An income tax is proportional if
a. the tax liability of high-income earners exceeds the tax liability of those with low
incomes.
b. the tax liability of high-income earners is less than the tax liability of those with low
incomes.
c. high-income earners pay a higher percentage of their incomes in taxes than those
with low incomes.
d. everyone pays the same percentage of their income in the form of income taxes.
Starting from a position of macroeconomic equilibrium at the full-employment level of
real GDP, in the short run an unanticipated increase in the money supply will
a. raise real interest rates, lower prices, and reduce real GDP.
b. raise real interest rates, lower prices, and leave real GDP unchanged.
c. raise nominal interest rates, lower prices, and leave real GDP unchanged.
d. lower real interest rates, raise prices, and increase real GDP.
Use the figure to answer the following question(s).
Figure 8-3
Using Figure 8-3, calculate the total variable cost of producing three units.
a. $10
b. $15
c. $30
d. $45
Americans needing foreign currencies get those currencies from a bank. The ultimate
source of these currencies is
a. U.S. investments abroad.
b. U.S. sales to foreign countries.
c. U.S. purchases of foreign goods, services, and assets.
d. the International Monetary Fund.
Which of the following will enter as a credit in the U.S. balance of payments capital
account?
a. the purchase of a Japanese automobile by a U.S. consumer
b. the sale of Japanese electronics to an American
c. the sale of an American baseball team to a Japanese industrialist
d. the purchase of a Japanese electronics plant by an American industrialist
If Japanese tourists visit Disney World, what is the effect in the foreign exchange
market?
a. It will increase demand for Japanese yen.
b. It will decrease demand for Japanese yen.
c. It will increase supply of Japanese yen.
d. It will decrease supply of Japanese yen.
Mr. Capps recently built a dental floss factory in Montana. It cost $500,000 and is
expected to last ten years. The plant can only be used to produce dental floss and will
have no scrap value. When a recession occurs, the yearly revenue from the plant
declines to $35,000, compared to costs of $25,000 just for the variable resources
required to produce the current rate of output. Mr. Capps should
a. shut down since he is experiencing economic losses (in other words, he will not get
his $500,000 back).
b. reduce the price of dental floss if his demand is inelastic in order to increase his
revenue.
c. raise the price of dental floss if his demand is elastic in order to increase his revenue.
d. continue to operate since he is covering his variable costs and the cost of the plant is
a sunk cost.
The Social Security Trust Fund
a. will provide a stream of future revenue for the federal government.
b. is a “pot” of money set aside for the payment of future benefits.
c. is a net asset of the U.S. Treasury worth approximately $2 trillion.
d. is of zero asset value to the federal government.
Firms that can choose what price they will charge for their product and can increase the
number of units sold by reducing price are called
a. price searchers.
b. price leaders.
c. purely competitive.
d. price takers.
Figure 3-21
Refer to Figure 3-21. At the quantity Q3,
a. the market is in equilibrium.
b. consumer surplus is maximized.
c. the sum of consumer surplus and producer surplus is maximized.
d. the value to buyers is less than the cost to sellers.
If a firm produces nothing, which of the following costs will be zero?
a. total cost
b. fixed cost
c. opportunity cost
d. variable cost
Suppose both the equilibrium price and quantity rise for a particular product. Which of
the following best explains this situation?
a. Supply and demand simultaneously increased and the shift in supply was greater than
the shift in demand.
b. Supply and demand simultaneously increased and the shift in supply was less than
the shift in demand.
c. Supply and demand simultaneously decreased and the shift in supply was greater
than the shift in demand.
d. Supply and demand simultaneously decreased and the shift in supply was less than
the shift in demand.
How would aggregate demand change if foreign incomes increase and the exchange
rate value of the dollar increases?
a. Neither change would affect aggregate demand.
b. The increase in income would decrease aggregate demand; the increase in the
exchange rate would increase aggregate demand.
c. The increase in income would increase aggregate demand; the increase in the
exchange rate would decrease aggregate demand.
d. Both changes would decrease aggregate demand.
Which of the following will cause the U.S. money supply to expand?
a. a commercial bank uses excess reserves to extend a loan to a customer
b. a commercial bank purchases U.S. securities from the Fed as an investment
c. an increase in reserve requirements
d. an increase in the discount rate
Economic analysis indicates minimum wage legislation has
a. made it possible for any teenager who wants to work to earn almost 80 percent as
much as an adult.
b. made it easier for teenagers to find jobs that offer the opportunity for training.
c. been an important source of increases in income since most workers earn at or near
the minimum wage.
d. reduced the on-the-job training opportunities available to teenagers.
