The GDP deflator is designed to adjust nominal GDP
a. for changes in the unemployment rate.
b. for changes in prices.
c. for problems that arise because of externalities.
d. for changes in interest rates.
Which of the following will limit the ability of a union to push the wages of its
members much above competitive levels?
a. the presence of nonunion firms that produce the same product as the unionized labor
b. foreign competition in the market for the product produced by the unionized labor
c. a highly elastic demand for the product supplied by the unionized labor
d. all of the above
Which of the following would illustrate an example that leads to high transaction costs
when dealing with pollution?
a. air quality in New York City
b. water pollution caused by a large number of firms at a location near the same river
c. noise pollution from aircraft near a busy airport
d. all of the above
If the interest rate is 10 percent, the net present value of $500 to be received one year
from now is
a. $413.22.
b. $450.
c. $454.55.
d. $500.
The demand for unionized labor will generally be more elastic, and it will be more
difficult for the union to achieve above-equilibrium wages when
a. there are no close substitutes for the unionized workers.
b. the domestic producers of the good produced by the unionized workers face weak
competition from foreign suppliers of the good.
c. the cost of employing the unionized workers is a large part of the total cost of the
product that they produce.
d. the demand for the product produced by the unionized workers is highly inelastic.
The law of comparative advantage explains why a nation will benefit from trade when
a. it exports more than it imports.
b. its trading partners are experiencing offsetting losses.
c. it exports goods for which it is a high-opportunity cost producer, while importing
those for which it is a low-opportunity cost producer.
d. it exports goods for which it is a low-opportunity cost producer, while importing
those for which it is a high-opportunity cost producer.
Compared to the general population, millionaires are more likely to be
a. well-educated.
b. relatively old.
c. self-employed.
d. all of the above.
e. only b and c above.
What restricts the Fed’s ability to write checks and purchase U.S. securities?
a. Congress; the Fed must receive a budget allocation from Congress before it can write
a check.
b. The gold requirement; the Fed cannot write a check unless it has a sufficient amount
of gold to back the expenditure.
c. Reserve requirements; the Fed must maintain 20 percent of its assets in the form of
cash against the deposits that it is holding for commercial banks.
d. Nothing; the Fed can create money simply by writing a check on itself.
During the economic crisis of 2008, the Fed acquired the authority to
a. pay interest to commercial banks on their reserves.
b. determine the size of the budget deficit or surplus of the Federal Government.
c. require the Treasury to print and issue additional currency.
d. purchase gold in sufficient amounts to back the U.S. dollar.
In the supply and demand model, a subsidy granted to sellers is illustrated by
a. a downward shift in the demand curve, by the per unit amount of the subsidy.
b. an upward shift in the demand curve, by the per unit amount of the subsidy.
c. a downward shift in the supply curve, by the per unit amount of the subsidy.
d. an upward shift in the supply curve, by the per unit amount of the subsidy.
Which of the following explains why business owners have a strong incentive to strive
for operational efficiency?
a. they recognize that operational efficiency promotes the public interest.
b. since the owners are residual income claimants, increased efficiency will mean a
higher income for the owners.
c. if production is not conducted efficiently, the firm will ship jobs and capital out of the
domestic market in order to be able to compete effectively.
d. Increased operational efficiency allows the firm to receive government tax breaks.
Which of the following provides the best information about the direction of the
government’s fiscal policy?
a. changes in the Fed’s holdings of U.S. government securities
b. changes in the reserve requirements of the Federal Reserve
c. changes in the nation’s trade balance
d. changes in the size of the federal government’s budget deficit or surplus
The funds that banks are required by law to hold in the form of either vault cash or
deposits with the Fed are called
a. excess reserves.
b. fractional reserves.
c. required reserves.
d. certificates of deposit.
Use the figure to answer the following question(s).
Figure 8-2
Using Figure 8-2, calculate the firm’s total cost of producing 30 units of output.
a. $8
b. $120
c. $180
d. $240
If nation A has an absolute advantage over nation B in the production of a product, this
implies that
a. it requires fewer resources in A to produce the good than in B.
b. the cost of producing the good in terms of some other good’s production that must be
sacrificed is lower in A than in B.
c. nation B could not benefit by engaging in trade with A.
d. nation A should acquire this product by trading with B.
e. nation A could not benefit by engaging in trade with B.
