Which of the following is true?
a. During any given year, the size of the economic pie available for allocation to
individuals is fixed.
b. When the link between worker productivity and reward is weakened, individuals
have less incentive to create income.
c. If they reduce income inequality, taxes and income transfers will not alter the
incentive of individuals to engage in productive activity.
d. The total output of an economy is unrelated to the distribution of income.
The recessionary phase of the business cycle is characterized by
a. decreasing real output and increasing unemployment.
b. decreasing real output and declining unemployment.
c. increasing real output and increasing unemployment.
d. increasing real output and declining unemployment.
Since 1802, the American stock market has yielded an average annual real return (the
return adjusted for inflation) of approximately
a. 3 percent.
b. 5 percent.
c. 7 percent
d. 11 percent.
An increase in the price of a resource would cause
a. producers to substitute other inputs for the resource.
b. consumers to increase consumption of the goods that increase in price as the result of
the higher resource price.
c. an increase in the demand for products that use the resource intensely.
d. a reduction in the price of goods produced with the resource.
According to international trade theory, a country can gain if it
a. imports goods when they can be purchased cheaper from domestic producers.
b. imports goods when foreigners are willing to pay higher prices than domestic
consumers.
c. specializes in producing those things it does best (produces at a low cost).
d. trades with high-income countries but not low-income countries.
The demand curve for money
a. shows the amount of money balances that individuals and businesses wish to hold at
various interest rates.
b. reflects the open market operations policy of the Federal Reserve.
c. shows the amount of money that individuals and businesses wish to hold at various
price levels.
d. reflects the discount rate policy of the Federal Reserve.
When the Fed buys bonds and injects additional reserves into the banking system, this
action will
a. place downward pressure on short-term interest rates.
b. cause many decision makers to expect that the future rate of inflation will fall.
c. place upward pressure on both short-term and long-term interest rates.
d. place upward pressure on short-term interest rates and downward pressure on
long-term interest rates.
When economists say that people choose rationally, this means
a. they gather all relevant information before making their purchases
b. once a pattern of behavior has been established, people tend to become set in their
ways
c. people respond in predictable ways to changes in costs and benefits
d. people rarely make errors when they are permitted to make transactions
e. once made, decisions are never reversed
The Great Depression was an era marked by
a. steady growth in GDP and a decline in the rate of unemployment.
b. a prolonged period of high unemployment and output substantially below its
potential.
c. a large decline in the stock market followed by a steady recovery.
d. a failure of expansionary monetary policy to stimulate output and employment.
Assume that Ava is a single parent who is in poverty. She receives food stamps and
Medicaid. For every $100 that she earns, Ava loses $20 of her food stamp benefits and
$15 in her Medicaid benefits. Ava’s implicit marginal tax rate from these two programs
is
a. 20 percent.
b. 30 percent.
c. 35 percent.
d. 45 percent.
Which of the following would be most likely to help the residents of a nation produce a
larger output and consume a wide variety of products at economical prices?
a. imposition of tariffs on imported goods
b. quotas that protect domestic businesses against foreign producers that pay workers
low wages
c. free trade
d. exchange rate controls
Economists refer to the lack of incentive that voters have to search for and obtain
information to help make better political choices as the
a. shortsightedness effect.
b. public-interest effect.
c. free rider problem.
d. rational-ignorance effect.
Compared to investing in physical capital, human capital investments are more likely to
be influenced by
a. nonmonetary considerations.
b. depreciation rates.
c. the rate of return.
d. opportunity costs.
Under adaptive expectations, the short-term effect of an unanticipated shift to a more
expansionary macroeconomic policy will be a
a. temporary reduction in the unemployment rate.
b. permanent reduction in the unemployment rate.
c. temporary reduction in the inflation rate.
d. permanent reduction in the inflation rate.
Which one of the following is least likely to influence the investment choices of
decision makers?
a. the pure interest yield
b. the expectation of profit
c. the risk associated with the investment
d. the general level of prices
Which of the following is an important lesson that can be drawn from the experience of
the Great Depression?
a. Frequent shifts in monetary policy can help smooth out unstable economic conditions
during a recession.
b. Trade restrictions can “save jobs” and expand total employment during an economic
downturn.
c. The good intentions of political decision-makers are no substitute for sound policy.
d. The federal government should always balance its budget during a recession.
Between 1960 and 2012, the share of federal spending allocated to national defense
a. declined sharply, while the share allocated to health care increased substantially.
b. rose sharply, while the share allocated to health care declined substantially.
c. was relatively constant, while the share allocated to health care declined modestly.
d. declined modestly, while the share allocated to health care was relatively constant.
