Why might an expansion in government spending increase the severity of the
coordination problem during a recession?
a. Increases in government spending will not affect the composition of aggregate
demand.
b. Congress is unlikely to approve increases in government spending during a recession.
c. Spending increases will be driven by political considerations and will often flow into
areas where resources are already fully employed.
d. Government spending can be counted on to flow toward high productivity projects.
When government debt is financed internally, future generations will
a. inherit a higher tax liability without additional interest income.
b. inherit neither higher taxes nor additional interest income.
c. inherit both higher taxes and additional interest income.
d. receive lower interest income and a lower tax liability.
The short run sequence of events following an unanticipated shift to a more restrictive
monetary policy would be
a. lower interest rates, decrease in aggregate demand, and a reduction in output.
b. lower interest rates, increase in aggregate demand, and an expansion in output.
c. higher interest rates, decrease in aggregate demand, and a reduction in output.
d. higher interest rates, increase in aggregate demand, and an expansion in output.
Entrepreneurs are
a. profit-seeking decision makers who decide which business projects to undertake.
b. people who loan money to other business decision makers.
c. managers who generally work for a salary because they are unwilling to take risks.
d. none of the above.
If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the
maximum amount of checkable deposits the bank can have if excess reserves are zero is
a. $100,000.
b. $80,000.
c. $300,000.
d. $20,000.
e. $200,000.
Use the table below to answer the following question.
What is the marginal cost of producing the third unit of output?
a. $20
b. $44
c. $70
d. This cannot be determined from the data.
In a representative democracy, government action results from the
a. choices of voters.
b. legislative decisions by politicians.
c. political action of organized interest groups.
d. complex interaction of all of the above.
A movement along a demand curve
a. is called a change in demand.
b. is the result of a change in the price of the good.
c. can be caused by many things.
d. means the product is inelastic.
Which of the following occurs when a shortage occurs in the market for a good?
a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the
price up, which in turn encourages more production and less consumption.
b. Quantity supplied exceeds quantity demanded and the price falls, which encourages
more production and less consumption.
c. Quantity demanded exceeds quantity supplied and the market mechanism pushes the
price down, which encourages more production and less consumption.
d. Quantity supplied exceeds quantity demanded and the price rises, which encourages
more production and less consumption.
Suppose there are only two goods in the world, corn and shirts. If it is true that with its
vast resources the United States could produce both more corn and more shirts than
Mexico,
a. Mexico will never have a comparative advantage and, thus, can never gain from
trading with the United States.
b. trade between the United States and Mexico will make the United States better off
but will leave Mexico worse off unless the wage of workers in Mexico rises to equal
that of American workers.
c. total production of corn and shirts cannot be increased through specialization and
trade.
d. both countries will be able to gain from specialization and trade as long as relative
costs of producing the two goods are different in Mexico than in the United States.
Currently, the Federal Reserve earns approximately $30 billion of interest annually on
its holdings of government bonds. Only a small portion of these earnings is required to
cover the Fed’s operating costs. The remainder of these earnings is
a. distributed to the member banks of the Federal Reserve system.
b. invested in corporate stocks held by the Fed.
c. returned to the U.S. Treasury.
d. loaned to commercial banks.
Which of the following provides the strongest evidence that the corporate form of
business structure is relatively cost efficient in many industries?
a. the ability of the corporate business structure to compete effectively in most
industries with other forms of business structure
b. the fact that nearly three of every four businesses in the United States is an individual
proprietorship
c. the fact that economic theory indicates corporate managers have some leeway to
pursue their own interests at the expense of greedy capitalists
d. the ability of some corporate managers to achieve high salaries even though the firms
they are directing are not earning economic profit
The resource market is important from a macroeconomic perspective because
a. it coordinates the allocation of productive resources and determines the costs of
production.
b. it determines the interest rates faced by borrowers and lenders.
c. inflation rates are set in the resource market by the government.
d. resource prices determine the position of the long-run aggregate supply curve.
When property rights are well defined and markets are competitive,
a. the total gains from trade (the combined area of producer and consumer surplus) are
maximized at the market equilibrium.
b. the market equilibrium is consistent with economic efficiency in that all units
creating more benefit than cost have been produced.
c. the market will automatically move toward the price and quantity where the quantity
supplied and the quantity demanded are in balance.
d. all of the above are true.
