Countries that persistently expand the supply of money at a rapid rate can expect to
experience
a. high rates of inflation
b. rapid economic growth.
c. lower interest rates.
d. low rates of unemployment.
A firm’s stock price will be higher when the interest rate is ____ and the value of the
firm’s expected future profits are ____.
a. lower; larger
b. lower; smaller
c. higher; larger
d. higher; smaller
The marginal productivity principle says that a profit-maximizing firm should
a. hire capital until its marginal product is zero.
b. hire labor until another worker costs more to hire than he can earn for the firm.
c. hire the quantities of capital and of labor at which their marginal products are equal.
d. hire capital until its marginal product is negative.
Other things equal, which of the following is true?
a. A reduction in prices will increase the real wealth of those holding a fixed quantity of
money.
b. A reduction in prices will lead to a decline in net exports.
c. A reduction in prices will increase the scarcity of money, raise the real interest rate,
and, thereby, encourage investment and consumption.
d. A reduction in prices will increase profit margins and, thereby, stimulate additional
investment.
Prolonged periods of monetary contraction, as was the case during the Great
Depression, will likely result in
a. an increase in real output and employment.
b. an increase in loanable funds and upward pressure on the rate of inflation.
c. a decrease in output and downward pressure on prices.
d. a decrease in unemployment and upward pressure on prices.
Which of the following contributed the most to the economic stability and strong
growth of real GDP during the 1980s and 1990s?
a. the rapid growth of government expenditures throughout most of the period
b. congressional policies that persistently balance the budget
c. modifications in fiscal policy that stimulated aggregate demand during economic
slowdowns and restrained it during periods of economic boom
d. Federal Reserve policies that kept the inflation rate low and relatively stable
In recent years, the Fed has generally set the discount rate
a. lower than the federal funds rate to help financially troubled banks get more solvent.
b. higher than the interest rate on 30-year fixed-rate mortgage loans.
c. higher than the federal funds rate for most banks.
d. equal to the rate of inflation.
Legislators often gain by bundling a number of projects benefiting local districts at the
expense of general taxpayers together on a single bill. Such legislation is called
a. market failure legislation.
b. the rational-ignorance effect.
c. public-goods legislation.
d. pork-barrel legislation.
Figure 15-2
If this economy’s distribution of income becomes more equal, then the Lorenz curve
shown in Figure 15-2 will
a. move closer to the 45 line.
b. become more bowed outward.
c. lie above the 45 line.
d. shift down and to the right.
Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal
interest rate then rises to 12 percent and the inflation rate to 8 percent. It follows that
the real rate of interest has
a. fallen.
b. remained the same.
c. risen to 8 percent.
d. risen to 10 percent.
In 2012, the combined expenditures of federal, state, and local governments in the
United States were approximately
a. 9 percent of GDP.
b. 24 percent of GDP.
c. 38 percent of GDP.
d. 45 percent of GDP.
Which of the following items is most likely to be an implicit cost of production?
a. the “competitive rate” salary the owner of the business pays herself for services
provided
b. property taxes on a building owned by the firm
c. rental payments for a building utilized by the company and rented from another party
d. the interest income foregone on the equity capital invested by owners
Which of the following groups would most likely benefit from a law that is extremely
tough on those who drink and drive?
a. truck drivers
b. taxi drivers
c. bartenders
d. doctors and nurses
A country such as the United States, which has a low saving rate and attractive
investment opportunities, will tend to experience a long-term
a. inflow of capital and a current account surplus.
b. inflow of capital and a current account deficit.
c. outflow of capital and a current account surplus.
d. outflow of capital and a current account deficit.
If the supply of a good increased, what would be the effect on the equilibrium price and
quantity?
a. Price would increase and quantity would decrease.
b. Price would decrease and quantity would decrease.
c. Price would increase and quantity would increase.
d. Price would decrease and quantity would increase.
During 2001-2012, the federal budget deficit
a. expanded and real government spending increased rapidly, indicating that fiscal
policy was restrictive.
b. expanded and real government spending increased rapidly, indicating that fiscal
policy was expansionary.
c. declined and real government spending fell, indicating that fiscal policy was
restrictive.
d. declined and real government spending fell, indicating that fiscal policy was
expansionary.
Investment in capital goods only makes sense when
a. the capital goods can be used to increase the future output of consumption goods.
b. the savings rate of a country is low.
c. the interest rate is high and people have a positive rate of time preference.
d. economies are organized along capitalist lines.
How will an increase in government expenditures during a recession be reflected in
GDP?
a. An increase in government spending will reduce aggregate demand and decrease
GDP.
b. An increase in government spending will not affect GDP.
c. An increase in government spending will increase GDP, but only if it is directed
toward economically productive projects.
d. The government spending will increase GDP even if the spending encourages rent
seeking and other unproductive activities.
