In the short run, if price falls below a firm’s minimum average total cost, the firm
should shut down.
Expansionary fiscal policy crowds out both domestic investment and net exports.
Monetarists believe that the quantity of money should be increased at an increasing
rate.
In the alcohol industry, both wine and spirits are considered to be substitutes for beer.
A firm might prefer a commission system of compensation when the nature of the work
is repetitive and monotonous and can be performed by an individual.
At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.
The Congressional Budget Office estimates that the additional taxes and fees enacted
under the ACA will be enough to pay for the plan and reduce the federal government’s
budget deficit.
“The distribution of income should be determined by the government” is an example of
a positive economic statement.
There are a limited number of original Picasso paintings. This means that the supply of
original Picasso paintings is perfectly inelastic.
The unemployment rate in the United States is typically lower than in Western Europe
because the United States has tougher requirements for the unemployed to receive
government payments.
An adverse supply shock causes the short-run aggregate supply curve to shift left,
increasing the price level.
The natural rate of unemployment is fixed and unchanging.
Between 2013 and 2014, the CPI of a small nation rose from 182 to 185. If household
incomes rose by 3% during that period of time, which of the following is true?
A) The purchasing power of household income rose between 2013 and 2014.
B) The purchasing power of household income fell between 2013 and 2014.
C) The purchasing power of household income remained constant between 2013 and
2014.
D) The CPI cannot be used to determine how the purchasing power of household
income changes over time.
How does the owner of a corporation relate to the business?
A) The owners of the business have a separate legal distinction from the business.
B) The owners of the business have no separate legal distinction from the business.
C) The personal assets are part of the corporation’s assets.
D) None of these describe the legal relationship of corporate owners to the business.
With which of the following statements would a “real business cycle” theorist most
closely agree?
A) “Monetary policies have the greatest impact on real GDP when they are anticipated.”
B) “Expansionary monetary policy allows the central bank to control inflation and
unemployment simultaneously.”
C) “Wages adjust rapidly to changes in inflation as long as expectations are formed
rationally.”
D) “Technological shocks to the economy affect only aggregate demand in the short
run.”
One of the most widely followed stock indexes in the United States is the Dow Jones
Industrial Average. This index represents
A) the stock prices of 500 large U.S. firms.
B) an over-the-counter market.
C) the stock prices of more than 4,000 U.S. firms.
D) the stock prices of 30 large U.S. corporations.
Table 4.7
The equations above describe the demand and supply for Bubba’s Fried Jellybeans.
What are the equilibrium price and quantity (in thousands) for Bubba’s Fried
Jellybeans?
A) $80 and 40 thousand
B) $60 and 10 thousand
C) $20 and 20 thousand
D) $40 and 5 thousand
In 2013, health care’s share of gross domestic product in the United States was about
A) 6.5 percent.
B) 17.3 percent.
C) 45 percent.
D) 62.5 percent.
If firms find that consumers are purchasing less than expected, which of the following
would you expect?
A) Aggregate expenditure will likely be greater than GDP.
B) Aggregate expenditure will likely be less than GDP.
C) The economy will adjust to macroeconomic equilibrium as inventories rise, and
production and employment rise.
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and
production and employment rise.
Which of the following will cause a direct increase in consumption spending?
A) an increase in planned investment
B) an increase in government spending
C) an increase in disposable income
D) a decrease in net export spending
In a city with rent-controlled apartments, all of the following are true except
A) apartments usually rent for rates lower than the market rate.
B) apartments are often in shorter supply than they would be without rent control.
C) it usually takes more time to find an apartment than it would without rent control.
D) landlords have an incentive to rent more apartments than they would without rent
control.
Harry attended a baseball card show in New York City where he bought a number of
rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s. Harry
then sold the cards in Pittsburgh, Harry’s hometown, where he knew the cards sold for
higher prices. The profits Harry earned from these transactions are called
A) arbitrage profits.
B) normal profits.
C) accounting profits.
D) implicit profits.
Figure 5-16 Amit and Bree are the
only two homeowners on an isolated private road. Both agree that installing street lights
along the road would be beneficial and want to do so. Figure 5-16 shows their
willingness to pay for Different quantities of street lights, the market demand for street
lights and the marginal cost of installing the street lights. How much is Amit willing to
pay to have 4 street lights installed?
A) $3,600
B) $2,700
C) $1,800
D) $900
All of the following are examples of oligopolistic markets except
A) the broadcasting industry
B) aircraft manufacture
C) college bookstores
D) seafood restaurant chains
Raising funds through financial intermediaries is called
A) direct finance.
B) corporate finance.
C) indirect finance.
D) dividend reinvestment.
Article Summary. Based on resale prices for tickets for the 2013 Super Bowl in New
Orleans, face-value prices for the most expensive tickets to the 2014 game are
expected to more than double, with significant price increases for lesser-valued
tickets as well. Evidence indicates that sports teams are more interested in
maximizing attendance instead of ticket revenue, since greater attendance means
more spending on items such as parking and concessions. Higher ticket prices in
secondary markets seem to verify that teams are charging less than they could be
if their goal was to maximize ticket revenue.
Source: Patrick Rishe, “Super Bowl XLVIII Pricing: A Lesson In Demand
Elasticity,” Forbes, September 19, 2013.
The idea that sports teams could charge more for tickets and still increase revenue
indicates that tickets are being priced in the ________ portion of their demand curve.
A) elastic
B) inelastic
C) unit elastic
D) perfectly elastic
An increase in U.S. federal government budget deficits that raises U.S. interest rates
relative to the rest of the world should
A) raise the trade balance.
B) increase net exports.
C) cause the dollar to depreciate.
D) lead to a current account deficit.
E) decrease foreign portfolio investment.
A successful compensation scheme
A) must pay workers with comparable skills a comparable wage.
B) must induce effort from workers and ensure that both employer and employees
benefit.
C) must enable workers to enjoy a certain standard of living and must enable employers
to earn a normal rate of return.
D) must allow employees to participate in a firm’s profits.
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
If the market price is $1.00, what is Arnold’s consumer surplus?
A) $1.00
B) $2.00
C) $6.00
D) $7.00
In most countries in South America, the legal driving age is 18. If the legal driving age
in the United States was raised from 16 to 18, how would this affect the market for new
and used automobiles? What would happen to the equilibrium price and quantity of new
and used automobiles?
What are capital controls? Why might a financial crisis lead to a reconsideration of
using capital controls, and what problems might result from the reinstatement of capital
controls?
Most economists are concerned about entry barriers. Why is this so important to them?
If expectations are adaptive, how will the economy adjust to a new long-run
equilibrium in response to expansionary monetary policy? Support your answer with a
graph of the Phillips curve.
What is health insurance?
Why does inflation make nominal GDP a poor measure of the increase in total
production from one year to the next?
List the five key determinants of price elasticity of demand and explain how each
determinant indicates if demand tends to be elastic or inelastic.
Economist Michael Spence uses a concept called the ‘signaling hypothesis” to argue
that college graduates don’t earn high incomes because the skills they learned while in
college serve to increase their productivity. Explain the signaling hypothesis. Is there
evidence that the signaling hypothesis is not valid?
What is an entrepreneur, and what decisions does an entrepreneur make in a market
system?