If the money interest rate is 7 percent and the inflationary premium 4 percent, the real
interest rate is
a. 3 percent.
b. 3 percent.
c. 4 percent.
d. 7 percent.
Transfer payments are
a. payments made to individuals who are employed by the government.
b. payments made to individuals who provide goods and services to the government.
c. transfers of income from taxpayers to recipients who do not provide current goods
and services for the payments.
d. omitted from the government expenditure figures.
If the government wants to raise tax revenue and shift most of the tax burden to the
sellers it would impose a tax on a good with a
a. flat (elastic) demand curve and a steep (inelastic) supply curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. steep (inelastic) demand curve and steep (inelastic) supply curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.
A substantial decrease in marginal tax rates will encourage individuals to
a. increase their earnings and work effort.
b. save a smaller portion of their income.
c. take more time off for vacations.
d. spend more on tax-deductible items.
If a German pension fund decides to purchase U.S. government bonds, what is the
effect in the foreign exchange market?
a. It will increase demand for U.S. dollars.
b. It will decrease demand for U.S. dollars.
c. It will increase supply of U.S. dollars.
d. It will decrease supply of U.S. dollars.
Under rent control, tenants can expect
a. lower rent and higher quality housing.
b. lower rent and lower quality housing.
c. higher rent and a shortage of rental housing.
d. higher rent and a surplus of rental housing.
The scientific evidence on the causes and consequences of global warming
a. is clear and indisputable.
b. has considerable uncertainty in its findings.
c. indicates global warming should be stopped regardless of cost.
d. is of no importance to economists.
If a budget surplus leads to a decrease in U.S. real interest rates, the lower rates will
tend to cause
a. the dollar to appreciate.
b. the dollar to depreciate.
c. a decrease in private investment.
d. a decrease in net exports.
Figure 3-6
In Figure 3-6, suppose D1 and S1 indicate initial conditions in the market for ice cream.
Which of the following changes would tend to cause a shift from S1 to S2 in the market
for ice cream?
a. an increase in the price of sugar, an ingredient used to produce ice cream
b. a decrease in the price of frozen yogurt, a substitute for ice cream
c. abnormally hot weather that temporarily increases consumer desire for ice cream
d. a decrease in the price of milk, an ingredient used to produce ice cream
A shift to a more expansionary monetary policy will
a. help bring inflation under control.
b. exert a stabilizing impact on the economy if the effects of the policy are felt during
an economic downturn.
c. exert a stabilizing impact if the effects of the policy are felt when the economy is
operating at its full-employment capacity.
d. reduce the natural rate of unemployment.
Which of the following would be most likely to push stock prices higher?
a. higher interest rates and the expectation of larger future corporate profits
b. higher interest rates and the expectation of smaller future corporate profits
c. lower interest rates and the expectation of larger future corporate profits
d. lower interest rates and the expectation of smaller future corporate profits
Which of the following is primarily responsible for controlling the money supply in the
United States?
a. the U.S. Congress
b. the Board of Governors of the Federal Reserve System
c. the U.S. Treasury
d. the Council of Economic Advisors
As the football season approaches, the threat of a player strike would give
a. both players and management an incentive to bargain seriously.
b. only the players an incentive to bargain seriously.
c. only management an incentive to bargain seriously.
d. neither party much incentive to bargain seriously.
The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
Refer to Figure 11-17. The average total cost curve for a monopoly firm is depicted by
curve
a. A.
b. B.
c. C.
d. D.
Which of the following about public goods is true?
a. Consumption of a public good by one individual reduces the availability of the good
for others.
b. It is extremely difficult to limit the benefits of a public good to only the people who
pay for it.
c. Public goods are free to a society when they are produced by the government.
d. From an efficiency standpoint, a market will generally supply too much of a public
good.
The short-run aggregate supply curve (SRAS) slopes upward to the right because
unexpected increases in prices will
a. increase aggregate demand as consumers buy more.
b. decrease aggregate demand as consumers buy less.
c. cause firms to expand output since the higher product prices will improve
profitability.
d. cause firms to reduce output since the higher product prices will decrease profit
margins.
