for
teenagers.
How can bonuses to exceptional employees be considered economic rents?
How is the dividing line between poverty and nonpoverty measured? Does this method
overstate the degree of poverty?
President Barack Obama pushed forward a national health care plan to increase the
availability of medical care for all Americans. How would one determine the
opportunity cost of the proposal?
Draw a graph illustrating a competitive firm in short-run equilibrium that is earning an
economic profit. Be sure to label all curves and axes correctly.
What are the alternative views to the human capital theory with respect to the role of
education?
The United States can produce 1,000 shoes if it specializes in shoe production.
Alternatively, it can produce 500 shirts. Taiwan can produce 500 shoes or 200 shirts.
Explain which country will specialize in shoe production and which in shirt production.
What are the possible terms of trade?
The demand curve for the perfectly competitive industry normally slopes downward,
unlike the perfect competitive firm. Why?