1) In game theory, credible threats can be used to maintain collusive agreements
between firms.
2) A budget deficit will require the government to issue bonds to fill in the gap in the
budget.
3) When U.S. households buy new imported European and Japanese cars, the total
value of the cars is counted as part of C in the GDP accounts.
4) As long as an additional unit of output yields a marginal revenue larger than its
marginal cost it will be adding to total profits of the firm.
5) An unexpected negative demand shock would lead to a decrease in inventories.
6) The primary purpose of the reserve requirements for banks is not really to ensure
liquidity to meet withdrawals, but rather to allow the Fed some control over the money
supply.
7) Labor market discrimination occurs when equivalent labor resources are paid or
treated differently even though their productive contributions are equal.
8) Real GDP measures the change in the price level over time.
9) The decision of the Federal Reserve to reduce the short-term interest rate will shift
the Security Market Line upward.
10) The multiplier value is the reciprocal of the marginal propensity to consume.
11) By requiring car producers to install emission control devices on cars, the
government forces these producers to internalize some of the external costs of auto
pollution. This will lead to the equilibrium price of cars:
A.Decreasing and the quantity increasing
B.Decreasing and the quantity decreasing
C.Increasing and the quantity increasing
D.Increasing and the quantity decreasing
12) Below are six statements. Indicate whether each one pertains to microeconomics
(MIC) or macroeconomics (MAC).
(a)”Last year, IBM was the U.S. business with the most patents registered with the U.S.
government.”
(b)”The U.S. economy grew at an annual rate of 4.2 percent last year.”
(c)”Snow in the northeast has reduced the number of holiday shoppers at clothing stores
and clothing prices are falling.”
(d)”More workers are being hired by the nation’s businesses.”
(e)”The U.S. economy imported more goods and services than it exported last year.”
(f)”New discoveries in medicine are leading to strong growth in the biotech industry.”
13) Which of the following statements concerning a pure public good is false?
A.It is impossible to exclude non-taxpayers from the enjoyment of the public good
B.All benefits associated with the production and use of a public good are received by
the government
C.The availability of a public good to one person simultaneously makes it available to
all members of society
D.The private sector does not have an economic incentive to produce a socially optimal
amount of a public good
14) Which is a valid counter-argument to the infant industry argument for protective
tariffs?
A.It results in too many benefits for domestic firms that export goods and services
B.It is difficult to determine which infant industries will become mature industries with
a comparative advantage
C.The objective would be better achieved through strategic trade policy
D.The objective would be better achieved by import quotas and nontariff barriers
15) Which of the following is a main source of increasing returns in recent years?
A.More learning by doing
B.The concentration of development costs
C.The use of less specialized inputs as firms grow
D.More resources devoted to agricultural production
16) Expanding per capita incomes in the United States have resulted in a(n):
A.More-than-proportionate increase in the demand for agricultural products
B.Proportionate increase in the demand for agricultural products
C.Less-than-proportionate increase in the demand for agricultural products
D.Absolute decline in the amount of agricultural products consumed
17) Attempts to alter incentives and contain health care costs include the following,
except:
A.Imposing a copayment or a deductible
B.Adopting managed-care systems, such as PPOs and HMOs
C.Universal coverage
D.Diagnosis-related-group (DRG) of Medicare
18) The demand curve of a monopolistically competitive producer is:
A.less elastic than that of either a pure monopolist or a pure competitor.
B.less elastic than that of a pure monopolist, but more elastic than that of a pure
competitor.
C.more elastic than that of a pure monopolist, but less elastic than that of a pure
competitor.
D.more elastic than that of either a pure monopolist or a pure competitor.
19) The graph below shows the supply and demand curves for dollars in the
pound/dollar market.
Refer to the graph above. Assume that D1 and S1 are the initial demand for and supply
of dollars. Now suppose that Great Britain increases its imports of American products.
Assuming freely floating exchange rates:
A.The pound price of dollars will fall to 1/5 pound equals $1
B.The pound price of dollars will rise to 1/4 pound equals $1
C.The dollar price of pounds will increase to $5 equals 1 pound
D.A dollar shortage of MN will result in Britain
20)
Refer to the above table. If the equilibrium price increases, then the:
A.Producer surplus will decrease
B.Consumer surplus will increase
C.Producer surplus will increase
D.Allocative efficiency will increase
21) A rightward shift of the investment demand curve will:
A.Shift the investment schedule downward
B.Shift the investment schedule upward
C.Decrease the quantity of investment
D.Decrease the real rate of interest
22) In response to the financial crisis that began in 2007, the government began to bail
out banks deemed “too big to fail.” Critics of this action argued that this would create
the prospect of future bailouts and encourage banks to be fiscally irresponsible in the
future. This illustrates:
A.the adverse selection problem.
B.the moral hazard problem.
C.the principal-agent problem.
D.logrolling.
23) Which expression is used to calculate the future value of an amount of money?
A.Present Value x (1 + interest rate)time
B.Present Value/(1 + interest rate)time
C.Present Value x (1 + time)interest rate
D.(1 + interest rate)time/Present Value
24)
Refer to the graph above. Suppose consumers do not know the safety risks associated
with a particular good, and that the free-market equilibrium is at E as shown in the
diagram above. If an independent agency now provides accurate information about the
harmful characteristics of the product, then:
A.The supply curve will shift to the left
B.The supply curve will shift to the right
C.Both the new equilibrium price and quantity will be lower
D.The new equilibrium price will be higher but the equilibrium quantity will be either
higher or lower
25)
Refer to the above graph of the supply and demand for agricultural products. Which of
the following best describes the long-run decline of the U.S. agricultural industry?
A.A shift in supply from S1 to S2 and a shift in demand from D2 to D1
B.A shift in supply from S1 to S3 and a shift in demand from D1 to D2
C.A shift in supply from S3 to S1 and a shift in demand from D1 to D3
D.A shift in supply from S1 to S2 and a shift in demand from D3 to D1
26) Farm outputs’ share of U.S. GDP from 1950 to the present:
A.Has stayed roughly constant at about 10%
B.Has dropped from about 30% to 10%
C.Has stayed roughly constant at about 30%
D.Has dropped from about 7% to 1%
27) The idea that money has “time value” refers to the fact that:
A.people prefer to receive a given sum of money in the future rather than in the present.
B.money can be used to purchase the services of labor, as measured in hourly units.
C.a specific amount of money is more valuable to a person the sooner it is received.
D.compound interest converts future dollars into a greater amount of current dollars.
28) A decrease in expected returns on investment will most likely shift the AD curve to
the:
A.Right because C will increase
B.Left because C will decrease
C.Right because Ig will increase
D.Left because Ig will decrease
29) Inflation in the short run is most likely to result from a(n):
A.Increase in aggregate demand or aggregate supply
B.Decrease in aggregate demand or aggregate supply
C.Increase in aggregate demand or a decrease in aggregate supply
D.Decrease in aggregate demand or an increase in aggregate supply
30) A gasoline station very near a professional football stadium parks cars on its lot to
make money on game days. Last year it charged $4.00 per car and parked 1000 cars.
This year it raised the parking price to $5.00 and parked 850 cars. Did the station owner
make a good economic decision in raising the parking prices from one year to the next?
Explain.
31)
32)
33) Give at least three reasons why U.S. workers supply so much more labor than
workers in France and other rich leader countries.
34)