One of the widely-acknowledged problems with the consumer price index (CPI) as a
measure of the cost of living is that the CPI
a. fails to account for consumer spending on housing.
b. accounts only for consumer spending on food, clothing, and energy.
c. fails to account for the fact that consumers spend larger percentages of their incomes
on some goods and smaller percentages of their incomes on other goods.
d. fails to account for the introduction of new goods.
Which of the following would constitute the strongest evidence of employment
discrimination against female employees?
a. The average wage of female workers is lower than the average wage of males.
b. The average wage of female employees is lower than the average wage of males with
similar productive characteristics.
c. The mean number of years of schooling of female workers is lower than that of
males.
d. The average hours worked by female employees is less than the average hours
worked by males.
Excess reserves are
a. checking deposits that are included in the M1 money supply but not the M2.
b. savings deposits that are included in the M2 money supply but not the M1.
c. actual reserves held by banks that exceed the legal requirement.
d. the portion of deposits that banks are required by the Fed to hold as reserves against
their deposits.
Which of the following statements is true regarding potential information problems
faced by consumers?
a. Sellers have little incentive to inform customers about their products.
b. The market provides consumers with a strong incentive to acquire information.
c. Information problems tend to be most problematic for items consumers purchase
regularly.
d. In markets, people make all decisions with full information.
A competitive price-taker firm would be willing to remain in the industry in the long
run at zero economic profit because
a. it would find it too difficult to exit from the industry in the long run.
b. accounting profit would be negative.
c. it is covering all costs, including the opportunity cost of capital and labor.
d. its sunk costs would prevent it from leaving the industry.
When a price ceiling prevents a higher market price from rationing a good,
a. a surplus of the good will develop.
b. scarcity of the good will be eliminated.
c. non-price factors will play a more important role in the rationing process.
d. the future supply of the good will expand rapidly.
Figure 15-1
As shown in Figure 15-1, 60 percent of families earned a cumulative share of about
____ of income.
a. 5 percent
b. 15 percent
c. 30 percent
d. 50 percent
Economists who believe that market economies are inherently unstable argue that the
crisis of 2008 was primarily the result of
a. the expansionary policies of the Fed that caused the housing boom.
b. housing regulations that undermined sound lending practices.
c. the leveraged lending practices of banks and the fear that retarded both consumption
and investment in the latter half of 2008.
d. persistently high interest rates during the decade leading up to the crisis.
If you go to the bank and notice that a dollar buys more Mexican pesos than it used to,
then the dollar has
a. appreciated. Other things the same, the appreciation would make you less likely to
travel to Mexico.
b. appreciated. Other things the same, the appreciation would make you more likely to
travel to Mexico.
c. depreciated. Other things the same, the depreciation would make you less likely to
travel to Mexico.
d. depreciated. Other things the same, the depreciation would make you more likely to
travel to Mexico.
Fiat money is money
a. that has little intrinsic value and is not backed by a commodity.
b. that is not included as part of the M1 money supply.
c. that is backed by gold or silver held on reserve by the government.
d. such as coins that are made from metal.
Why did the monetary base increase rapidly during the economic crisis of 2008?
a. The Fed sold financial assets and extended fewer loans.
b. The Fed increased both its purchase of assets and quantity of loans extended.
c. The Fed increased its purchases of assets, but offset this with an increase in the
reserve requirement.
d. The Fed sold financial assets, but offset this with a reduction in the reserve
requirement.
A natural monopoly is a market where
a. a single firm has control over a vital natural resource.
b. many smaller firms can produce the entire market output at the same per-unit cost as
could one large firm.
c. a single large firm can produce the entire market output at a lower per-unit cost than a
group of smaller firms.
d. many smaller firms can produce the entire market output at a lower per-unit cost than
could one large firm.
The rational-ignorance effect is a result of
a. externalities that lead to an excess supply of information.
b. the limited incentive of the news media to cover political campaigns.
c. the expectation of individual voters that their vote will not be decisive.
d. the lack of a college education on the part of most voters in the United States.