Suppose the CPI was 95 in 1955, and suppose currently the CPI is 475. According to
the CPI, $100 today purchases the same amount of goods and services as
a. $20.00 purchased in 1955.
b. $33.33 purchased in 1955.
c. $47.50 purchased in 1955.
d. None of the above is correct.
If the exchange rate between the U.S. dollar and the Euro were 1.50 ($1.50 = one Euro),
what would be the price in dollars of a German automobile that cost 40,000 Euros?
a. $10,000
b. $20,000
c. $60,000
d. $200,000
When competitive forces in an industry are weak,
a. the absence of competition generally leads to overproduction.
b. prices may exceed the amount consumers are willing to pay.
c. the operational efficiency of private firms will be enhanced.
d. higher prices and less than optimal production may result.
Government expenditures for Social Security and unemployment benefits are examples
of
a. government consumption.
b. government investment.
c. government purchases.
d. transfer payments.
If the dollar price of the English pound goes from $1.50 to $1.20, the dollar has
a. appreciated, and Americans will find English goods cheaper.
b. appreciated, and Americans will find English goods more expensive.
c. depreciated, and Americans will find English goods cheaper.
d. depreciated, and Americans will find English goods more expensive.
Which of the following would be most likely if firms in a competitive price-searcher
market were earning economic profit?
a. Production inefficiencies would persist until the profit was eliminated.
b. Firms would decrease their rate of output in the short run, causing a decline in
profitability in the market.
c. New firms would enter the market, resulting in fewer sales by existing firms.
d. All firms in the market would continue to produce at their current levels and continue
to charge the same price.
An increase in the exchange rate value of the U.S. dollar, relative to the Japanese yen,
will cause U.S. imports from Japan to
a. increase and exports to Japan to decrease.
b. increase and exports to Japan to increase.
c. decrease and exports to Japan to decrease.
d. decrease and exports to Japan to increase.
A local doughnut shop produces about 600 dozen doughnuts daily. If flour prices
increase 20 percent
a. only marginal cost will shift up.
b. only marginal cost and average total cost will shift up.
c. marginal cost, average variable cost, and average total cost will shift up.
d. marginal cost, average total cost, and average fixed cost will shift up.
Figure 11-20
At the profit-maximizing level of production, the monopoly in Figure 11-20 will have
total cost of
a. $264
b. $306
c. $216
d. $187
e. $176
If there is a shortage of nurses, it is expected that
a. wages for nurses will go up as hospitals try to fill these positions.
b. wages for nurses will go down because of the increased competition between
hospitals.
c. the return on the human capital investment of current nursing majors will decline.
d. wages for nurses currently practicing will increase, but new nurses will experience
lower wages in the future.
Relative to a situation where only a single price is charged, a seller that engages in price
discrimination will
a. charge consumers with an inelastic demand a lower price.
b. charge consumers with an elastic demand a higher price.
c. generally produce a larger total output.
d. decrease social welfare and make all consumers worse off.
A minimum wage that is set above a market’s equilibrium wage will result in
a. an excess demand for labor, that is, unemployment.
b. an excess demand for labor, that is, a shortage of workers.
c. an excess supply of labor, that is, unemployment.
d. an excess supply of labor, that is, a shortage of workers.
If marginal revenue exceeds marginal cost, a price-taker firm should
a. expand output.
b. reduce output.
c. lower its price.
d. do both a and c.
If the federal government is running a budget deficit,
a. the national debt will decline.
b. it will have to either raise taxes or reduce expenditures next year.
c. the U.S. Treasury will finance the deficit by issuing additional bonds.
d. the supply of money will increase and the general level of prices will rise.
The low interest rate policies of the Federal Reserve during 2002-2004,
a. indicated that monetary policy was highly restrictive.
b. increased the demand for housing, placing upward pressure on housing prices.
c. made home mortgages less attractive, weakening the demand for housing.
d. was on target with the federal funds rate proscribed by the Taylor rule.
Which of the following explains why monopoly is uncommon in the real world?
a. firms usually face downward-sloping demand curves.
b. supply curves slope upward.
c. price is usually set equal to marginal cost by firms.
d. there are reasonable substitutes for most goods.