U.S. export spending is not affected by U.S. real income but is influenced by the
economic activity of its major trading partners and the exchange rate, hence export
spending is taken as autonomous.
As the amount of time a consumer has to adjust to a change in price increases, so does
the price elasticity of demand for a good.
All else constant, if the use of historic costs understates the opportunity costs associated
with using a particular piece of capital, accounting profit will be understated.
Because a price setter has control over both the level of output it produces and the price
it charges, it can select from a number of different combinations of output and price
levels that will maximize its profits.
The term “relative price” is used to refer to how the current price of a good or service
compares to the price of the same item in the previous time period.
The discount rate is influenced by Fed actions whereas the Fed sets the federal funds
rate.
Because barriers to entry limit the amount of competition in various markets,
government policy should be designed to reduce or eliminate such barriers wherever
possible.
McDonalds kept its U.S.-based menu when entering the Chinese market.
Temporary tax cuts will have a greater influence on consumption expenditures than
temporary tax cuts.
The increase in income generated by the additional government expenditure decreases
the demand for money.
Assume the demand and supply functions for good X can be written as
Qd = 1000 – 40Px
Qs = -200 + 20Px
In this example, equilibrium price is $20 and the equilibrium quantity is 200.
Assume the income elasticity for a particular good has been estimated to be -0.68.
Based on this information, we can infer that the good is inferior and a necessity.
Because most gas stations are small relative to the market in which they operate and
gasoline is fairly homogeneous, the market for gasoline is considered to be perfectly
competitive.
Studies and experience suggest that labor and capital are highly complementary inputs
to the production of pipe organs.
Applying a uniform markup to each of a firm’s products is less profitable than varying
the markup based on the elasticity of demand because the latter is able to exploit the
sensitivity of quantity demanded to a change price.
Perfectly competitive firms are referred to as price takers because the individual firm is
so small relative to the market that its output decisions will not have any effect on the
market-determined price.
According to a study by Blinder et al., on average, fixed costs account for about 44
percent of firms’ total costs of production, suggesting that fixed costs are more
important to many firms’ decision-making processes than standard theory would
suggest.
If the level of output produced by the firms in a perfectly competitive market has no
effect on the prices of the inputs used by the firms, the market supply curve will be
flatter than the supply curve for an individual firm in the market.
The marginal propensity to consume plus the marginal propensity to invest equal one.
Over the past several decades, technological change has led to a significant amount of
consolidation in the U.S. brewing industry.
There is considerable evidence to support the assertion that legislated input
combinations have reduced the costs of production in affected industries.
Assume that as a firm expands its scale of operation, the minimum point of its short-run
average total cost curve is unchanged. In this case, we would say that the firm is
experiencing diseconomies of scale.
An isoquant identifies all of the combinations of two inputs that result in the same total
costs of production.
All else constant, an increase in the amount of borrowing by the federal government
would reduce the amount of money available for businesses to borrow to finance
investment spending.
The U.S. Treasury is responsible for controlling the money supply and interest rates in
the economy.
When a firm is experiencing economies of scale, the minimum point of the firm’s
short-run average total cost curve shifts down as it expands its scale of production.
Mutual interdependence among firms is one of the key characteristics of an oligopoly
market that distinguishes it from the other three major market structures.
When a firm decides to shut down in the short run, its losses are limited to its fixed
costs.
The intercept of the equation: Y = .09 + 1.5X is 1.5.
When the percentage change in price is greater than the corresponding change in
quantity demanded, demand is inelastic.
Fiscal policy is determined by the Federal Reserve System.
Federal spending and taxation both affect and are influenced by the overall level of
economic activity.
The degrees of freedom in a regression equation is the number of observations minus
the number of estimated coefficients.
In the long-run production function, all of the inputs to the production process are
allowed to vary.
The purchase of a Boeing airplane by the U.S. government is considered part of
government consumption expenditures and gross investment.
An open market purchase, a decrease in the discount rate, and a decrease in the reserve
requirement would shift the aggregate demand curve rightward.
The interest rate that commercial banks charge each other for loans of reserves to meet
their minimum reserve requirements is called:
A) treasury bill rate.
B) federal funds rate.
C) prime interest rate.
D) none of the above.