Figure 18-3
Figure 18-3 displays the international currency market for yen in terms of dollars and
dollars in terms of yen. The demand curve in graph (A) is comprised of
a. U.S. citizens attempting to purchase Japanese-made goods.
b. Japanese attempting to purchase U.S.-made goods.
c. U.S. businesses attempting to sell to the Japanese.
d. Japanese businesses attempting to sell to the U.S.
e. the U.S. government attempting to unload dollars to the international market.
Other things constant, a decrease in consumer income will
a. decrease the demand for large-screen television sets.
b. increase the demand for large-screen television sets.
c. cause a movement along the demand curve for large-screen television sets, but it will
not shift the demand curve.
d. have no impact on the quantity demanded or the demand curve for large-screen
television sets.
If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120
yen per U.S. dollar,
a. both the U.S. dollar and the yen have appreciated.
b. both the U.S. dollar and the yen have depreciated.
c. the U.S. dollar has appreciated and the yen has depreciated.
d. the U.S. dollar has depreciated and the yen has appreciated.
Which of the following is the best example of a public good?
a. a government-run health care system
b. the Walt Disney World amusement park
c. national defense
d. long-distance telephone service
During a recession, the actual rate of unemployment will be
a. less than the natural rate of unemployment.
b. greater than the natural rate of unemployment.
c. equal to the natural rate of unemployment.
d. unaffected by the economic contraction.
According to the rational expectations theory, which of the following will affect the
levels of output and employment?
a. expansionary monetary policy that is fully anticipated
b. contractionary monetary policy that is fully anticipated
c. changes in monetary policy that are unanticipated
d. changes in fiscal policy that are anticipated
An appreciation in the value of the dollar would
a. make U.S. goods less expensive to foreigners.
b. encourage U.S. consumers to buy more foreign goods.
c. increase the number of dollars that could be purchased with a Mexican peso.
d. discourage U.S. consumers from traveling abroad.
Why not designate the poorest 10 percent of the population as the official measure of
poverty?
What are some of the key economic factors that characterize countries with poor growth
records?
How has public policy influenced the incentives of consumers to economize and
suppliers to provide their services economically in the health-care industry?
What are the primary sources of economic growth? Why are our real incomes and
living standards today so much higher than those of our great grandparents 50 or 100
years ago? Why is the income per person so much higher in some countries than others?
Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
Economists maintain that the price of a product has no effect on demand. How can this
be true?
Why does the U.S. government maintain a monopoly in the delivery of first-class mail?
Does the Postal Service nevertheless face other forms of competition?
What is the law of comparative advantage, and why is it important in international
trade?
How does the text define economic efficiency? Is this an absolute or a relative
definition? Would another type of definition be preferable? Why or why not?
What is supply-side economics, and how does it differ from the Keynesian emphasis on
fiscal policy?
From the viewpoint of economic growth, why is the legal structure of a country
crucially important? What are some of the key attributes of a legal system that will
encourage economic growth?
An economics professor points to a student in the front row and announces that “sitting
in class is the thing you value most during this time period.” Is the professor correct?
Why or why not?
Market economies are often criticized for how they answer the basic question, “For
whom are goods produced?” This criticism usually comes from people who believe that
the distribution of income is not “fair.” Is there some way to separate production from
distribution so that we can leave production just as it is but make the distribution of
income “fairer”?
The park in Hammerhead, Florida, built to honor the city’s founding father, General
Hammerhead, is starting to deteriorate. It would take about $5,000 to restore the
General’s statue, repair the benches, and repair the fountain, but the city budget is tight.
Also, the deterioration is not that noticeable. Mayor Grouper suggests delaying the
repair until after the election, three years away. City Councilwoman Halibut notes that
by then the park will be dilapidated, and repairs will cost $25,000. From a public choice
perspective, what is the likely outcome of this debate?
How do growth rates vary across countries? Are the rich countries getting richer while
the poor are getting poorer?
What are the three reasons why the aggregate demand curve slopes downward? Give an
example of each.
Some people inherit money and wealth that they did nothing to earn. Why don’t we tax
inheritance at 100 percent?
Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath
and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad
breath and dull teeth. Is there a role for the public sector in this situation?
What is the index of leading indicators, and what is it used for?