When the Fed conducts expansionary monetary policy, lower short-term interest rates
will tend to stimulate the economy. How will the change in the velocity of money affect
this result?
a. Velocity will decline, enhancing the stimulus effect.
b. Velocity will increase, somewhat dampening the stimulus effect.
c. Velocity will increase, enhancing the stimulus effect.
d. Velocity will decline, somewhat dampening the stimulus effect.
In economic theory, the word “demand” refers to
a. the amount people are willing to purchase at various prices.
b. those wants or needs that are urgent or pressing.
c. wants that are economic in character rather than social, cultural, or spiritual.
d. the desire of persons for a good, regardless of whether they’re willing to purchase the
good.
If a major hurricane were to destroy the sugarcane crop in Louisiana, there would be
a. a decrease in the supply of sugarcane.
b. an increase in the supply of sugarcane.
c. a decrease in the demand for sugarcane.
d. an increase in the demand for sugarcane.
In the short run, a perfectly competitive firm will always shut down if total revenue is
____ at all positive output levels.
a. less than total cost
b. less than total cost but greater than variable cost
c. less than total cost but greater than fixed cost
d. greater than fixed cost
e. less than variable cost
During the recession of 2008-2009, the length of time qualified workers were permitted
to draw unemployment benefits was increased from 26 to up to 99 weeks. Economic
theory indicates that this extension would
a. reduce the opportunity cost of job search and lead to longer spells of unemployment.
b. increase the opportunity cost of job search and lead to shorter spells of
unemployment.
c. reduce the long-term rate of unemployment.
d. increase the current supply of labor and make it easier for employers to hire workers.
Which of the following is true for a constant cost industry?
a. The total cost of producing 500 units will be the same as the total cost of producing
250 units.
b. If 100 units can be produced for $500, then 200 units can be produced for $1,000.
c. The demand curve and, therefore, the unit price in the industry are constant.
d. Firms in the industry will hold output constant if the price of the product increases.
Suppose the actions of the producers of a good impose an external cost which results in
the actual market price of $18 and market output of 400 units. How does this outcome
compare to the efficient, ideal equilibrium?
a. The efficient price would higher than $18 while the efficient output would be less
than 400 units.
b. The efficient price would be higher than $18 while the efficient output would be
greater than 400 units.
c. The efficient price would be lower than $18 while the efficient output would be less
than 400 units.
d. The efficient price would be lower than $18 while the efficient output would be
greater than 400 units.
If a customer deposits $1,000 cash into her checking account, the bank’s
a. assets rise by $1,000 and liabilities fall by $1,000.
b. assets fall by $1,000 and liabilities rise by $1,000.
c. assets and liabilities both fall by $1,000.
d. assets and liabilities both rise by $1,000.
e. profits rise by $1,000.
If a sandwich shop near campus increases its prices by 5 percent, but revenues from its
sales are unchanged, the price elasticity of demand for the services offered by the
sandwich shop must be
a. elastic.
b. of unitary elasticity.
c. inelastic.
d. equal to 0.5.
Whenever average total cost exceeds marginal cost,
a. average total cost is rising.
b. average total cost is falling.
c. marginal cost is rising.
d. marginal cost is falling.
Long-lasting resources used to expand the production of goods and services in the
future are called
a. consumables.
b. capital goods.
c. consumer durables.
d. inventories.
If equilibrium is present in the foreign exchange market and a nation is experiencing a
trade surplus,
a. the nation must be experiencing a net capital inflow.
b. the nation must be experiencing a net capital outflow.
c. the nation’s inflation rate must increase.
d. the nation’s interest rate must increase.
Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and
1820, but by 2003, life expectancy had risen to
a. 36 years.
b. 44 years.
c. 52 years.
d. 64 years.
A depreciation in the U.S. dollar on the foreign exchange market will
a. make U.S. exports more expensive to foreigners.
b. make imports less expensive for U.S. consumers.
c. make U.S. exports cheaper for foreign consumers.
d. encourage U.S. consumers to travel abroad.
Income supplements large enough to significantly increase the economic status of poor
people will
a. encourage behavior that increases the risk of poverty.
b. create high implicit marginal tax rates that reduce the incentive of transfer recipients
to earn.
c. provide low-income recipients with a strong incentive to work and increase their
earnings so they will not be dependent on income transfers.
d. do both a and b.
At a discount rate of 10 percent, what is the net present value of an investment expected
to yield $1,000 per year (to be received at year end) for the next two years?
a. $1,859.41
b. $1,801.23
c. $1,735.54
d. $1,527.78
During 1960-1980, those with the highest incomes confronted federal marginal tax rates
between 70 and 90 percent. Since 1986, the highest federal income tax rate has been
less than 40 percent. Since 1986, the share of the personal income tax collected from
the top one-half of one percent of earners has been
a. substantially lower than during the 1960s and 1970s.
b. only slightly lower than during the 1960s and 1970s.
c. virtually the same as during the 1960s and 1970s.
d. higher than during the 1960s and 1970s.