Answer the next question on the basis of the following table, which indicates the dollar
price of libras, the currency used in the hypothetical nation of Libra. Assume that a
system of freely floating exchange rates is in place.
Suppose that Libra decided to import more U.S. products. We would expect the quantity
of libras:
A. demanded at each dollar price to rise and the dollar to depreciate relative to the libra.
B. demanded at each dollar price to fall and the dollar to appreciate relative to the libra.
C. supplied at each dollar price to rise and the dollar to appreciate relative to the libra.
D. supplied at each dollar price to fall and the dollar to depreciate relative to the libra.
Points C, D, E, and H on the above graph show:
A. an inefficient allocation of society’s scarce resources.
B. a constant trade-off between food and clothing.
C. possible combinations of food and clothing.
D. unattainable combinations of food and clothing.
In the chain of cause and effect between changes in the excess reserves of commercial
banks and the resulting changes in output and employment in the economy:
A. a decrease in aggregate demand will increase output.
B. an increase in the money supply will decrease the rate of interest.
C. a decrease in excess reserves will increase the money supply.
D. a decrease in the rate of interest will decrease aggregate demand.
The largest component of GDP is:
A. government purchases.
B. personal consumption expenditures.
C. gross private domestic investment.
D. net foreign factor income earned in the United States.
A straight-line downward-sloping demand curve has a price elasticity of demand that:
A. decreases as price decreases.
B. increases as price decreases.
C. is zero at all prices.
D. is unitary at all prices.
If interest rates rise, there will be a(n):
A. increase in the total amount of money demanded.
B. decrease in the total amount of money demanded.
C. decrease in the total amount of money supplied.
D. increase in the asset demand for money.
Refer to the above diagram. At output level Q total fixed cost is:
A. 0BEQ.
B. BCDE.
C. 0BEQ 0AFQ.
D. 0CDQ.
The principal advantage money has over barter is its function as:
A. a store of value.
B. a medium of exchange.
C. a unit of account.
D. debt.
The development of the Internet and e-mail to often replace regular mail services is an
example of:
A. roundabout production.
B. derived demand.
C. creative destruction.
D. specialization.
A point inside the production possibilities curve is:
A. attainable and the economy is efficient.
B. attainable, but the economy is inefficient.
C. unattainable and the economy is inefficient.
D. unattainable, but the economy is efficient.
Assume an economy is producing only one product. Year 2 is the base year. Output and
price data for a five-year period are given.
Refer to the above data. If year 2 is the base year, then for the years shown, the growth
of:
A. real GDP has exceeded the growth of nominal GDP.
B. nominal GDP exactly reflects increases in real output.
C. nominal GDP overstates increases in real output.
D. nominal GDP understates increases in real output.
A high unemployment rate most likely means that there is a:
A. high rate of inflation in the economy.
B. low rate of interest in the economy.
C. large GDP gap in the economy.
D. small GDP gap in the economy.
The fundamental invention underpinning the recent productivity acceleration is the:
A. microchip.
B. fuel cell.
C. Internet.
D. personal computer.
The public debt is the:
A. amount of U.S. paper currency in circulation.
B. ratio of all past deficits to all past surpluses.
C. total of all past deficits minus all past surpluses.
D. difference between current government expenditures and revenues.
Which of the following conditions is not required for price discrimination?
A. Buyers with different elasticities must be physically separate from each other.
B. The good or service cannot be resold by original buyers.
C. The seller must be able to distinguish buyers with different elasticities of demand.
D. The seller must possess some degree of monopoly power.
Assume the required reserve ratio is 25 percent. If the Federal Reserve sells $120
million in government securities to the public, the money supply will immediately:
A. decrease by $120 million and the maximum money-lending potential of the
commercial banking system will decrease by $120 million.
B. decrease by $120 million and the maximum money-lending potential of the
commercial banking system will decrease by $480 million.
C. increase by $120 million and the maximum money-lending potential of the
commercial banking system will increase by $480 million.
D. increase because the securities are an asset to the commercial banks and a liability to
the Federal Reserve.
Refer to the above diagram. A price of $20 in this market will result in:
A. a shortage of 50 units.
B. a surplus of 50 units.
C. a surplus of 100 units.
D. a shortage of 100 units.
For which product is the income elasticity of demand most likely to be positive?
A. Retreaded tires
B. Cabbage
C. Used clothing
D. Computers
Critics of economic growth:
A. contend that growth and industrialization reduce pollution.
B. argue that economic growth does not resolve socioeconomic problems such as an
unequal distribution of income and wealth.
C. point out that growth results in greater economic security for workers.
D. say that its benefits accrue nearly exclusively to white males.
When unanticipated inflation occurs:
A. both creditors and debtors benefit.
B. creditors are hurt, but debtors benefit.
C. debtors are hurt, but creditors benefit.
D. both creditors and debtors are hurt.
Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1.
Which combination is on the consumer’s budget line?
A. 4A and 9B
B. 5A and 6B
C. 6A and 6B
D. 8A and 8B
Refer to the above supply and demand graph. In the graph, point A is the current
equilibrium level of output of this product and point B is the optimal level of output
from society’s perspective. S is the supply curve without a tax and St is the supply curve
with a tax. The external cost to society from the production of this product is measured
by:
A.DE.
B.EF.
C.FG.
D.AB.
Marginal product:
A. diminishes at all levels of production.
B. may initially increase, then diminish, but never become negative.
C. may initially increase, then diminish, and ultimately become negative.
D. is always less than average product.
As used in strategic trade policy, tariffs are a variation of the:
A. military self-sufficiency argument for tariffs.
B. increased-domestic-employment argument for tariffs.
C. diversification-for-stability argument for tariffs.
D. infant-industry argument for tariffs.
In a purely competitive industry, an optimal allocation of scarce resources occurs when:
A. P = AC.
B. P = MC.
C. MR = MC.
D. TR = TC.
When producers maximize their profits from the production of a good or service, they
are:
A. testing a hypothesis.
B. exhibiting purposeful behavior.
C. assuming that all other things are equal.
D. making a trade-off between economic efficiency and economic freedom.
Resources are efficiently allocated when production occurs at that output level where
price:
A. equals marginal cost.
B. equals marginal revenue.
C. is greater than marginal revenue.
D. is equal to average variable cost.
Refer to the above graph. At price level P1:
A. the quantity of output is constant.
B. the quantity of output is equal to the quantity of output demanded.
C. the quantity of output is greater than the quantity of output demanded.
D. the quantity of output is less than the quantity of output demanded.
Society wants to use its scarce resources efficiently. To achieve this economic goal it
must:
A. have full employment and full production.
B. have a fixed resource base and fixed technology.
C. expand the use of capital goods and reduce the use of labor.
D. increase the rental, interest, wage, and profit payments to the factors of production.
Which one is considered a problem with monetary policy?
A. Dollar depreciation.
B. Cyclical asymmetry.
C. Isolation from political pressure.
D. A change in the discount rate.