Figure 5-4
Refer to Figure 5-4. The figure illustrates an industry that generates
a. external benefits.
b. external costs.
c. no externalities.
d. economies of scale.
Which of the following is true of a competitive price-searcher firm when the market is
in a long-run equilibrium?
a. MR < MC < price
b. MR < MC = price
c. MR = MC < price
d. MR = MC = price
If the supply of health care services is highly inelastic, programs that subsidize the cost
of purchasing medical services will
a. lead to higher prices for medical services.
b. lead to lower prices for medical services.
c. not affect the price of medical services.
d. help the buyers of medical services more than the sellers of those services.
Bart operates a lemonade stand in front of his house. His father works at the Springfield
Nuclear Power Plant. Which of the following is most likely to be true?
a. The long run is the same for the power plant as it is for the lemonade stand.
b. The long run is longer for the power plant than it is for the lemonade stand.
c. The long run is shorter for the power plant than it is for the lemonade stand.
d. We cannot compare the long runs because these are different businesses.
e. It’s impossible for the power plant short run to be shorter than the lemonade stand’s
long run.
Detailed studies indicate that, on balance, the Social Security retirement system
a. redistributes a substantial amount of income from the rich to the poor.
b. redistributes a substantial amount of income from whites to blacks.
c. is particularly advantageous to those with a shorter life expectancy.
d. is not particularly advantageous to the poor due to their shorter life expectancy.
Use the figure to answer the following question(s).
Figure 8-9
Using Figure 8-9, calculate the firm’s approximate total cost when average total cost is
at a minimum.
a. $100
b. $160
c. $480
d. $600
Dumping is
a. the sale of a good by a foreign supplier in another country at a price below that
charged by the supplier in its home market.
b. an inappropriate method for getting rid of byproducts from a production process.
c. a method to increase competitiveness in a market.
d. all of the above.
e. both a and c above.
If Noah thinks the last dollar spent on belts yields more satisfaction than the last dollar
spent on socks, and Smith is a utility-maximizing consumer, he should
a. decrease his spending on socks.
b. decrease his spending on socks and increase his spending on belts.
c. increase his spending on belts.
d. increase his spending on socks and decrease his spending on belts.
The substantial increase in household debt relative to income since the mid 1980s
meant that in 2008 many households
a. had little savings or other reserve assets for use to deal with unexpected expenditures.
b. could safely afford to purchase larger homes because housing is always a good
investment.
c. could spend everything they earned because their interest obligations on outstanding
credit were low.
d. would be able to easily adjust their current spending if their monthly payments on
adjustable rate mortgages rose.
When competition is present and property rights secure, people will be encouraged to
a. plunder the resources of others.
b. pay the lowest possible wages.
c. provide others with things that they value in exchange for income.
d. Invest in other countries where markets are less competitive and property rights less
secure.
Prior to the Great Depression, most economists believed that a recessionary downturn
would be reversed by
a. higher wages that would stimulate aggregate demand and reduce unemployment.
b. lower wages that would increase the quantity of labor demanded and reduce
unemployment.
c. an expansionary monetary policy on the part of the Federal Reserve System.
d. an increase in government spending that would stimulate aggregate demand and
employment.
The economy is considered to be at full employment when
a. the actual rate of unemployment is less than the natural rate.
b. the leading economic indicators are unchanged for two consecutive quarters.
c. structural unemployment is zero.
d. frictional plus structural unemployment is less than the natural rate.
e. the rate of cyclical unemployment is zero.
Proved reserves of tin have declined since 2000, but the price of tin has fluctuated for
the past six decades, with no obvious upward or downward trend. This indicates that
a. the world will run out of tin in a few years because the proved reserves have fallen.
b. short-term rises in demand and/or declines in the supply of tin have occurred over
time, but there is no reason to worry about running out of this resource in the
foreseeable future.
c. the demand for tin has been rising and the world will run out of tin in the future
unless there is a reversal of this trend.
d. the market price of tin will rise as miners discover more tin.
Use the production possibilities data below for Austria and Italy to answer the following
question(s).
Table 2-1
Refer to Table 2-1. According to the law of comparative advantage, both Austria and
Italy could gain if
a. Austria produced all of the food and clothing and Italy did not produce anything.
b. Austria specialized in producing clothing, Italy specialized in producing food, and
they traded.
c. Austria specialized in producing food, Italy specialized in producing clothing, and
they traded.
d. Italy and Austria were both were self-sufficient and did not trade.
Use the figure below to answer the following question(s).
Figure 4-7
Refer to Figure 4-7. The supply curve S1 and the demand curve D indicate initial
conditions in the market for gasoline. A $.60-per-gallon excise tax on gasoline is levied,
which shifts the supply curve from S1 to S2. Which of the following states the actual
burden of the tax?
a. $.50 for buyers and $.10 for sellers
b. $.50 for sellers and $.10 for buyers
c. The entire $.60 falls on sellers.
d. The entire $.60 falls on buyers.