When a country fixes the price of foreign exchange (in terms of the domestic currency)
below equilibrium, which of the following will result?
a. A black market will develop for foreign exchange.
b. Residents of that country can buy as much foreign currency as they want.
c. There will be a surplus of foreign exchange.
d. A depreciation of the currency will restore equilibrium in the foreign exchange
market.
(I) Countries with more economic freedom during the past quarter of a century had a
lower average per capita GDP.
(II) Countries with more economic freedom during the past quarter of a century
generally achieved higher rates of economic growth.
a. Both I and II are true.
b. Both I and II are false.
c. I is true; II is false.
d. I is false; II is true.
The consumer price index is designed to measure the extent to which
a. the cost of a typical bundle (market basket) of consumer goods has changed over
time.
b. consumers have increased their spending over time.
c. GDP is allocated to consumers, rather than to business or government, over time.
d. prices paid by employers to resource owners have changed over time.
Use the figure to answer the following question(s).
Figure 9-6
If the market price in Figure 9-6 increases to $20, what should the firm do?
a. produce an output of 15
b. expand output to 20
c. expand output to 25
d. increase its price to $25
Because GDP does notfully account for improvements in the quality of goods,
a. the inflation rate is understated and real GDP is overstated.
b. the inflation rate is overstated and real GDP is understated.
c. both the inflation rate and real GDP are overstated.
d. both the inflation rate and real GDP are understated.
In the latter half of the 1990s, the Department of Housing and Urban Development
imposed regulations on Fannie Mae and Freddie Mac, requiring them to
a. extend more mortgage loans to households with low and moderate incomes.
b. accept only mortgages with at least a 20 percent down payment.
c. tighten lending standards and increase their holdings of low-risk, conventional
mortgages.
d. extend more mortgage loans to households with middle and high incomes.
As a result of a tariff on an imported good,
a. domestic producers are better off because they sell more goods at the same price.
b. domestic producers are better off because they sell more goods at a higher price.
c. domestic producers are better off because they sell the same quantity of goods at a
higher price.
d. domestic consumers are better off because there are more domestically produced
goods available.
e. domestic consumers are neither better off nor worse off because imports do not
change.
Which one of the following is a major difference between market and collective action
through government?
a. Individuals are motivated by personal interests when making market choices, but
they will be motivated primarily by the public interest when making collective choices.
b. Competitive behavior is present when decisions are made in the marketplace, but
competition is absent when choices are made collectively.
c. Scarcity constrains output when decisions are made in the market sector, but scarcity
is absent when goods are provided by the government.
d. In the market sector, there is generally a one-to-one link between payment and
consumption; this link is often absent in the government sector.
Government provision of goods and services that cannot easily be provided through
markets because it is difficult to establish a one-to-one link between payment and
consumption of the good is referred to as the
a. productive function of government.
b. protective function of government.
c. construction function of government.
d. income redistribution function of government.
A basic problem with the infant-industry argument is that
a. most industries need protection when they are mature, not when they are first
established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant
industry.
c. political pressure will likely prevent the withdrawal of the tariff when the industry
matures.
d. domestic consumers will continue to buy the foreign products anyway, regardless of
the tariff.
In recent years, what percentage of American families have derived income transfers
from at least one government transfer program?
a. less than 20 percent
b. approximately 53 percent
c. approximately 62 percent
d. nearly 75 percent
What would happen in the market for loanable funds if the government were to
decrease the tax rate on interest income?
a. the supply of loanable funds would shift right and investment would increase.
b. the supply of loanable funds would shift left and investment would decrease.
c. the demand for loanable funds would shift right and investment would increase.
d. the demand for loanable funds would shift left and investment would decrease.
Figure 15-3
As shown in Figure 15-3, if people behave according to adaptive expectations theory,
an increase in the aggregate demand curve from AD1 to AD2 will cause the price level
to move
a. directly from 100 to 110 and then remain at 110.
b. directly from 100 to 105 and then remain at 105.
c. from 100 to 105 initially and then eventually move back to 100.
d. from 100 to 105 initially and then eventually move to 110.
The methodology of public choice analysis
a. develops a logically consistent theory based on how individual actors (such as voters,
politicians, and bureaucrats) respond to incentives.
b. assumes that all decisions made by individual actors in the public sector are done
with the public interest in mind, rather than their private interests.
c. assumes that individuals generally react to the incentives they face when making
choices in the private sector but not in the public sector.
d. focuses on the development of a single theory of government as a whole rather than
on analyzing the choices made by individual agents in the public sector.
The adaptive expectations hypothesis implies that people
a. adjust their expectations quickly to policy changes.
b. expect the next period to be pretty much like the recent past.
c. will always be correct in their forecast for the next period.
d. change their expectations about the future if policy changes.
Suppose external benefits are present in a market which results in the actual market
price of $14 and market output of 150 units. How does this outcome compare to the
efficient, ideal equilibrium?
a. The efficient outcome would be greater than 150 units.
b. The efficient outcome would be less than 150 units.
c. The efficient outcome would also be 150 units.
d. The efficient price would be less than $14.
Figure 17-9
Refer to Figure 17-9. The amount of revenue collected by the government from the
tariff is
a. $200.
b. $400.
c. $500.
d. $600.