Approximately 50,000 luxury boats (priced $100,000 or more) are currently produced
each year. Using the economic way of thinking, how much revenue would the
government actually generate with a $10,000 excise tax on luxury boats?
a. $500 million
b. less than $500 million
c. more than $500 million
d. approximately $5 billion
Which of the following is a positive side effect of business start-ups and the business
failures that often follow?
a. The process makes it possible to try out numerous new ideas, and some of them will
substantially improve our lives.
b. The process increases total employment, and leads to a lower rate of unemployment.
c. The process generates additional revenue for the government, which will then be
used to produce goods and services that people value.
d. This is a trick question. There are no positive side effects of business failures.
Use the figure to answer the following question(s).
Figure 9-5
The cost conditions for a profit-maximizing firm operating in a price-taker market are
indicated in Figure 9-5. If the market price was $3, what output should the firm
produce, and what would be the firm’s maximum profit?
a. output, 3; maximum profit, $3 loss
b. output, 5; maximum profit, zero
c. output, 5; maximum profit, $5
d. output, 6; maximum profit, $6
An unanticipated shift to a more expansionary monetary policy by the Fed will
a. increase real interest rates and, thereby, reduce investment, current consumption, and
aggregate demand.
b. reduce real interest rates, leading to an appreciation of the dollar and an expansion in
net exports and aggregate demand.
c. increase real interest rates, leading to higher asset prices that will stimulate aggregate
demand.
d. reduce real interest rates and, thereby, stimulate investment, current consumption,
and aggregate demand.
Which of the following labor resources will likely have the most elastic supply schedule
in the short run?
a. nuclear physicists
b. surgeons
c. retail cashiers
d. graduate-level math professors
Legislation to protect red-cockaded woodpeckers created incentives that resulted in
premature harvesting of trees the woodpeckers like to nest in. This is an example of
which of the following?
a. Association is not causation.
b. the fallacy of composition
c. the use of ceteris paribus conditions in economic analysis
d. Good intentions do not always lead to desirable outcomes.
The new classical model implies that substitution of debt for tax financing
a. increases aggregate demand and exerts an expansionary effect on real output.
b. is highly effective against inflation.
c. reduces savings because it increases both the current and future tax liability of
households.
d. leaves wealth, and therefore aggregate demand, unchanged because the debt will
require higher future tax rates.
If the labor force grows at a faster rate than the number employed, the
a. unemployment rate will fall.
b. unemployment rate will rise.
c. labor force participation rate will fall.
d. employment rate will rise.
Suppose that during the last five years the rate of inflation was 3 percent each year and
the money supply had grown 6 percent annually during the period. However, during the
last nine months, the Fed has expanded bank reserves more rapidly and the money
supply has been growing at a 12 percent annual rate. As a result, the expected inflation
rate for the next period will be
a. higher than 3 percent under the rational expectations hypothesis.
b. 3 percent under the adaptive expectations hypothesis.
c. higher than 3 percent under both the adaptive and rational expectations hypotheses.
d. both a and b.
If the exchange rate between the U.S. dollar and the Mexican peso went from $1 US = 9
peso to $1 US = 10 peso, then
a. American goods have become less expensive for Mexicans.
b. Mexican goods have become more expensive for Americans.
c. American goods have become more expensive for Mexicans.
d. American exports to Mexico are likely to increase.
The excess burden or deadweight loss of a tax refers to the
a. increase in product price as a result of the tax.
b. growth in government funded programs as a result of the revenue generated by the
tax.
c. loss of disposable income consumers suffer from the tax.
d. reduction in gains from mutually beneficial exchanges that are eliminated as a result
of the tax.
Fannie Mae and Freddie Mac’s rapid increase in the percentage of all mortgages held
encouraged mortgage lenders to
a. tighten credit standards and decrease the number of sub-prime loans extended to
borrowers.
b. offer lower rates than what Fannie Mae and Freddie Mac could offer.
c. lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac.
d. scrutinize the credit-worthiness of borrowers and require higher down payments on
mortgages.
The value of money
a. remains constant during periods of inflation.
b. varies inversely with the general price level.
c. varies directly with the general price level.
d. varies indirectly with output.
Which of the following would tend to increase the price of lumber?
a. a technological advance that lowers the cost of cutting timber
b. an increase in the demand for newly constructed homes
c. a decrease in the demand for wooden rocking chairs
d. a decrease in the tax imposed on firms who produce lumber
Table 12-3
Refer to Table 12-3. What is the marginal product of the third worker?
a. 7
b. 8
c. 25
d. 75
Use the figure below illustrating the impact of an excise tax to answer the following
question(s).
Figure 4-6
The revenue generated by the tax illustrated in Figure 4-6 is given by the area
a. ACLH.
b. BEKM.
c. ACFG.
d. 0AGJ.