An aggregate supply curve that is either horizontal or upward sloping, depending on
whether the absolute price level increases as firms produce more output is called:
A) short-run aggregate supply curve.
B) long-run aggregate supply curve.
C) potential GDP.
D) NAIRU.
Which of the following statements regarding the agricultural industry is correct?
A) Economies of scale and consolidation have significantly reduced the degree of
competition in the industry.
B) Corporate farms now control more than 50 percent of the market for each of the
major crops.
C) The largest 5 percent of growers of any particular product are characterized by a
small number of interdependent producers.
D) Although farming has become increasingly concentrated over the last 70 years, it is
still a highly competitive industry.
The main difference between the short run and the long run is that:
A) in the short run all inputs are fixed, while in the long run all inputs are variable.
B) in the short run the firm varies all of its inputs to find the least-cost combination of
inputs.
C) in the short run, at least one of the firm’s input levels is fixed.
D) in the long run, the firm is making a constrained decision about how to use existing
plant and equipment efficiently.
By shutting down when price is less than average variable cost at the profit-maximizing
level of output, a perfectly competitive firm will limit its losses to its:
A) total variable costs.
B) total costs.
C) total fixed costs.
D) marginal costs.
Capital inflows occur if:
A) domestic interest rates are higher than foreign interest rates.
B) domestic interest rates are lower than foreign interest rates.
C) domestic and foreign interest rates are the same.
D) none of the above.
Which of the following values of the Lerner Index indicates the greatest amount of
market power?
A) 0.313.
B) 0.375.
C) 0.6.
D) 0.625.
Higher expected profits and business confidence ________ investment spending.
A) decrease
B) increase
C) do not affect
D) none of the above.
Assume the firms in a monopolistically competitive industry initially are earning
positive economic profits. Which of the following will not occur over time?
A) The firms’ economic profits will be reduced.
B) New firms will enter.
C) Demand for the existing firms’ output will become more inelastic.
D) The number of substitutes available in the industry will increase.
The following data summarize the expenditures for the country of XYZ during 2003 in
millions of alphabet, the currency of country XYZ.
a. Calculate net exports
b. Calculate GDP
c. Calculate national income
d. Assume that the GDP deflator is 120 and calculate real GDP for 2003.
Assuming instead that the market depicted in Figure 8.1 is perfectly competitive, the
equilibrium price and output would be:
A) P2 and Q2.
B) P1 and Q1.
C) P4 and Q1.
D) P3 and Q1.
One of the interesting findings of a survey of firm managers by Blinder et al. is that:
A) the vast majority of firms pay considerable attention to marginal costs in making
decisions about how much output to produce.
B) the majority of respondents suggested that fixed costs are a relatively unimportant
consideration when making output decisions.
C) approximately 75 percent of respondents indicated that their marginal costs of
production are rising over the relevant range of output.
D) a significant percentage of respondents to the survey did not appear to understand
the concept of marginal cost.
Increase in capacity utilization will ________ the expenditure curve:
A) decrease.
B) increase.
C) not change.
D) none of the above.
The decrease in demand faced by McDonalds during 2001-2002 can be attributed to:
A) decrease in consumer preference for high-fat content food.
B) increase in lawsuits.
C) increase in competitive pressures.
D) all of the above.
Decrease in government spending will ________ the expenditure curve:
A) decrease.
B) increase.
C) not change.
D) none of the above.
Refer to Scenario 1. The production function illustrated in the table:
A) incurs diminishing marginal returns beyond the first unit of labor.
B) incurs diminishing marginal returns beyond the second unit of labor.
C) incurs diminishing marginal returns beyond the third unit of labor.
D) does not incur diminishing marginal returns because marginal product is positive for
each unit of labor employed.
Why are isoquants negatively sloped?
A) Along a single isoquant, the firm can substitute the use of one input for another
while holding the total level of output constant.
B) Due to the effects of diseconomies of scale.
C) Because the farther the isoquant is from the origin, the higher the level of output.
D) Because price and quantity demanded are inversely related.
In the foreign exchange market, a balance of payments deficit is represented by:
A) excess supply of dollars.
B) excess demand for dollars.
C) equilibrium in the foreign exchange market.
D) none of the above.
