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The quantity demanded of a product increases as its price declines because the:
A. lower price shifts the demand curve rightward.
B. lower price shifts the demand curve leftward.
C. lower price results in an increase in supply.
D. demand curve is downsloping.
Assume you pay a tax of $4000 on a taxable income of $24,000. If your taxable income
were $30,000, your tax payment would be $5000. This tax structure is:
A. progressive.
B. proportional.
C. regressive.
D. discriminatory.
Refer to the above graph. If the interest rate was 3 percent and the money supply
decreased by $50 billion, the new interest rate would be:
A. 1 percent.
B. 2 percent.
C. 4 percent.
D. 5 percent.
The unemployment rate in an economy is 7.5 percent. The total population of the
economy is 250 million and the size of the civilian labor force is 180 million. The
number of employed workers in this economy is:
A. 13.5 million.
B. 15.7 million.
C. 166.5 million.
D. 174.6 million.
Refer to the graph above. If the price increases from P1 to P2, then the gain in total
revenue is areas:
A. B + E and the loss in total revenue is areas H + I + J.
B. C + F + H and the loss in total revenue is area J.
C. E + F + G and the loss in total revenue is area J.
D. A + B + C and the loss in total revenue is areas G + I + J.
An increase in productivity will:
A. increase aggregate demand.
B. increase aggregate supply.
C. increase aggregate supply and aggregate demand.
D. decrease aggregate supply and aggregate demand.
Given the same cost data, a pure monopolist producer will charge:
A. a lower price and produce a smaller output than a purely competitive industry.
B. a higher price and produce a smaller output than a purely competitive industry.
C. the same price and produce the same output as a purely competitive industry.
D. a higher price and produce a larger output than a purely competitive industry.
Derived demand is the demand:
A. that arises because of monopoly control of resources in a market.
B. for a product based on the tastes and preferences of consumers.
C. derived from consumer satisfaction with a product.
D. for a resource to produce a product.
Which one of the following is true about the U.S. Federal Reserve System?
A. The head of the U.S. Treasury also chairs the Federal Reserve Board.
B. There are 10 regional Federal Reserve Banks.
C. There are 14 members of the Federal Reserve Board.
D. The Federal Open Market Committee (FOMC) has more members than does the
Federal Reserve Board of Governors.
Refer to the above data. The average total cost of producing 3 units of output is:
A. $14.
B. $12.
C. $13.50.
D. $16.
Pure monopolists:
A. maximize MR.
B. are price takers.
C. sell where P > MC.
D. confront demand curves that are perfectly inelastic.
If the cyclically adjusted surplus as a percentage of GDP is zero one year and 2 percent
of GDP the next year, it can be concluded that:
A. fiscal policy is expansionary.
B. fiscal policy is contractionary.
C. the federal government is borrowing money.
D. the federal government is lending money.
One timing problem with fiscal policy to counter a recession is an "administrative lag"
that occurs between the:
A. start of the recession and the time it takes to recognize that the recession has started.
B. end of the recession and the time it takes to recognize that the recession has ended.
C. time fiscal action is taken and the time that the action has its effect on the economy.
D. time the need for the fiscal action is recognized and the time that the action is taken.
The individual firm's short-run supply curve is the part of its:
A. average total cost curve that is upsloping.
B. average variable cost curve that is upsloping.
C. marginal cost curve lying above its average variable cost curve.
D. marginal cost curve lying above its average total cost curve.
A product priced at $5 has annual sales of 1,000 units. When price is reduced to $4,
quantity increases to 1,250 units. Other things unchanged, the price elasticity of demand
for the product is:
A. unitary.
B. elastic.
C. inelastic.
D. zero.
Refer to the above graph. Automatic stability in this economy could be decreased by:
A. shifting the government expenditure line upward but parallel to its current position.
B. changing the tax system so that the tax line is shifted upward but parallel to its
present position.
C. changing the government expenditures line so that it has a negative slope.
D. changing the tax system so that the tax line has a flatter slope.
Refer to the above diagram. Cost-push inflation can be illustrated by a:
A. shift in the aggregate supply curve from AS1 to AS2.
B. shift in the aggregate supply curve from AS1 to AS3.
C. shift in the aggregate supply curve from AS2 to AS3.
D. movement along the aggregate demand curve from e1 to e3.
Answer the next question on the basis of the following table, which indicates the dollar
price of libras, the currency used in the hypothetical nation of Libra. Assume that a
system of freely floating exchange rates is in place.
