The opportunity cost of an activity means the:
a. amount of money the activity costs.
b. number of hours that is required to engage in this activity.
c. expected gains by engaging in the activity.
d. amount of other things that must be sacrificed in order to engage in the activity.
e. expected gains minus the expected costs of engaging in the activity.
A country that has a lower opportunity cost of producing a good:
a. has a comparative advantage.
b. can produce the good using fewer resources than another country.
c. requires fewer labor hours to produce the good.
d. all of these.
Consider an economy made up of 100 people, 60 of whom old jobs, 10 of whom are
looking for work, and 15 of whom are retired. The number counted as unemployed is:
a. 10.
b. 15.
c. 40.
d. 30.
e. 90.
Which of the following does not result in a change in the demand for foreign currency?
a. c and d.
b. changes in income.
c. changes in foreign currency supply.
d. changes in the foreign exchange rate.
e. changes in the interest rate.
Measured between two points on a curve, the ratio of the change in the variable on the
vertical axis to the change in the variable on the horizontal axis is the:
a. axis.
b. slope.
c. dependent curve.
d. independent curve.
The impact of an increase in the money supply is a(n):
a. increase in the interest rate, which in turn stimulates investment and GDP.
b. decrease in the interest rate, which in turn stimulates investment and GDP.
c. reduction in the general level of prices, which will increase the disposable income of
households.
d. improvement in technology, which will stimulate both output and employment.
If the government imposes a price ceiling below the market equilibrium price, which of
the following will result?
a. There will be a surplus of the good.
b. The quantity demanded will exceed the quantity supplied.
c. The quantity supplied will exceed the quantity demanded.
d. The demand curve will shift to the left.
When the economy enters a recession, automatic stabilizers create:
a. higher taxes.
b. more discretionary spending.
c. budget deficits.
d. budget surpluses.
If you look for a job for eighteen months after graduation, but fail to generate an offer,
even after lowering your expectations, the economy is probably in the business cycle
phase called a:
a. recession.
b. peak.
c. boom.
d. recovery.
e. trough.
Assume that an economy’s real GDP multiplier is 2 and that this economy is in
equilibrium at $500 billion. If the government wants to move this economy to
full-employment at $600 billion, while maintaining a balanced budget, it must choose
which of the following options?
a. Increase government spending and taxes by $100 billion
b. Decrease government spending and taxes by $100 billion
c. Increase government spending and taxes by $200 billion
d. Decrease government spending and taxes by $200 billion
Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9
gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons
of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of
gasoline is:
a. zero.
b. 50 cents.
c. $1.
d. $1.50.
Other things being equal, the quantity of money that people wish to hold in currency
and their checking accounts can be expected to:
a. increase as the interest rate increases.
b. decrease as the interest rate increases.
c. decrease as real GDP increases.
d. none of these.
If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:
a. $0.
b. more than $0, but less than $2,000.
c. $2,000.
d. more than $2,000, but finite.
e. infinite.
A recessionary gap:
a. is of little consequence in a capitalist economy.
b. represents actual physical output lost.
c. implies an equilibrium level of output less than the full-employment level.
d. is associated with rising labor prices.
e. will automatically close, according to the Keynesian model.
In Keynes’s view, an excess quantity of money supplied causes people to:
a. sell bonds and the interest rate rises.
b. buy bonds and the interest rate falls.
c. buy bonds and the interest rate rises.
d. increase speculative balances.
The hypothesis that people use all available information to predict the future is known
as:
a. rational expectations.
b. adaptive expectations.
c. lagged expectations.
d. trend expectations.
Within the Keynesian aggregate expenditures model, if the economy is below
equilibrium, then there will be:
a. an increase the demand for goods and services.
b. an increase in real GDP.
c. lower interest rates, which will stimulate aggregate demand and keep the economy at
full employment.
d. a lower price level, which will quickly guide the economy to full-employment
equilibrium.
The crowding-out effect refers to:
a. higher interest rates and reduced private spending that results from financing federal
budget deficits.
b. higher future taxes accompanying budget deficits to reduce private consumption.
c. the inflation rate to rise when the unemployment rate is low.
d. increases in private savings to reduce interest rates and, thereby, crowd-out
government