When consumers substitute a cheaper good for a more expensive one, the CPI will
______ the change in the cost of living.
A. equal
B. understate
C. precisely measure
D. overstate
Suppose that all workers value a 1 percent reduction in the workplace injury rate at
$1,000 per year. The cost of reducing the injury rate by 1 percent is $200 per year for
each worker. Firms currently pay $20,000 per year to workers, without any effort to
improve safety. If new firms began to offer workers $19,500 and a 1 percent reduction
in the injury rate, then:
A. no workers would be willing to work at the new firms.
B. the new firms would not be able to compete with the existing firms.
C. workers would want to work at the new firms.
D. only injury prone workers would want to work at the new firms.
The practice of increasing a nominal quantity each period by an amount equal to the
percentage increase in a specified price index is called:
A. a substitution bias.
B. the Fisher effect.
C. deflating.
D. indexing.
In a free market economy, the decisions of buyers and sellers are:
A. random.
B. motivated by custom and tradition.
C. coordinated by the government.
D. guided by prices.
According to Okun’s law, when cyclical unemployment is positive, the output gap:
A. is positive.
B. is negative.
C. equals zero.
D. equals the rate of cyclical unemployment.
Refer to the table below. Martha’s opportunity cost of making of a pie is:
A. 3/4 of a cake.
B. 4/3 of a cake.
C. 8 cakes.
D. 80 cakes.
Peg’s Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011.
The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year,
Peg’s contribution to real GDP in 2010 was ______ and in 2011 was _____.
A. $80,000; $88,000
B. $80,000; $90,000
C. $80,000; $99,000
D. $88,000; $90,000
At the household level, higher saving rates lead to ______ and greater economic
security.
A. greater current consumption
B. greater wealth
C. less wealth
D. less current income
Suppose there are three power-generating plants, each of which has access to 5 different
production processes. The table below summarizes the cost of each production process
and the corresponding number of tons of smoke emitted each.
process
Suppose the government imposes a tax of $21 on each ton of smoke emitted. To
minimize costs, Firm X will emit ______ tons; Firm Y will emit ______ tons, and Firm
Z will emit ______ tons.
A. 1; 2; 3
B. 2; 3; 4
C. 3; 4; 4
D. 1; 2; 4
If domestic saving is greater than domestic investment, then a country will have a
______ and positive net capital ______.
A. trade deficit; outflows
B. trade deficit; inflows
C. trade surplus; inflows
D. trade surplus; outflows
Hyperinflation is:
A. frequently experienced in the United States.
B. very erratic inflation.
C. an extremely high rate of inflation.
D. an extremely low rate of inflation.
If the interest rate in the U.S. falls, U.S. financial assets become ______ attractive to
buyers and the ______ U.S. dollars will fall.
A. more; demand for
B. more; supply of
C. less; demand for
D. less; supply of
The Coase theorem implies that the initial allocation of property rights:
A. determines all aspects of the final outcome of the negotiated agreement.
B. does not determine which person will be entitled to engage in the externality
generating activity, but does determine which person will receive compensation.
C. determines which person will be entitled to engage in the externality generating
activity, but does not affect which person will receive compensation.
D. must be assigned to the person with the greatest costs.
Refer to the figure below. For Pat, the opportunity cost of planting one bulb is
removing:
A. 20 bags of trash.
B. 5 bags of trash.
C. 1/20 of a bag of trash.
D. 1/5 of a bag of trash.
Workers in durable-goods industries are ______ workers in service industries to lose
their jobs during a recession.
A. much less likely than
B. more likely than
C. less likely than
D. equally likely as
In order to maximize its profits, a firm that hires workers in a perfectly competitive
labor market will hire workers until the:
A. extra revenue generated from hiring another worker equals the extra profit from
hiring that worker.
B. extra revenue generated from hiring another worker equals the extra cost of hiring
that worker.
