The Federal Reserve discount rate is the rate of interest charged on loans from ______
to _____.
A. the Federal Reserve; commercial banks
B. the Federal Reserve; the U.S. Treasury
C. commercial banks; the Federal Reserve
D. the U.S. Treasury; commercial banks
In the short-run Keynesian model where the marginal propensity to consume is 0.75, to
offset a recessionary gap resulting from a $1 billion decrease in autonomous
consumption, transfers must be:
A. increased by $1 billion.
B. decreased by $1 billion.
C. increased by $1.33 billion.
D. decreased by $1.33 billion.
To counteract relative price changes, the government would implement:
A. monetary policy.
B. fiscal policy.
C. polices that affect the supply and demand for a specific good.
D. policies that affect the supply and demand for all goods and services.
Means-tested welfare benefits provide an incentive to
A. leave welfare.
B. earn unreported or illegal income.
C. work.
D. accurately disclose earnings.
The following table provides nominal exchange rates for the U.S. dollar.
Based on these data, the nominal exchange rate equals approximately ______ pesos per
Canadian dollar or, equivalently, ______ Canadian dollars per peso.
A. 0.672; 1.488
B. 9.259; 0.108
C. 6.222; 0.161
D. 7.771; 0.129
In a fractional-reserve banking system the reserve/deposit ratio equals:
A. more than 100 percent.
B. currency held by the public divided by deposits.
C. 100 percent.
D. less than 100 percent.
If an activity generates a positive externality, the government can make provision of
that activity more efficient by _____, and if an activity generates a negative externality,
the government can make provision of that activity more efficient by _____.
A. taxing it; banning it
B. subsidizing it; banning it
C. subsidizing it; taxing it
D. publicizing it; taxing it
The following table provides data for an economy in a certain year.
Given the data in the table, compute the government purchases component of GDP.
A. 200
B. 500
C. 700
D. 900
Starting from potential output, if firms become less optimistic about the future and
decide to decrease their investment in new capital, then this will shift the ______ curve
to the left and generate ______.
A. aggregate demand; a recessionary output gap
B. aggregate supply; a recessionary output gap
C. aggregate demand; an expansionary output gap
D. aggregate supply; an expansionary output gap
A risk-averse individual will
A. never accept any gamble.
B. accept a fair gamble.
C. only choose certain events.
D. accept only better than fair gambles.
The very small city of Pleasantville is considering building a public swimming pool that
costs $1,000. The table shows the five voters in the city and their marginal benefit of a
swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must
vote.
The total social benefit to a swimming pool in Pleasantville is
A. $1,490.
B. $1,000.
C. $1,590.
D. $1,120.
Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat
quit that job and started working as a personal trainer. Pat makes $50,000 in total annual
revenue. Pat’s only out-of-pocket costs are $12,000 per year for rent and utilities,
$1,000 per year for advertising and $3,000 per year for equipment.
Refer to the information given above. For Pat to earn normal profit, accounting profit
would have to be _______.
A. $50,000
B. $35,000
C. $15,000
D. 0
For a fixed percent reduction in pollution emissions to be economically efficient, it
would have to be the case that
A. the marginal cost of pollution control is the same across all firms.
B. enforcement is vigorous.
C. all firms be the same size.
D. large polluters reduce emissions by more than small polluters.
Dent n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last
month are shown in this table:
For Larry, the opportunity cost of selling a truck is:
A. 10 fewer cars sold.
B. 1/2 car not sold.
C. 1 fewer car sold.
D. 2 fewer cars sold.
Which of the following is not a reason why union firms can successfully compete with
nonunion firms?
A. Employee morale may be higher at union firms.
B. Communication between management and workers is more formal and hence
improved at union firms.
C. Labor turnover is lower at union firms.
D. Union firms are legally protected from price competition from nonunion firms.
Satellite TV is a close substitute for cable TV. In the 1990’s, small satellite TV units
were developed that made it more practical for individual consumers to subscribe to
satellite TV service. This caused the price elasticity of demand for cable TV service to:
A. become more inelastic.
B. become less elastic.
C. become more elastic.
D. shift to the left.
Starting from potential output, if consumer confidence increases and consumers decide
to spend more, then this will shift the ______ curve to the right and generate ______.
A. aggregate demand; a recessionary output gap
B. aggregate supply; a recessionary output gap
C. aggregate demand; an expansionary output gap
D. aggregate supply; an expansionary output gap
If inflation equals zero, then a worker’s real wage will fall when:
A. the nominal wage increases by less than 1% per year.
B. the nominal wage decreases.
C. the nominal wage is constant.
D. relative prices increase.
Empirical studies indicate that the maximum amount of air pollution occurs ______
levels of real GDP per person.
A. at the highest
B. at the lowest
C. at “middle-income”
D. equally at all
An inflation rate of over 500 percent per year would be classified as:
A. relative inflation.
B. deflation.
C. inflation.
D. hyperinflation.
An increase in the nominal exchange rate, e, defined as the number of units of the
foreign currency that one unit of the domestic currency will buy, indicates that the
domestic currency has ______ relative to the foreign currency.
A. appreciated
B. depreciated
C. become overvalued
D. become undervalued
Jim Brown would like to work, but has not looked for work in the past four weeks
because he does not believe any jobs are available. In the official employment statistics,
Jim is classified as:
A. employed.
B. unemployed.
C. out of the labor force.
D. underemployed.
Based on the information in the table, how big is the labor force?
A. 576,000
B. 720,000
C. 800,000
D. 1,000,000
The money demand curve will shift to the left if:
A. the nominal interest rate increases.
B. the nominal interest rate decreases.
C. price level increases.
D. the price level decreases.
The following table provides data for an economy in a certain year.
Given the data in the table, compute the investment component of GDP.
A. 300
B. 400
C. 800
D. 900
The money supply in Econland is 1,000, and currency held by the public equals bank
reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____.
A. 200
B. 250
C. 500
D. 800
Which of the following is a flow?
A. Saving
B. Wealth
C. Assets
D. Money
If consumption increases by $9 when after-tax disposable income increases by $10, the
marginal propensity to consume (mpc) equals:
A. 0.1.
B. 0.9.
C. 1.0.
D. 9.0.
Suppose the economy is currently operating at potential output; an expansionary gap
may be caused by each of the following EXCEPT:
A. a positive demand shock.
B. a negative inflation shock.
C. a decrease in taxes.
D. an increase in the money supply.
What is the extra output received from the hiring of an extra worker?
A. Total product divided by Wage
B. Wage times Marginal Product
C. Marginal product
D. Average product
Most of us make sensible decisions most of the time, because:
A. we know the cost-benefit principle.
B. subconsciously we are weighing costs and benefits.
C. most people know about the scarcity principle.
D. we conduct hypothetical mental auctions when we make decisions.
Empirical evidence indicates that higher real interest rates lead to ______ in savings.
A. modest increases
B. substantial increases
C. no change in
D. modest decreases
Which of the following is an example of frictional unemployment?
A. Dora lost her job when the textile factory closed. She does not have skills to work in
another industry and has been unemployed for over a year.
B. Marsha was laid off from her job with the airline because the recession has reduced
the demand for airline travel. She expects to get her job back when the economy picks
up.
C. George is an unskilled worker who mows lawns in the summer, but is unemployed
the rest of the year.
D. Hector looked for a job for five weeks after finishing college. He turned down
several jobs that didn’t make good use of his skills, but now has a job that requires the
expertise he gained in college.