Which of the following is most likely to reduce the nominal market wage in a job
category?
a. The job requires employees to work the night shift from 11 p.m. to 7 a.m.
b. The job is prestigious, and the work is quite interesting.
c. The job is widely viewed as dangerous.
d. The job requires employees to move from city to city quite often.
When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator
rather than the consumer price index because the GDP deflator is
a. calculated for a more general market basket of goods than the consumer price index.
b. always less than the consumer price index and, thus, is a more stable index.
c. the sum of the consumer price index and the wholesale price index.
d. the only price index adjusted annually for changes in the quality of products.
Figure 4-25
Refer to Figure 4-25. After the tax is levied, producer surplus is represented by area
a. A.
b. A + B + C.
c. D + E + F.
d. F.
If profit-seeking major oil companies began to use current profits from the oil business
to buy department stores and hotel chains, economic analysis suggests that
a. oil company profits were high relative to other possible investment opportunities.
b. oil company executives thought profits from investment outside the oil industry
would be lower than oil-industry investments.
c. oil company executives must believe these other investments will be more profitable
than investments in the oil industry.
d. the government would be justified in subsidizing oil companies on grounds of
economic efficiency.
Which of the following would be officially classified as unemployed?
a. a school administrator who has been working as a substitute teacher one day per
week while looking for a full-time job in administration
b. a mathematician who returned to graduate school after failing to find a job the last
four months
c. a 60-year-old former steel worker who would like to work but has given up actively
seeking employment
d. a laid-off construction worker waiting to return to a previous job
The variation in the rate of return one can expect from ownership of stocks will
generally be smaller if
a. all of the funds are invested in a specific sector of the economy such as the
automobile industry.
b. a diverse set of stocks is held over a lengthy period of time such as 30 or 40 years.
c. all of the funds are invested in a single stock.
d. the funds are invested for a relatively short period of time.
An unexpected sharp reduction in inflation will most likely result in
a. the rapid growth of output and employment.
b. a reduction in the actual rate of unemployment.
c. a reduction in the natural rate of unemployment.
d. a temporary increase in unemployment and a decline in real output.
Which of the following is true under natural monopoly?
a. The marginal cost curve will be above the average cost curve.
b. The monopolist will set price equal to marginal cost and will earn economic profits.
c. Economies of scale will be present.
d. Output is produced under conditions of constant cost.
When the Fed unexpectedly decreases the money supply,
a. real interest rates will rise and the foreign exchange value of the dollar will
appreciate.
b. real interest rates will rise and the foreign exchange value of the dollar will
depreciate.
c. real interest rates will fall and the foreign exchange value of the dollar will
appreciate.
d. real interest rates will fall and the foreign exchange value of the dollar will
depreciate.
Which of the following did Thomas Malthus believe would deter sustained increases in
the growth of income per capita?
a. excessive growth of government expenditures
b. rapid growth of population
c. the availability of natural resources
d. adverse climate conditions
If the Fed wanted to shift to a more restrictive monetary policy, it would
a. expand the reserves available to the banking system, which would drive down short
term interest rates.
b. reduce the reserves available to the banking system, which would drive down short
term interest rates.
c. expand the reserves available to the banking system, which would drive up short term
interest rates.
d. reduce the reserves available to the banking system, which would drive up short term
interest rates.
Which of the following contributed to the rising mortgage default and foreclosure rates
and the eventual economic crisis of 2008?
a. tightened mortgage lending standards and the reduction of loanable funds during
2001-2005
b. the increase in the greed of Wall Street bankers and other commercial lenders
c. the substantial increase in sub-prime and adjustable rate mortgages as a share of the
total during 2001-2006
d. the increase in the household savings rate during the two decades following 1985
e. the increase in fixed rate mortgages as a share of the total during the decade prior to
the crisis
In 1903 when air pollution from a Montana smelter owned by the Anaconda Smelting
Company destroyed grass and killed some cattle owned by ranchers downwind from the
smelter, the ranchers sued for damages and the court
a. ordered the company to pay for the damages caused by its smelter.
b. held the company liable for any future damages caused by its omissions.
c. recognized that the company would pollute less when it was made accountable for
the damage caused by its omissions.
d. all of the above.
Public choice analysis explains that
a. politicians have strong incentives to favor deficit finance over tax finance.
b. policy makers believe the budget should be balanced except in times of war.
c. the legislator who is a spending “watch dog” can save her constituents a substantial
amount of tax money.
d. given the way Congress operates, the apparent popularity of deficit financing is
surprising.
Which of the following sayings best reflects the concept of opportunity cost?
a. “You can’t teach an old dog new tricks.”
b. “Time is money.”
c. “I have a baker’s dozen.”
d. “There’s no business like show business.”
