If the firm’s marginal physical product is 8, and its handicrafts sell for $70, at a labor
cost of $150, the firm is operating
a. short of an optimal input point.
b. at the optimum input point.
c. beyond the optimum input point.
d. There isn’t enough information to determine if the input point is optimal.
When interest rates increase, banks will normally
a. increase lending, but decrease deposits and the money supply.
b. increase lending, deposits, and the money supply.
c. decrease lending, but increase deposits and the money supply.
d. decrease lending, deposits, and the money supply.
Suppose that a community seeks to preserve air quality, and zones a “green belt” around
the city which prevents property development within the belt. What is the most likely
result of this law?
a. Interest rates will increase.
b. Labor income will increase.
c. Economic rent will increase.
d. Profits will increase.
Real GDP is another term for
a. current dollar GDP.
b. actual GDP.
c. constant dollar GDP.
d. tangible GDP.
When (if at all) are budget deficits inflationary?
a. when AS is perfectly horizontal
b. when AS has a very steep slope
c. when AS has a downward slope
d. when AS intersects AD
A productivity increase is illustrated by a shift in the production function
a. downward.
b. leftward.
c. upward.
d. rightward.
In 1975, Congress passed a tax rebate to spur consumer spending. Consumers:
a. spent the entire amount of the tax savings, boosting the economy, as planned
b. did not spend any of the amount of the tax savings
c. saved a substantial share of the tax savings and spent the rest
d. saved a small portion of the tax savings, and spent the rest
Businesses in the United States cut their investment projects by $30 billion. If the MPC
is 2, what will be the impact on the national income (Y)?
a. Y will fall by $15 billion.
b. Y will fall by $30 billion.
c. Y will fall by $60 billion.
d. Y will fall by $120 billion.
Workers in Adam Smith’s famous pin factory example, who were proficient in pin
production, then faced the problem of
a. too many different tasks.
b. becoming bored with their jobs.
c. having to exchange pins for other goods and services.
d. not having enough pins to purchase other goods and services.
Which of the following would be counted as investment in the national income
accounts?
a. the purchase of a newly issued stock
b. the purchase of a newly built apartment house
c. the purchase of a newly minted coin
d. the payment of tuition at a private college
Using the standard 45-degree line diagram, how does an increase in autonomous
consumption effect the expenditure schedule?
a. It shifts the expenditure schedule downward.
b. It shifts the expenditure schedule upward.
c. It increases the slope of the expenditure schedule.
d. It decreases the slope of the expenditure schedule.
If the Bush tax cuts were allowed to expire in 2010, the maximum personal income tax
rate in the United States would have moved above 50 percent.
a. True
b. False
An increase in wages will cause the aggregate supply curve to
a. shift outward.
b. shift inward.
c. become flatter.
d. become steeper.
For a perfectly competitive firm, marginal revenue equals average revenue because the
a. firm’s supply curve is horizontal.
b. industry’s demand curve is horizontal.
c. firm’s demand curve is horizontal.
d. industry’s supply curve is horizontal.
Low inflation rates and high inflation rates impose different costs on society.
a. True
b. False
Externalities are social costs that affect parties external to a particular economic
transaction.
a. True
b. False
The arithmetic difference between the nominal rate of interest and the expected rate of
inflation is the
a. expected interest rate.
b. real interest rate.
c. implied interest rate.
d. contractual interest rate.
Average real wages have not risen significantly since approximately 1973.
a. True
b. False
Contrary to most thinking, governments play ____ in causing pollution.
a. almost no role
b. a large but decreasing role
c. a major role
d. a reconstructive role
The demand curve for labor slopes downward because
a. few workers work at low wages.
b. capital has been substituted for labor in most industries.
c. of the diminishing marginal product of labor.
d. All of the above are true.
In highly contestable markets, increases in concentration will enhance market power.
a. True
b. False
Crowding out can best be defined as
a. higher interest rates caused by restrictive monetary policy, which reduces investment.
b. higher interest rates caused by restrictive monetary policy, which increases saving
and reduces consumption spending.
c. government budget deficits causing a drop in private borrowing because of higher
interest rates.
d. government budget deficits causing a drop in interest rates, which reduces private
saving.
Owners of buildings can expect to collect ____ economic rent in the long run.
a. much
b. marginal
c. a competitive
d. little or no
In a properly functioning free market
a. the price of any good reflects its marginal utility to consumers.
b. price will equal marginal cost.
c. the invisible hand will assure that society’s resources are used efficiently.
d. All of the above are correct.
Figure 10-2
Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm.
In the short run, this firm would
a. earn positive economic profits.
b. earn economic losses.
c. go out of business.
d. Cannot be determined with the information given.
Jorge, a computer programmer, was laid off when his firm went out of business. He
began to look for work, but was struck by a car and his hands and one leg were broken.
He is unable to use the computer to seek jobs, or to go to interviews for jobs. It is now
week 5 of 6 weeks in his cast. According to the current rules, Jorge will probably be
classified as:
a. employed
b. unemployed
c. out of the labor force
d. unemployable
The slope of the scatter diagram representing the relationship between consumption and
disposable income in the United States is approximately
a. 1.10.
b. 0.30
c. 0.50
d. 0.90
A tariff has one distinct advantage over a quota. It increases tax revenues to the
government.
a. True
b. False
A major contributor to the slowdown in U.S. labor productivity during the 1973-1995
period was
a. capital spending.
b. technological change.
c. labor force growth.
d. investment spending.
Explain the source of monopoly power for DeBeers’ Diamond Mine in South Africa,
Microsoft (owned by Bill Gates), the American Medical Association (which licenses
doctors), Polaroid’s Instant Picture Cameras, USAir (which owns virtually all the gates
at the airport in Charlotte, North Carolina), and electric utilities.
Table 10-2
Refer to Table 10-2. Which firm is better off staying in business in the short run?
a. Firm A
b. Firm B
c. Firm C
d. Firm D
The process of focusing on only the most important factors to explain a phenomenon is
called
a. abstraction.
b. marginal analysis.
c. rational choice.
d. controlled experimentation.
e. the trade-off between efficiency and equality.
David Ricardo discovered that two countries can still gain by trading even if one
country is more efficient in the production of every commodity. Ricardo’s discovery is
called the law of
a. comparative advantage.
b. absolute advantage.
c. compensating balances.
d. increasing returns.
A depreciating currency makes foreign inputs cheaper and shifts the aggregate supply
curve outward.
a. True
b. False