When there is an abrupt increase in the rate of inflation,
a. the actual rate of inflation will tend to fall below the natural rate.
b. the actual rate of inflation will tend to rise above the natural rate.
c. the actual and natural rate of inflation will generally be equal.
d. the natural rate of unemployment will tend to rise.
The random walk theory implies that stock prices
a. go down, then up, and then down again.
b. go up and then down in a predictable pattern.
c. follow systematic trends.
d. are unpredictable based on past trends.
Other things constant, if a labor union is able to successfully increase the wages of
autoworkers, there will be
a. an increase in the supply of automobiles causing the price of automobiles to fall.
b. an increase in the supply of automobiles causing the price of automobiles to rise.
c. a decrease in the supply of automobiles causing the price of automobiles to fall.
d. a decrease in the supply of automobiles causing the price of automobiles to rise.
In a modern dynamic economy such as the United States, full employment generally
means
a. cyclical unemployment is present.
b. everyone (excluding teenagers) that would like to work is employed.
c. approximately 95 percent of the labor force is employed.
d. 100 percent of the labor force is either working or seeking work.
Refer to Table 11-1. The marginal revenue of the second unit is
a. $10
b. $15
c. $20
d. $25
Figure 9-15
At which price and quantity is profit maximized for the competitive price-taker firm
represented in Figure 9-15?
a. $40 and 80
b. $8 and 70
c. $4 and 40
d. $40 and 70
e. $8 and zero output
The dynamic process of competition
a. provides profit-seeking sellers with little incentive to heed consumer preferences.
b. was shown by Adam Smith to be a major source of economic inefficiency.
c. provides consumers with alternative suppliers and thus a mechanism with which they
can discipline sellers.
d. will permit business decision makers to earn long-run economic profit unless they are
regulated by government officials.
Use the figure below to answer the following question(s).
Figure 5-3
Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is
the private market demand curve, while D2 is the demand curve including the external
benefit. Which of the following is true?
a. Relative to economic efficiency, output of the good will be too large and the price too
low.
b. Relative to economic efficiency, output of the good will be too large and the price too
high.
c. Relative to economic efficiency, output of the good will be too small and the price
too low.
d. Relative to economic efficiency, output of the good will be too small and the price
too high.
The price of one country’s currency in terms of another’s is called
a. the interest rate.
b. the inflationary premium.
c. the discount rate.
d. the exchange rate.
Interest payments on home mortgages and home equity loans are tax deductible. This
tax deductibility encourages households to
a. shift other forms of debt to their home mortgage.
b. increase the equity in their house.
c. make larger payments and pay down their mortgage loan more rapidly.
d. decrease the overall amount of household debt in relation to household income.
Use the table below to choose the correct answer.
Table 7-3
Refer to Table 7-3. Gross domestic product equals
a. $1,100.
b. $1,120.
c. $1,190.
d. $1,220.
The legal requirement that commercial banks hold reserves equal to some fraction of
their deposits
a. limits the ability of banks to expand the money supply by extending additional loans.
b. prevents the Fed from controlling the money supply since commercial banks can
always offset the actions of the Fed.
c. prevents runs on banks by depositors who fear that banks have insufficient assets to
meet the claims of their depositors.
d. limits the ability of the Treasury to expand the national debt.
If the quantity of a good supplied is highly sensitive to the price of the good,
economists say the supply of the good is relatively
a. inelastic.
b. elastic.
c. robust.
d. inverse.
If you wanted to measure whether the output of an economy was increasing or
decreasing across time periods, you would use the real GDP data rather than the
nominal GDP data because
a. exports are excluded from real GDP but not nominal.
b. real GDP incorporates the impact of federal budget deficits and surpluses; nominal
GDP does not.
c. real GDP reflects the impact of transfer payments on the economy, but nominal GDP
does not.
d. real GDP adjusts for changes in the general level of prices, but nominal GDP does
not.
The primary source of purchasing power used to buy imported goods is
a. the monetary sector.
b. the balance of payments deficit.
c. the exports of a nation.
d. taxation and other revenue-generating activities.
Figure 9-3
Suppose that British incomes rise relative to incomes in the United States. Then, in
Figure 9-3
a. the demand curve will shift from D1 to D2
b. the demand curve will shift from D2 to D1
c. the supply curve will shift from S1 to S2
d. the supply curve will shift from S2 to S1
e. neither the demand for nor the supply curve will shift
Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a
world price of $1.00, the loss of consumer surplus as a result of a tariff of $0.50 per unit
is represented by area
a. a
b. b + d
c. c + i + e + f
d. c
e. d
The present value of $1 million to be received in the future will
a. increase if the interest rate rises.
b. increase if the payment is received at a more distant time in the future.
c. be greater than $1 million.
d. increase if the interest rate were to fall from 8 percent to 4 percent.
If the interest rate is 10 percent, the net present value of $600 to be received two years
from now is
a. $495.87.
b. $545.45.
c. $600.
d. $660.
Use the figure below to answer the following question(s).
