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Refer to the table above. The amount of currency held by the public ______, and the
amount of reserves held by banks ______. It must be the case that, in 1932, the Federal
Reserve ______.
A. increased; also increased; increased the discount rate
B. decreased; also decreased; kept the rate of inflation low
C. decreased; increased; performed open-market operations
D. increased; also increased; injected reserves into the economy
The principle of scarcity applies to:
A. the poor exclusively.
B. all consumers.
C. all firms.
D. everyoneconsumers, firms, governments, and nations.
Suppose a treacherous stretch of road winds through Deadman's Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
According to the basic rule for allocating crime control resources, the optimal amount
of crime control occurs when
A. the total benefits from reduced crime is greater than the total costs of crime
reduction.
B. the marginal benefits of reduced crime equals the marginal cost of crime reduction.
C. the total benefits from reduced crime equal the total costs of crime reduction.
D. the incidence of crime is nearly zero.
The core principle that is illustrated by the production possibilities curve is:
A. the Scarcity Principle.
B. the Cost-Benefit Principle.
C. the Incentive Principle.
D. The Principle of Comparative Advantage.
Smith and Jones comprise a two-person economy. Their hourly rates of production are
shown below.
Refer to the table above. The opportunity cost of making an extra calculator for Smith is
__________ and for Jones it is __________.
A. 0.10 computers; 0.05 computers
B. 10 computers; 6 computers
C. 1 computer; 0.5 computers
D. 0.6 computers; 1.2 computers
The key indicator of a country's living standard and economic well-being is:
A. the interest rate.
B. nominal GDP per person.
C. real GDP.
D. real GDP per person.
A depression is:
A. a particularly severe and protracted recession.
B. the high point of economic activity prior to a downturn.
C. the low point of economic activity prior to a recovery.
D. a particularly strong and protracted expansion.
The largest expenditure component of U.S. GDP is:
A. consumption.
B. investment.
C. government purchases.
D. exports.
As the dollar exchange rate, e, decreases, the quantity of dollars supplied in the foreign
exchange market ____, and the quantity of dollars demanded in the foreign exchange
market ____.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
The Federal Open Market Committee makes decisions about ______ policy.
A. monetary
B. fiscal
C. banking
D. deposit insurance
If a perfectly competitive firm produces an output level where price is greater than
marginal costs, then the firm should:
A. pay more to its variable factors of production.
B. reduce output to earn greater profits or smaller losses.
C. expand output to earn greater profits or smaller losses.
D. leave its output decision unchanged.
Refer to the figure above. In the original market equilibrium:
A. 50 cups of coffee are sold for $1.00 each.
B. 50 cups of coffee are sold for $2.50 each.
C. 40 cups of coffee are sold for $2.00 each.
D. 60 cups of coffee are sold for $1.50 each.
One problem with using monetary policy to address "bubbles" in asset markets is that:
A. the Federal Reserve is better than financial-market professionals at identifying
bubbles.
B. monetary policy is not a very good tool for addressing the problem of
inappropriately high asset prices.
C. reducing the real interest rate to deal with the bubble could lead to inflation.
D. the Federal Reserve is not interested in stabilizing output.
All else equal, relative to the case of a closed economy, monetary policy is ______
effective in an open economy with a ______ exchange rate.
A. more; fixed
B. more; flexible
C. less; fixed
D. less; flexible
Provisions in the law that imply automatic increases in government spending or
decreases in taxes when real output declines are called:
A. autonomous stabilizers.
B. automatic stabilizers.
C. the marginal propensity to consume.
D. the income-expenditure multiplier.
Assume the demand for sugar decreases while the supply of sugar increases. Which of
the following outcomes is certain to occur?
A. The equilibrium price of sugar will rise.
B. The equilibrium quantity of sugar will rise.
C. The equilibrium price of sugar will fall.
D. The equilibrium quantity of sugar will fall.
The following table shows the relationship between the speed of a computer's CPU and
the benefits and costs. Assume that all other features of the computer are the same, i.e.,
CPU speed is the only source of variation.
The marginal cost of upgrading from a 700 to an 800 Mhz computer is:
A. $500.
B. $400.
C. $200.
D. $100.
Initially, workers in the shoe industry and the computer industry earn the same wage.