Though many assets can be used as a store of value, money is a particularly attractive
method to store value because
a. it increases in value as prices rise.
b. its purchasing power does not decline when prices rise.
c. it is the most liquid of all assets.
d. it is backed by gold.
When a nation’s institutional environment is more favorable, it will
a. attract more physical investment.
b. encourage individuals to invest more heavily in human capital.
c. encourage the development and efficient use of natural resources.
d. all of the above.
You withdraw $100 from your checking account. How does this affect the money
supply and the reserves of your bank?
a. The money supply increases, and the reserves of your bank decline.
b. Both money supply and the reserves of your bank increase.
c. There is no change in the money supply, and the reserves of your bank decline.
d. The money supply decreases, and the reserves of your bank increase.
Globalization is becoming more of a worldwide phenomenon because
a. more countries want to become self-sufficient.
b. less-developed countries are increasing their trade restrictions.
c. technological advancements are decreasing transportation costs.
d. trade hurts workers in poor countries.
In the supply and demand model, a subsidy granted to buyers is illustrated by
a. a downward shift in the demand curve, by the per unit amount of the subsidy.
b. an upward shift in the demand curve, by the per unit amount of the subsidy.
c. a downward shift in the supply curve, by the per unit amount of the subsidy.
d. an upward shift in the supply curve, by the per unit amount of the subsidy.
Figure 4-22
Refer to Figure 4-22. Sellers pay how much of the tax per unit?
a. $1.00.
b. $1.50.
c. $2.50.
d. $3.00.
The new classical view of budget deficits assumes that
a. people view government bonds as an addition to their wealth.
b. individuals do not anticipate the tax liability implied by deficit spending.
c. increased government borrowing will raise the interest rate and retard private
borrowing and capital formation.
d. if future taxes (debt) are substituted for current taxes, people will save the reduction
in current taxes in order to pay the higher future taxes.
The multiplier effect refers to the fact that a change in spending (aggregate demand)
will
a. increase the money supply.
b. cause prices to rise by some multiple of the initial increase in spending.
c. cause nominal output to rise by some multiple of the initial increase in spending.
d. reduce prices by some multiple of the increase in spending.
In the short run, an unexpected increase in prices will
a. reduce resource prices and increase the quantity of goods supplied.
b. decrease the productive capacity of firms and decrease the quantity of goods
supplied.
c. increase the profits of firms, thereby leading them to expand output.
d. increase the profits of firms, thereby leading them to reduce output.
In order to fully realize the gains from entrepreneurial innovation,
a. the government should subsidize potential entrepreneurs.
b. it must be relatively easy for people to put their ideas in motion.
c. it must be relatively difficult to continue implementing a bad idea.
d. both a and b must be true.
e. both b and c must be true.
How much would be added to this year’s GDP if you sold your four-year-old
automobile for $4,000 and purchased a two-year-old model from an acquaintance for
$10,000.
a. nothing
b. $6,000
c. $10,000
d. $14,000
Payments that users (consumers) are required to make if they want to receive certain
services provided by the government are called
a. tax deductions.
b. transfer payments.
c. user charges.
d. sales taxes.
If consumer purchases of a good are highly sensitive to the price of the good, this is
illustrated by a
a. demand curve that is relatively flat (more horizontal).
b. demand curve that is relatively steep (more vertical).
c. supply curve that is relatively flat (more horizontal).
d. supply curve that is relatively steep (more vertical).
Are jobs the key to economic progress and the achievement of high income levels?
a. Yes, as long as people are working, real income levels will be high.
b. Yes, when full employment is present, income levels will be at their maximum.
c. No, it is not just employment, but employment that expands production of goods and
services that others value highly relative to cost.
d. Uncertain, additional employment will increase real income only when the general
level of prices is unchanged.
When reserve requirements are increased, the
a. excess reserves of commercial banks will decrease.
b. excess reserves of commercial banks will increase.
c. U.S. Treasury will have to borrow additional funds.
d. money supply will rise.
When it is difficult to assign and enforce property rights,
a. markets result in outcomes that are often inefficient.
b. courts can easily negotiate efficient outcomes.
c. establishing better property rights is always the best way to deal with environmental
problems.
d. government regulation can never improve on the outcomes generated by competitive
markets.
Countries that impose high tariffs, exchange rate controls, and other barriers that restrict
international trade have, on average,
a. high rates of economic growth.
b. low rates of economic growth.
c. a large export sector.
d. a large import sector.
Use the information in the table below to answer the following question(s). The firm
hires labor competitively and sells its product in a competitive price-taker market.
Table 12-6
Refer to Table 12-6. If the market wage rate is $25 per day, how many workers should
the firm hire if it wants to maximize profits?
a. 4
b. 5
c. 6
d. 7
The portion of after-tax income a consumer does not spend on consumption is called
a. investment.
b. saving.
c. supply.
d. temporary income.