Use the figure below to answer the following question(s).
Figure 9-2
The economy depicted in Figure 9-2 is
a. operating at less than full employment.
b. operating at more than full employment.
c. in short-run equilibrium but not long-run equilibrium.
d. in long-run equilibrium.
Which of the following is true?
a. Economic freedom is present if a country is a political democracy.
b. Economic freedom ratings indicate the consistency of a nation’s institutions and
policies with personal choice, freedom of exchange, and protection of private property.
c. Economies that are highly free tend to grow less rapidly than those with less
economic freedom.
d. All of the above are correct.
Which of the following contributed to the severity of the Great Depression in the
1930s?
a. constant structural changes that created uncertainty and undermined markets
b. the Fed’s policy of rapid monetary expansion during the early 1930s
c. a reduction in tariffs protecting many U.S. industries
d. a substantial tax rate reduction, which led to large deficits and high interest rates
during the early 1930s
Which of the following best explains why so many persons with incomes below the
poverty threshold income level work very little or not at all?
a. They confront high implicit marginal tax rates.
b. They do not enjoy income as much as other people.
c. There are no jobs for low-skill workers.
d. They often face very low explicit marginal tax rates.
Which of the following will most likely occur in the short run if long-run equilibrium is
disturbed by an unanticipated decrease in aggregate demand?
a. a decrease in output and a higher price level
b. an increase in output and a higher price level
c. a decrease in output and a lower price level
d. an increase in output, while prices remain unchanged
Consider a stock with a 50 percent probability of zero net earnings and a 50 percent
probability of net earnings equal to $20 per share each year continuously in the future.
Furthermore, assume that people are risk averse. That is, they will have to be
compensated for uncertainty accompanying variation in their future wealth. If the
interest rate were 5 percent, how much would people be willing to pay for a share of
this stock?
a. $10
b. $200
c. less than $200
d. more than $200
e. $400
Which of the following about inflation is true?
a. Anticipated inflation is an increase in the price level that comes as a surprise, at least
to most individuals.
b. Unanticipated inflation is a change in the price level that is widely expected.
c. Decision makers are generally able to anticipate slow steady rates of inflation with a
fairly high degree of accuracy.
d. Inflation will increase the prices of goods and services that households purchase but
not the wage rates of workers.
When the economy is operating at an output beyond its full-employment potential, the
a. actual level of unemployment will exceed the natural rate of unemployment.
b. actual level of unemployment will equal the natural rate of unemployment.
c. strong demand for resources will place upward pressure on resource prices.
d. aggregate demand will increase until full employment is restored.
What effect does expansionary monetary policy have on short-term real interest rates?
a. Expansionary monetary policy tends to push short-term interest rates upward.
b. Expansionary monetary policy tends to push short-term interest rates downward.
c. The effect of expansionary monetary policy on short-term interest rates is
unpredictable.
d. Expansionary monetary policy has no effect on short-term interest rates.
As the economy recovered from the 2008-2009 recession during 2010-2013 the
employment/population ratio
a. rose sharply during the expansion.
b. remained well below the rates achieved prior to the recession.
c. remained well above the rates achieved prior to the recession.
d. rose even though the labor force participation rate was declining.
Suppose external costs are present in a market which results in the actual market price
of $24 and market output of 325 units. How does this outcome compare to the efficient,
ideal equilibrium?
a. The efficient outcome would be greater than 325 units.
b. The efficient outcome would be less than 325 units.
c. The efficient outcome would also be 325 units.
d. The efficient price would be less than $24.
The expression “There’s no such thing as a free lunch” means
a. in an exchange, if one person gains, someone else must lose.
b. each person must pay for exactly what he or she receives.
c. the use of resources to meet one need means that those resources can no longer be
used to meet another need.
d. in an exchange, if one person gains, someone else must lose and equal amount.
The GDP of a country can be derived by summing
a. the expenditures on final user goods and services produced domestically during the
year.
b. the payments to employees and owners of capital resources and then subtracting
depreciation and indirect business taxes.
c. the market value of all goods and services produced domestically during the period
and then subtracting net exports from that figure.
d. the income payments to the resource suppliers and net exports.
Assume the United States can use a given amount of its resources to produce either 20
airplanes or 8 automobiles and Japan can employ the same amount of its resources to
produce either 20 airplanes or 10 automobiles. The U.S. should specialize in
a. airplanes.
b. automobiles.
c. both goods.
d. neither good.
