U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP Income earned by foreigners in the U.S. + Income earned by U.S.
citizens abroad.
b. GNP = GDP + Income earned by foreigners in the U.S. Income earned by U.S.
citizens abroad.
c. GNP = GDP + Value of exported goods Value of imported goods.
d. GNP = GDP Value of exported goods + Value of imported goods.
Increases in government expenditures and large budget deficits are projected for
2014-2020. If the economic recovery is weak and growth is sluggish during this decade,
this will be
a. supportive of the Keynesian view, but inconsistent with the crowding-out, new
classical, and supply-side theories.
b. inconsistent with the Keynesian view, but supportive of the crowding-out, new
classical, and supply-side theories.
c. inconsistent with both Keynesian and non-Keynesian theories.
d. supportive of both Keynesian and non-Keynesian theories.
At the beginning of a year, decision makers expect the general level of prices to
increase at a 3 percent annual rate. The CPI increases from 150 to 154.5 during the
year; this is an example of
a. an inflation rate that is equal to 4.5 percent.
b. an unanticipated increase in the general level of prices.
c. an increase in the general level of prices that was accurately anticipated.
d. an inflation rate that is less than what people anticipated.
“Market power” is an expression used to indicate that a firm has
a. the power to sell a given output at whatever price it chooses.
b. no freedom from the rigors of intense competition.
c. a monopoly over the product it produces.
d. enough market share to be somewhat insulated from competition.
Which of the following about economic growth is true?
a. The rich countries are consistently getting richer, while the poor countries are getting
poorer.
b. No LDC was able to achieve a more rapid growth rate than the United States during
the 1980 through 2009 period.
c. The growth picture of LDCs is clearly one of diversity; some LDCs are growing
rapidly, while others continue to stagnate.
d. The fastest growing countries in the world are all high-income industrial economies.
Table 12-2
Refer to Table 12-2. This table describes the number of baseballs a manufacturer can
produce per day with different quantities of labor. Each baseball sells for $5 in a
competitive market. What is the total revenue per day that the firm will earn if it
employs five workers?
a. $500.
b. $300.
c. $2200.
d. $2500.
The incentive for managers of a government-operated firm (for example, a state
university or the U.S. Post Office) to operate efficiently will be
a. low because all government workers are lazy.
b. low because there are no residual claimants to monitor and institute cost-reducing
measures.
c. high because government employees and officials will be less concerned with
personal gain.
d. high because voters can easily detect those who are to blame for inefficiencies and
replace them.
As the baby boom generation, born during 1946 through 1960, reaches retirement age
during the 2011 through 2030 period, the number of workers per Social Security
beneficiary is expected to
a. increase to five.
b. remain constant at approximately seven.
c. decline to approximately five.
d. decline to approximately two.
Markets fail when externalities are present
a. because all of the costs and benefits of producing a good are reflected in the market
price.
b. because some of the costs and benefits of producing a good are not reflected in the
market price.
c. only if they are negative; positive externalities are not market failures.
d. because profits are not maximized.
e. if the positive externalities are less than the negative externalities.
Figure 11-5
Indicate the maximum profit (or minimum loss) a pure monopolist with the cost and
demand conditions depicted in Figure 11-5 would be able to achieve.
a. profit of AIHE
b. profit of BKJC
c. losses of BKJC
d. losses of EHGF
When a nation has a high debt/GDP ratio, that nation generally will
a. require high taxes just to pay interest on the debt.
b. be able to borrow funds at relatively low real interest rates.
c. find that its bonds are attractive to international investors seeking low-risk
investments.
d. want to increase spending in order to gain the confidence of international investors.
Assume that supply increases slightly and demand increases greatly. Which of the
following will happen?
a. Equilibrium price will fall and equilibrium quantity will rise.
b. Equilibrium price will rise and equilibrium quantity will fall.
c. Equilibrium price will rise and equilibrium quantity will rise.
d. Equilibrium price will fall and equilibrium quantity will fall.
e. Neither equilibrium price nor equilibrium quantity will change.
When external costs are present in a market,
a. less of the good will be produced than the amount consistent with economic
efficiency.
b. more of the good will be produced than the amount consistent with economic
efficiency.
c. the amount of the good produced will be equal to the amount consistent with
economic efficiency.
d. corresponding external benefits are always generated.
Economic analysis is based on the premise that
a. people act only out of selfish motives.
b. people are always fully informed when making choices.
c. changes in the personal benefits or costs of an action influence behavior in a
predictable way.
d. most human behavior is unpredictable.
Which of the following is true of inflation?
a. It is an increase in the general price level of goods and services.
b. The purchasing power of money increases as the result of inflation.
c. Inflation is similar to interest payments on future money income, such as pensions
and receipts from outstanding loans.
d. Inflation has no effect on real resources.