The equilibrium dollar price of libras is:
A. $5.
B. $4.
C. $3.
D. $2.
Are the goods that businesses offer for "free" to consumers also free to society?
A. Yes, because the individual consumer does not have to pay for them.
B. Yes, because the marginal benefit is greater than the marginal cost.
C. No, because scarce resources were used to produce the free goods.
D. No, because society does not assign a value to free goods.
A fractional reserve banking system:
A. is susceptible to bank panics.
B. prevents money creation through the lending process.
C. only tends to exist in developing economies.
D. prevents the Federal Reserve from influencing the money supply.
One reason that diseconomies of scale arise is because:
A. the short-run average total cost curve rises when marginal product is increasing.
B. of the difficulties involved in managing and coordinating a large business enterprise.
C. firms must be large both absolutely and relative to the market to employ the most
efficient productive techniques available.
D. beyond some point marginal product declines as additional units of a variable
resource (labor) are added to a fixed resource (capital).
A monopolistically competitive firm is producing at a short-run output level where
average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price
is $12.00. In the short run, the firm should:
A. decrease the level of output.
B. increase the level of output.
C. make no change in the level of output.
D. increase product price.
Because of free riders, the demand for a public good:
A.gets expressed in the market, but the good does not get produced by private sellers.
B.does not get expressed in the market, but the good does get produced by private
sellers.
C.does not get expressed in the market, and the good does not get produced by private
sellers.
D.gets expressed in the market, and the good does get produced by private sellers.
Taxes and transfer payments:
A. reduce the degree of income inequality.
B. increase the degree of income inequality.
C. have no effect upon the location of the Lorenz curve.
D. make the Lorenz curve a straight 45-degree line.
Answer the next question based on the following consolidated balance sheet for the
commercial banking system. Assume the required reserve ratio is 12 percent. All figures
are in billions of dollars.
Refer to the above data. The maximum amount by which the commercial banking
system can expand the supply of money by lending is:
A. $250 billion.
B. $350 billion.
C. $450 billion.
D. $600 billion.
If the price of shoes falls from $10 to $8 and the amount sold increases by 12 percent, it
can be concluded that:
A. the demand for shoes is perfectly inelastic.
B. the demand for shoes is inelastic.
C. the demand for shoes is elastic.
D. shoes are complementary goods.
Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax
specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour. The
tax specialist will charge you $55 an hour. The opportunity cost of preparing your own
tax return is:
A. $40.
B. $55.
C. $110.
D. $165.
In pure competition, the marginal revenue of a firm always equals:
A. product price.
B. total revenue.
C. average total cost.
D. marginal cost.
The classic example of a private, unregulated monopoly is:
A. Intel.
B. De Beers.
C. General Motors.
D. General Electric.
The fractional reserve system of banking started when goldsmiths began:
A. accepting deposits of gold for safe storage.
B. charging people who deposited their gold.
C. using deposited gold to produce products for sale to others.
D. issuing paper receipts in excess of the amount of gold held.
A feature of monopolistic competition is:
A. a patent-protected product.
B. homogeneous or standardized products.
C. considerable control over price.
D. nonprice competition.
Which of the following statements is true?
A. The Federal Reserve sets the Federal funds rate.
B. The Federal Reserve sets the target for the Federal funds rate, and then uses the
reserve ratio to push banks toward that target.
C. The Federal Reserve does not set the Federal funds rate, but it influences it through
the use of open-market operations.
D. The Federal Reserve will set a higher target for the Federal funds rate if pursuing an
expansionary monetary policy.
Expansionary fiscal policy is so named because it:
A. involves an expansion of the nation's money supply.
B. necessarily expands the size of government.
C. is aimed at achieving greater price stability.
D. is designed to expand real GDP.
Within a market economy, some industries may be declining while other industries may
be expanding. This indicates that:
A. incomes are declining.
B. productive resources are being reallocated.
C. factors of production are scarce.
D. producers are not maximizing profits.
A nation's capital stock was valued at $300 billion at the start of the year and $350
billion at the end. Consumption of private fixed capital in the year was $25 billion.
Assuming stable prices, gross investment was:
A. $25 billion.
B. $50 billion.
C. $75 billion.
D. $90 billion.