C. the marginal wage rate equals marginal product of the last worker.
D. the marginal product of labor begins to decline.
When the interest rate in the U.S. rises, U.S. financial assets:
A. become less attractive to foreign buyers.
B. become more attractive to both foreign and domestic buyers.
C. become less attractive to both foreign and domestic buyers.
D. become less attractive to domestic buyers and more attractive to foreign buyers.
Assume that the share of population employed in all countries is 50 percent. Based on
the information in the table, which country has the smallest real GDP per capita?
A. Country A
B. Country B
C. Country D
D. Country E
Fiscal policy includes:
A. tax policy only.
B. government expenditures only.
C. tax policy and government expenditures.
D. tax policy, government expenditures, and monetary policy.
The figure below shows Ava’s demand curve for days in the hospital. The marginal cost
of an additional day in the hospital is $200.
Compared to when Ava has to pay the entire marginal cost of spending a day in the
hospital, what is the loss in total economic surplus that would result from Ava having a
first-dollar insurance plan?
A. $100
B. $200
C. $300
D. $400
When Taylor raised the price of earrings at Taylor’s Boutique, her total revenue from
selling earrings increased. This suggests that:
A. the demand for Taylor’s earrings at the original price was elastic.
B. there are many other boutiques competing with Taylor.
C. there was excess demand for earrings at the original price.
D. the demand for Taylor’s earrings at the original price was inelastic.
The following payoff matrix shows the outcomes for the Unites States and Russia from
relying on conventional weapons versus atomic weapons in a military conflict. The
percentages refer to the fraction of the population that would die.
The Nash equilibrium outcome of this game is for:
A. both countries to have conventional weapons.
B. both countries to have atomic weapons.
C. Russia to have atomic weapons and the US to have conventional weapons.
D. the US to have atomic weapons and Russia to have conventional weapons.
Higher real income ______ the demand for money and a higher price level ______ the
demand for money.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
A price index measures:
A. the price of specific good or service.
B. the change in the price of a specific good or service.
C. only the prices that change.
D. the average price of a given class of goods or services relative to the price of the
same goods and services in a base year.
A fiscal policy action to close a recessionary gap is to:
A. increase taxes.
B. increase transfer payments.
C. decrease government purchases.
D. decrease the marginal propensity to consume.
Labor income in the U.S. equals approximately ______ of GDP.
A. one third
B. two fifths
C. one half
D. two thirds
Holding other factors constant, if a tax increase moves the government budget from
deficit to surplus, then the real interest rate will ______ and the equilibrium quantity of
national saving and investment will ____.
A. increase; increase
B. decrease; decrease
C. increase; not change
D. decrease; increase
The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation
between 1930 and 1931 was ______ percent.
A. -13.3
B. -11.8
C. 1.5
D. 11.8
A rational public health policy would expand the proportion of the population
vaccinated:
A. whenever the marginal social benefit of an additional vaccination is positive.
B. until the marginal cost of an additional vaccination equals the marginal social benefit
of an additional vaccination.
C. until the marginal cost of an additional vaccination equals the marginal private
benefit of an additional vaccination.
D. until the marginal social benefit of an additional vaccination equals the marginal
private benefit of an additional vaccination.
The sum of the possible outcomes of a gamble multiplied by their respective
probabilities is known as:
A. a fair gamble.
B. the variance of the gamble.
C. a better-than-fair gamble.
D. the expected value of the gamble.
The absence of which of the following leads to constant shortages and shoddy goods
under communism?
A. Import restrictions
B. Free markets
C. Central planning
D. Structural policy
The beginning of a recession is called the:
A. depression.
B. expansion.
C. peak.
D. trough.
Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total
cost is ______ and total fixed cost is ______.
A. $2; $2
B. $4; $2
C. $4; $2,000
D. $4,000; $2,000
A negative demand shock will shift the ______ curve to the ______.
A. AD; left
B. AD; right
C. AS; left
D. AS; right