Figure 4-8
Refer to Figure 4-8. The supply curve S1 and the demand curve D indicate initial
conditions in the market for soft coal. A $40-per-ton tax on soft coal is levied, shifting
the supply curve from S1 to S2. Which of the following states the actual burden of the
tax?
a. $10 for buyers and $30 for sellers
b. $30 for buyers and $10 for sellers
c. The entire $40 falls on sellers.
d. The entire $40 falls on buyers.
Which of the following would be classified as unemployed?
a. mothers who choose to stay at home with their preschool-age children
b. retirees who are no longer working at a job
c. students attending school full time
d. a 20-year old looking for her first job
A legal system that protects private property and enforces contracts in an even-handed
manner helps promote economic growth because it
a. makes it possible for individuals to generate large incomes and get ahead without
cooperating with others.
b. provides people with a strong incentive to supply others with things that they value at
an economical price.
c. encourages people to use resources now rather than conserving them for the future.
d. keeps the real wages of workers low and thereby makes it possible for business firms
to supply goods and services economically.
During the 2011 to 2012 period, the wage premium of union workers, when compared
to similar nonunion workers, was approximately
a. 9 percent.
b. 20 percent.
c. 28 percent.
d. 33 percent.
If the demand for a consumer good decreases, the demand for resources required to
make the good will
a. increase.
b. remain the same, but the quantity demanded will increase.
c. decrease.
d. increase or decrease depending on whether the demand for the product is elastic or
inelastic.
If the demand for workers with doctorate degrees in economics increases, we would
expect
a. the wages of economists to increase in the short run and the number of economists
employed to increase in the long run.
b. the supply of economists to increase in the short run and their wages to rise in the
long run.
c. a rapid increase in the supply of economists, causing wages to remain constant.
d. the wages of economists to decrease in the short run and the number of economists
employed to increase in the long run.
Use the figure below to answer the following question(s).
Figure 6-1
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits
among voters for a government project. For which type would the government most
likely fail to undertake many projects that would be considered efficient or productive
(in other words, do too few of them relative to economic efficiency)?
a. type A
b. type B
c. type C
d. type D
Use the figure below to answer the following question(s).
Figure 10-5
Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5,
which of the following is the most likely occurrence?
a. an increase in resource prices that will stimulate aggregate demand and direct the
economy to long-run equilibrium
b. a decrease in resource prices that will reduce costs and shift SRAS to the right,
directing the economy to long-run equilibrium
c. a continuation of this price level and output in the long run
d. a shift in LRAS to the left as the result of an increase in the expected inflation rate
Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are
looking for work, and 15 of whom are retired. The number of people in the civilian
labor force is
a. 30.
b. 60.
c. 85.
d. 90.
e. 70.
Firms that are price takers
a. are small relative to the total market.
b. produce products that are different than their competitors.
c. can sell only a portion of their output at the market price.
d. have downward-sloping demand curves.
During periods when the inflation rate fluctuates widely,
a. all relative prices increase at the same rate, leaving money prices constant
b. economic efficiency increases because decision makers pay closer attention to
changes in money prices
c. uncertainty about changes in relative prices causes a decrease in economic efficiency
d. all money prices increase at the same rate, leaving relative prices constant
Which of the following statements best describes the price, output, and profit conditions
of competitive price-searcher markets?
a. Price will equal marginal cost at the profit-maximizing level of output; profits will be
positive in the long-run.
b. Price will always equal average variable cost in the short run and either profits or
losses may result in the long run.
c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of
output; in the long run, economic profit will be zero.
d. Marginal revenue will equal average total cost in the short run; long-run economic
profits will be zero.
Gross domestic product is a measure of both
a. the market value of a nation’s capital assets (physical capital) and the costs that were
incurred producing those assets.
b. the expenditures on and sales revenues derived from all goods and services
exchanged during a period.
c. the market value of the output produced during a period and the cost of producing
that output.
d. the asset holdings of people and the happiness that they derived from the ownership
of those assets.
If a used car dealer purchases a used car for $3,000, makes repairs and refurbishes it,
then sells it for $8,000, the
a. dealer contributes value added equal to $5,000, but nothing is added to GDP.
b. dealer contributes value added equal to $5,000, and consequently $5,000 is added to
GDP.
c. dealer contributes nothing to production because only existing goods are involved.
d. dealer contributes value added equal to $8,000, but only $5,000 is added to GDP.
An industry is said to be a natural monopoly when
a. legal barriers limit entry into the market.
b. diseconomies of scale are present in the market.
c. the market demand for the product supplied by a firm is inelastic.
d. long-run ATC continues to decline as firm size increases.
e. larger firms have higher per-unit costs than their smaller rivals.
Measured as a share of GDP, the net federal debt
a. increased during the 1990s, but fell sharply during 2001-2011.
b. fell during most of the 1990s, but rose sharply during 2001-2011.
c. was virtually unchanged during the 1990s, but fell sharply during 2001-2011.
d. fell during the 1990s, but was virtually unchanged during 2001-2011.