If a government wanted to increase the prosperity of a nation, it could best serve this
goal by
a. protecting domestic industries from international trade, thus encouraging domestic
growth.
b. regulating the way in which firms can operate.
c. reducing barriers that restrict the ability of potential competitors to enter markets.
d. subsidizing firms that are in danger of going out of business.
A car leasing company that expands its size by buying its competitors may run the risk
of increasing production costs due to
a. diseconomies of scale.
b. economies of scale.
c. diminishing returns.
d. greater use of large-volume purchases.
Licensing is a process in which a firm wanting to enter a market must
a. require all potential customers to obtain government permission to purchase the
product.
b. notify the government within a certain period after it has entered the market.
c. pay all overdue taxes before entering the market.
d. obtain permission from the government to enter the market.
The share of the labor force that was unionized fell from more than 30 percent in the
1950s to less than 15 percent in the 2000s. During this time period, the share of national
income allocated to labor (in contrast to capital)
a. decreased by approximately 10 percent.
b. decreased by more than 15 percent.
c. increased by 10 percent.
d. was virtually unchanged.
Which of the following most accurately states the importance of technology as a source
of economic growth for less-developed countries?
a. Restraints imposed by the slow advancements in modern technology have severely
constrained the growth of less-developed countries.
b. If modern technology was the only requirement for economic growth, less-developed
countries would be growing rapidly.
c. Most less-developed nations have the necessary complementary factors of production
to make good use of modern technology if they could just afford the complex machines.
d. While modern technology has increased the income levels in less developed
countries, it has been unable to improve living standards.
Which of the following factors will reduce considerably the ability of a union to raise
the wages of its workers?
a. an elastic demand for the goods produced by union labor
b. weak foreign competition for the product union labor helps to produce
c. high tariffs on goods produced by the union labor
d. favoritism in the allocation of government contracts to firms that employ union labor
Which of the following is a problem that arises when regulations force “natural
monopolies,” like electric utilities, to charge a price that is equal to their marginal cost
(MC)?
a. This price will force the firms out of business in the long run.
b. The firms have an incentive to pad their fixed costs.
c. When price is equal to MC, new firms will enter the industry and drive up the costs
of production.
d. Both b and c are correct.
As the price of a resource decreases,
a. demand for that resource increases.
b. the quantity demanded of that resource decreases.
c. the supply of that resource increases.
d. producers are more willing and able to hire that resource.
e. producers are less willing and able to hire that resource.
If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners
and foreign goods become ____ expensive to U.S. citizens.
a. less; less
b. less; more
c. more; less
d. more; more
A firm’s level of investment is tied to the interest rate
a. only when the firm has to borrow funds to buy capital
b. only when the firm has to borrow funds to buy stocks
c. only when the firm already has the funds and could lend them
d. because the interest rate represents the opportunity cost of investing in capital
e. because investments are always made with borrowed funds
A decrease in the price of a good would
a. increase the demand for the good.
b. increase the quantity demanded for the good.
c. decrease the demand for the good.
d. decrease the quantity supplied of the good.
OECD data for 1960 through 1999 indicates that a 10 percent increase in government
expenditures as a percent of GDP
a. increases economic growth by about 5 percent.
b. increases economic growth by about 2 percent.
c. has no effect on economic growth.
d. reduces economic growth by about 1 percent.
Which of the following would be most likely to improve the standard of living of a
less-developed country?
a. development of strong labor unions
b. more foreign investment, attracted by the expectation of economic and political
stability
c. adoption of trade barriers (higher tariffs and quotas)
d. widespread use of price controls to allocate goods and resources
If there is a surplus of loanable funds
a. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
During the 1965-2009 period, the price index of healthcare services
a. declined slightly relative to the overall consumer price index.
b. fell by approximately 50 percent compared to the overall consumer price index.
c. increased at twice the rate of the overall consumer price index.
d. rose during a brief period following the passage of Medicare and Medicaid but has
been relatively stable since that time.
If a nation is experiencing an inflow of capital and a balance of trade deficit, this is a
problem if
a. the capital inflow is channeled into productive projects.
b. the capital inflow is channeled into unproductive projects.
c. the country’s rate of unemployment is low.
d. the investment rate of the country is already high.
Automatic stabilizers will shift the government budget toward
a. a surplus during both expansions and contractions.
b. a deficit during both expansions and contractions.
c. a surplus during an expansion and a deficit during a contraction.
d. a surplus during a contraction and a deficit during an expansion.