When the 2010 Patient Protection and Affordable Care Act is fully implemented, it will
a. require employers with 50 or more employees to provide approved health insurance
for their employees or pay a $2000 fine annually for each full-time employee.
b. expand the supply of doctors and other medical services.
c. require all members of Congress and congressional staff employees to purchase their
health insurance through the government operated exchanges.
d. make it legal for individuals to purchase health insurance from an insurer in another
state.
Special savings accounts that individuals would pay into and then use to pay for
medical expenses (or use to purchase a catastrophic health insurance policy) are called
a. Medicare accounts.
b. comprehensive insurance plans.
c. medical savings accounts.
d. Health Maintenance Organizations (HMOs).
If a firm in a competitive price-searcher market raises its price, it will
a. lose all of its sales.
b. increase its sales.
c. lose only some of its sales.
d. have to go out of business.
The following table indicates the production possibilities of cars and clothing per
worker day in the United States and Japan.
Which of the following is true?
a. No gains from trade are possible.
b. Joint output would be maximized if the United States specialized in producing cars
and Japan in producing clothing.
c. Mutual gains from trade could be realized if the United States specialized in clothing
production and Japan in car production.
d. The Japanese are the high-cost producers of both cars and clothing.
(I) Positive economics cannot determine how much income inequality should be present
in a country.
(II) Critics of government action to reduce income inequality argue that modifying the
market process of income determination may create perverse incentives and hurt wealth
creation.
a. Both I and II are true.
b. Both I and II are false.
c. I is true; II is false.
d. I is false; II is true.
Measured as a share of GDP, federal spending during 2001-2010
a. increased more rapidly than during the 1990s.
b. increased less rapidly than during the 1990s.
c. declined after increasing rapidly during the 1990s.
d. was virtually unchanged during the decade.
Externalities are fundamentally the result of
a. the absence of competition in a market.
b. the lack of well-defined or enforced property rights.
c. poor information on the part of consumers.
d. the presence of significant comparative advantages in production.
Accounting costs are often unsatisfactory from the economist’s point of view because
a. they fail to allow for depreciation, the wearing out of capital assets during a period.
b. they often exclude the opportunity costs of the firm’s equity capital.
c. accountants attempt to minimize costs in order to make profits look good.
d. accounting procedures are designed to overstate costs in order to minimize business
tax liability.
Which of the following is true?
a. Employers who discriminate against blacks and other minorities will have lower
costs than rival firms that hire employees strictly on the basis of merit (productivity).
b. After adjusting for factors such as education, experience, and location, the earnings
of black men are almost identical to the earnings of similar white men.
c. If employers can hire equally productive minority employees at a lower wage than
non-minorities, the profit motive provides a strong incentive to do so.
d. The empirical evidence indicates that the earnings gap between whites and blacks is
entirely the result of employment discrimination.
Which of the following would be most likely to cause the price/earnings ratio of stocks
to rise?
a. the expectation of a recession in the near future
b. the expectation of inflation in the near future
c. higher interest rates
d. lower interest rates
A firm that is a “pure monopoly” is
a. a seller of a highly advertised and differentiated product in a market with low barriers
to entry in the long run.
b. the only seller of a good for which there are no good substitutes in a market with high
barriers to entry.
c. the only buyer of a unique raw material.
d. the producer of a product subsidized by the government.
Which of the following about economic growth is true?
a. The fastest growing economies in the world are mostly less developed countries.
b. The fastest growing economies in the world (those with annual real growth rates of
3.5 percent or more) are mostly high-income industrial countries.
c. The slowest growing countries in the world, many of which are experiencing declines
in per capita GDP, are less developed countries.
d. Both a and c are true.
Figure 10-7
Given the cost and demand conditions shown in Figure 10-7 for the competitive
price-searcher firm, what price should it charge, and what quantity should it produce in
order to maximize profit?
a. It should produce 10 units and charge a price of $5 per unit.
b. It should produce 10 units and charge a price of $8 per unit.
c. It should produce 10 units and charge a price of $10 per unit.
d. It should produce 18 units and charge a price of $7 per unit.
An organization of sellers designed to coordinate their supply decisions to maximize
joint profits is called a
a. consumer cooperative.
b. marketing association.
c. regulatory agency.
d. cartel.
The national debt is the
a. difference between a nation’s exports and imports of goods and services.
b. sum of the personal debt of all citizens in the United States.
c. indebtedness of the federal government in the form of outstanding interest-earning
bonds.
d. sum of the net personal debts of Americans to foreigners.
A study of countries with high inflation rates indicates that the inflation is generally
a. caused by strong labor unions.
b. the result of restrictive macroeconomic policy, which pushes up interest rates.
c. caused by supply shocks.
d. the result of rapid growth in the money supply.
Which of the following would decrease the size of a federal budget deficit?
a. a recession
b. an increase in defense spending
c. growth in real GDP
d. a decrease in tax revenues
e. an increase in transfer payments
On average, countries that have a larger degree of economic freedom tend to have
a. higher per capita income levels, but slower rates of economic growth, than countries
with less economic freedom.
b. lower per capita income levels, but more rapid rates of economic growth, than
countries with less economic freedom.
c. both higher per capita income levels and more rapid growth rates than countries with
less economic freedom.
d. both lower income levels and slower growth rates than countries with less economic
freedom.