Which of the following is an example of a transfer payment?
a. wages paid to military personnel
b. benefits paid to Social Security recipients
c. purchase of aircraft by the Department of Defense
d. payments made to a contractor for construction of a highway
Over time, an increase in a nation’s stock of physical capital will
a. shift the production possibilities curve inward.
b. cause an economy to operate inside its production possibilities curve.
c. shift the production possibilities curve outward.
d. eliminate the basic economic problem of scarcity.
When competition is present and private ownership rights are clearly defined and
securely enforced,
a. production and trade are encouraged and plunder (taking from others) is discouraged.
b. people get ahead by helping others in exchange for income.
c. employers will have to provide prospective employees with at least as good a deal as
they could get elsewhere.
d. all of the above are correct.
Cross-country figures indicate that
a. countries with high rates of monetary growth also experience high inflation.
b. countries with high rates of monetary growth experience low inflation.
c. monetary growth rates and inflation are unrelated.
d. inflation is primarily the result of restrictive monetary policy.
Which of the following is most likely to help promote the efficient use of resources and
rapid economic growth?
a. high tariffs and imposition of other trade restrictions
b. high marginal tax rates
c. an open and competitive capital market
d. high rates of inflation
(I) The U.S. trade deficit is a financial obligation of the federal government, and if it is
not paid off, foreigners will be reluctant to loan money to the U.S. government.
(II) When a nation runs a current account deficit due to a merchandise trade deficit, it
must also be true that the nation has a surplus on its capital account due to an inflow of
foreign capital.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
If the government accelerates money supply growth and enlarges the budget deficit to
stimulate aggregate demand, the rational expectations hypothesis indicates that decision
makers will
a. ignore the policy until it exerts an observable impact on prices, output, and
employment.
b. quickly take steps to adjust their decision making in light of the more expansionary
policies.
c. be fooled at the outset but eventually adjust their decision making in accordance with
the change in policy.
d. be unaware that this policy change has been implemented until a higher rate of
inflation is observed.
If a firm doubles all of its inputs and its output triples, it is said to be experiencing
a. diminishing marginal returns.
b. increasing marginal returns.
c. diseconomies of scale.
d. economies of scale.
e. constant average costs.
When a low-income nation improves its institutions, so that growth results, one reason
the growth may be more rapid than would result from a similar improvement in a
developed nation that brings the same amount of added capital per worker to each
nation, is that
a. adding capital has constant returns to scale, rather than diminishing returns, in each
nation.
b. with diminishing returns to scale, and with richer nations starting with more capital
per unit labor, the added capital produces smaller increments to production in the
higher-income nations.
c. wage rates are lower in the low-income nation, and lower-income workers are more
productive.
d. capital is always more productive in lower-income nations.
In 2012, approximately what percent of the national debt was held by the Federal
Reserve system?
a. 5 percent
b. 10 percent
c. 40 percent
d. 55 percent
“A good business decision maker will never sell a product for less than it costs to
produce.” This statement is
a. true because diminishing returns always cause marginal costs to rise in the short run.
b. false because diminishing returns always cause fixed costs to rise in the short run.
c. true because it clearly differentiates between accounting profit and economic profit.
d. false because a business decision maker may be covering his current variable costs
even though he has failed to cover all previous production costs.
In a market economy,
a. there is a fixed economic pie to be divided among individuals.
b. differences in incomes provide individuals with an incentive to supply resources that
are highly valued by others.
c. a central distributing agency carves up the economic pie and allocates slices to
individuals.
d. both a and b above are true.
Which of the following accurately describes the relationship between mortgage default
rates and the 2008 recession?
a. The recession of 2008 triggered the initial increase in the mortgage default rate.
b. The rise in the mortgage default rate preceded the recession and it was a major cause
of the 2008 economic downturn.
c. Both the increase in the mortgage default rate and the economic recession were the
result of the stock market crash of 2008.
d. The rise in the mortgage default rate and the economic recession were separate issues
and there was no relationship between the two.
The derived demand curve for a resource is downward sloping because
a. the demand for products that utilize the resource is directly related to the price of the
resource.
b. the marginal productivity of resources will decline as their price increases.
c. as the price of a resource rises, other resources will be less desirable than the higher
priced resource.
d. other resources will be substituted for a resource that increases in price.
The fish in the ocean are
a. allocated efficiently because there are no limitations on entry into the ocean fisheries
business.
b. scarce, but only because of the highly restrictive regulations imposed by various
nations.
c. a commonly owned, open access resource and therefore they are often
over-exploited.
d. privately owned and therefore they are allocated efficiently.
Which of the following describes the relationship between interest rates and
interest-sensitive goods, such as housing?
a. As interest rates decline, the demand for interest-sensitive goods increases.
b. As interest rates decline, the demand for interest-sensitive goods decreases.
c. As interest rates increase, the demand for interest-sensitive goods increases, driving
prices upward.
d. As interest rates increase, the demand for interest-sensitive goods decreases, driving
prices upward.