From 1994 to 1999, inflation in the United States was relatively constant at
approximately 2.5 percent. When inflation is constant for an extended period, which of
the following is most likely?
a. People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will approach the natural rate of unemployment.
b. People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will exceed the natural rate of unemployment.
c. The actual inflation rate will be greater than the anticipated rate, leading to an actual
rate of unemployment that exceeds the natural rate of unemployment.
d. Actual inflation will be less than the anticipated rate, leading to an actual rate of
unemployment that exceeds the natural rate of unemployment.
Markets fail to allocate resources efficiently when
a. prices fluctuate.
b. people who have property rights abuse their privileges.
c. property rights are poorly enforced or not well established.
d. the government refuses to intervene in private markets.
Which of the following best characterizes the circular flow of income?
a. Households buy goods and services from businesses, and businesses sell goods and
services to households.
b. The government purchases resources from businesses and households and then sells
goods and services to businesses and households.
c. Businesses buy resources from the government, and households buy goods and
services from businesses.
d. Businesses buy resources from households, and households use their income to buy
goods and services from businesses.
Which of the following is an example of an investment in human capital?
a. a law student who works as a waiter in the summer
b. on-the-job training received by an apprentice welder
c. payments into a retirement pension plan by a skilled laborer
d. all of the above are correct.
If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby
farmland used for growing potatoes, the most active support for the project probably
would come from
a. potato farmers who own land that wouldn’t be irrigated by the project.
b. taxpayers who would pay for the project.
c. consumers of potatoes who might benefit from an expansion in supply and slightly
lower potato prices.
d. potato farmers who own the land to be irrigated.
Keynesian analysis indicates that an unexpected decline in aggregate demand will lead
to
a. a reduction in inventories and an expansion in employment.
b. an increase in inventories and a reduction in output.
c. lower interest rates, which will stimulate aggregate demand and keep the economy at
full employment.
d. a lower price level, which will quickly guide the economy to full-employment
equilibrium.
In the long run, in a price-taker market, the price of a good is determined primarily by
the
a. average total cost of producing it.
b. decision of buyers in determining how much they are willing to pay for the good.
c. elasticity of supply.
d. number of firms in the industry.
Use the figure below to answer the following question(s).
Figure 18-2
In Figure 18-2, which of the following would cause the American demand for foreign
exchange (pounds) to shift from D1 to D2?
a. an increase in the U.S. real interest rate
b. higher inflation in Britain than in the United States
c. higher income growth in Britain than in the United States
d. an increased level of vacation travel to Britain by Americans
If the government cuts the tax rate, workers get to keep
a. less of each additional dollar they earn, so work effort increases, and aggregate
supply shifts right.
b. less of each additional dollar they earn, so work effort decreases, and aggregate
supply shifts left.
c. more of each additional dollar they earn, so work effort increases, and aggregate
supply shifts right.
d. more of each additional dollar they earn, so work effort decreases, and aggregate
supply shifts left.
The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
Refer to Figure 11-17. Profit will be maximized by charging a price equal to
a. P0.
b. P1.
c. P2.
d. P3.
If there is a recession, the Fed would most likely
a. increase bank reserves by raising the discount rate.
b. increase bank reserves by buying government securities.
c. decrease bank reserves by raising the discount rate.
d. decrease bank reserves by selling government securities.
e. decrease bank reserves by lowering the legal reserve requirement.
According to Adam Smith’s invisible hand principle, productive actions that promote
the general welfare of society will be undertaken when
a. political representatives are elected democratically.
b. competitive markets direct the actions of self-interested individuals.
c. the selfish instincts of individuals are controlled.
d. workers are able to organize and develop strong unions.
If the demand for a consumer good increases, the demand for resources required to
make the good will
a. remain the same, but the quantity demanded will increase.
b. decrease if the demand for the consumer good is inelastic, otherwise the demand will
increase.
c. stay the same, but the quantity demanded will decrease.
d. increase.
A supply-side economist would stress which of the following attributes of fiscal policy?
a. the impact of marginal tax rates on the supply and productivity of resources
b. the impact of government spending on aggregate demand, output, and employment
c. the impact of budget deficits on interest rates and aggregate demand
d. the impact of budget deficits on the rate of taxation in the future