In the long-run, an increase in the budget deficit and an expansionary monetary policy
would:
A) increase the price level only.
B) increase both the price level and real income.
C) increase real income only.
D) none of the above.
An overvalued fixed exchange rate can be maintained only as long as:
A) the country’s central bank reserves are available to support currency intervention in
the foreign exchange market.
B) the country’s central bank can increase the domestic money supply.
C) the country’s government increases debt financing.
D) none of the above.
The circular-flow diagram illustrates that:
A) production generates income so that income and production are the same.
B) the economy’s income is less than its production.
C) the economy’s income is exceeds its production.
D) none of the above are necessarily correct.
Limit pricing is used primarily to:
A) discourage new firms from entering a market.
B) reduce (limit) the profits of all of the firms in the industry.
C) drive other firms out of a market.
D) establish a minimum price all of the firms in the market will charge.
A trade deficit means:
A) the country has positive net savings, which it lends abroad.
B) the country has negative net savings, which it lends abroad.
C) the country has positive net savings, which it borrows from abroad.
D) the country has negative net savings, which it borrows from abroad.
The marginal propensity to consume is defined as:
A) ΔC/ΔYd.
B) ΔS/ΔYd.
C) ΔYd/ΔC.
D) ΔYd/ΔS.
The ability of a financial asset to be used to immediately make transactions is called:
A) store of value.
B) medium of exchange.
C) illiquidity.
D) liquidity.
Florence is considering going into business for herself and has developed the following
estimates of monthly costs and revenues to aid her in her decision-making process. She
has decided to house the business in a building that she already owns, although she
could rent the building to someone else for $1,000 per month. Estimated payments for
utilities (electricity, natural gas, water, and telephone) are $475 per month. She will hire
one employee at a total cost of $1,100 per month. Inventory is estimated to cost $2,800
per month. Finally, Florence earns $3,000 a month in her current job.
a. How much monthly revenue would Florence have to take in to earn 0 economic
profit?
b. Assume that Florence has estimated her monthly revenue to be $9,000. In this case,
Florence would earn an accounting profit (loss) of ________, and an economic profit
(loss) of ________.
c. Assume instead that Florence does not own a building, and that she will have to rent a
building for $1,000 per month (all other estimates remain the same). In this case
(assuming estimated monthly revenue is still $9,000), Florence would earn an
accounting profit (loss) of ________, and an economic profit (loss) of ________.
If $1000 was deposited in a bank and the reserve requirement is 0.20, how much is
available for loans?
A) $900
B) $910
C) $800
D) $930
The extent to which investment spending changes with changes to income is called the:
A) marginal propensity to consume.
B) marginal propensity to save.
C) marginal propensity to import.
D) marginal propensity to invest.
The difference between the interest income or receipts earned on investments in the rest
of the world by the residents of a given country and the payments to foreigners on
investments they have made in the given country is called:
A) unilateral transfers.
B) bilateral transfers.
C) net investment income.
D) gross investment income.
A record of all transactions between residents of the reporting country and residents of
the rest of the world over a period of time is called the:
A) national income product accounts.
B) balance of payments accounting system.
C) accrual accounting system.
D) none of the above.
Assume the marginal revenue from each additional unit of a good sold is 0. In this case,
we can conclude that demand for the good is:
A) unit elastic
B) perfectly elastic.
C) perfectly inelastic.
D) relatively inelastic.
The term “fixed input” refers to:
A) inputs to production that do not vary with respect to quality.
B) inputs to production that do not vary in price.
C) inputs to production that yield a constant or “fixed” marginal product.
D) inputs to production, the quantity of which cannot be varied in the short run.
Which of the following is the best example of “depreciation”?
A) An individual worker becoming tired at the end of an eight-hour work day.
B) The notion that individuals obtain less utility from paying taxes than giving to
charities.
C) A truck used by a pizzeria to make deliveries is worth less at the end of one year.
D) A rise in prices depreciating the value of consumers’ real incomes.
The situation in which a firm charges different prices for different blocks of output is
referred to as:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) fourth-degree price discrimination.
The situation in which the long-run average cost curve exhibits economies of scale over
the entire range of output is called a “natural monopoly.” Explain why, in the case of a
natural monopoly, it would be cost efficient to have a single firm serve the entire
market.