Reductions in trade barriers give domestic consumers access to cheaper shoes produced
abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase
more computers, raising the relative price of computers. As a result of these changes,
wages in the shoe industry ______ and wages in the computer industry ______.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
GDP is a measure of an economy's:
A. domestic price level.
B. level of unemployment.
C. total output.
D. domestic productivity.
Suppose the price P on a given demand curve results in a price elasticity of demand
equal to 1. Any price higher than P will lie on the _______ part of the demand curve,
and any price lower than P will lie on the _______ part of the demand curve.
A. elastic; inelastic
B. unitary elastic; inelastic
C. inelastic; elastic
D. elastic; unitary elastic
Government support of basic research by funding scientists through the National
Science Foundation is an example of a government policy to promote economic growth
by:
A. increasing human capital.
B. increasing physical capital.
C. improving technology.
D. increasing the availability of natural resources.
Donald has vast riches and consumes thousands of dollars worth of consumer goods
each week, yet he is never satisfied. Why not?
A. Wants are unlimited, but resources are finite.
B. Donald fails to choose rationally.
C. The law of diminishing marginal utility shows that consuming too many material
goods leads to lower total utility.
D. Utility is unrelated to the level of consumption.
National saving is done by:
A. only households.
B. only businesses.
C. only governments.
D. households, businesses, and governments.
An increase in the price the firm receives for its output will cause the firm to:
A. expand output and earn greater profits or smaller losses.
B. leave output unchanged and earn greater profits.
C. leave output unchanged and earn greater profits or smaller losses.
D. contract output and earn greater profits.
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in
concert on Saturday. (Assume that you would not have been willing to pay any more
than $35 for this concert.) Your boss called and she is looking for someone to cover a
shift on Saturday at the same time as the concert. You will have to work 4 hours and she
will pay you time and a half, which is $9/hr.
Your economic surplus of going to work on Saturday is:
A. $0
B. $1
C. $35
D. $36
The inefficiency induced by all positional arms races is that:
A. nobody benefits from superior performance.
B. the increase in performance diminishes on the margin.
C. the increase in performance is negative.
D. spending on performance enhancement continues to escalate beyond the point at
which the additional benefit equals the additional cost.
In the short-run Keynesian model where the marginal propensity to consume is 0.5, to
offset an expansionary gap resulting from a $1 billion increase in autonomous
consumption, government purchases must be:
A. increased by $1 billion.
B. decreased by $1 billion.
C. decreased by $0.5 billion.
D. decreased by $2 billion.
An increase in net taxes (taxes paid by the private sector to the government less transfer
payments and interest payments made by the government to the private sector) will:
A. increase private saving.
B. decrease public saving.
C. increase public saving.
D. reduce investment in new capital equipment.
The reason economists consider monopoly socially undesirable is that the monopolist:
A. always earns excessive profits.
B. can charge any price he wants.
C. exploits the inelastic nature of demand.
D. produces less than the socially efficient amount.
As preferences for a clean environment increases, the socially optimal quantity of
pollution will:
A. remain the same because it is not determined by preferences.
B. increase because of increasing opportunity costs.
C. decrease because the demand shift will generate a new social optimum.
D. either increase or decrease depending on whether that demand is reflected in new
market prices.
In a free market, if the price of a good is below the equilibrium price, then;
A. government needs to set a higher price.
B. suppliers, dissatisfied with growing inventories, will raise the price.
C. demanders, to acquire the good, will bid the price higher.
D. suppliers, dissatisfied with growing inventories, will lower the price.
A shortage occurs when:
A. demand is greater than supply.
B. the equilibrium price is too high.
C. quantity demanded exceeds quantity supplied.
D. quantity supplied exceeds quantity demanded.
Vinnie is looking for an apartment in Dayton, Ohio. In Dayton, 75% of the two
bedroom, one bath apartments are $800 a month and 25% are $600. The marginal cost
of his search increases by $15 per search, i.e., the marginal cost of looking at the first
apartment is $15, the marginal cost of looking at the second apartment is $30, the
marginal cost of looking at the third apartment is $45 and so on.
At most, Vinnie will be willing to look at _____ apartments.
A. 4
B. 3
C. 2
D. 1
