Which of the following will decrease the demand for coffee?
a. the discovery that caffeine can cause heart problems
b. an increase in the price of coffee
c. an increase in the price of tea, a substitute for coffee
d. a decrease in the prices of coffee makers and coffee cups, complements to coffee
Suppose a restaurant that is highly profitable during the summer months is unable to
cover its total cost during the winter months. If it wants to maximize profits, the
restaurant should
a. shut down during the winter, even if it is able to cover its variable costs during that
period.
b. continue operating during the winter months if it is able to cover its variable costs.
c. go a out of business immediately; losses should never be tolerated.
d. lower its prices during the summer months.
If Mason’s marginal benefit derived from the consumption of another candy bar is
greater than the price of the candy bar,
a. Mason will not purchase any more candy bars.
b. Mason will increase his total satisfaction by purchasing the candy bar.
c. the opportunity cost of the candy bar is lower than the price.
d. Mason will decrease his total utility if he purchases the candy bar.
According to the theory of rational expectations, errors in predicting inflation will
a. be biased upward more often than not.
b. be purely random.
c. tend to be biased downward when inflation is rising, and tend to be biased upward
when inflation is falling.
d. tend to be biased upward when inflation is rising, and tend to be biased downward
when inflation is falling.
According to marginal analysis, you should spend more time studying economics if the
extra benefit from an additional hour of study
a. is positive.
b. outweighs the extra cost.
c. exceeds the benefits of the previous hour of study.
d. will raise your exam score.
Unions often attempt to obtain stricter certification requirements and/or longer
apprenticeships. These changes will tend to raise union workers’ wages because they
a. create unnecessary unemployment.
b. shift the labor supply curve leftward.
c. decrease the marginal product of labor.
d. increase the demand for the product.
If fiscal policy were able to exert a significant impact on the economy during the Great
Depression, we would expect
a. an increase in government expenditures and a reduction in budget deficits.
b. an increase in government expenditures and an increase in budget deficits.
c. a decrease in government expenditures and a reduction in budget deficits.
d. a decrease in government expenditures and an increase in budget deficits.
Which of the following would be included in the government consumption and
investment component of GDP?
a. the export of 100 fighter jets to Japan
b. construction costs of a new public school building
c. food stamps used by the Smith family
d. a $1,000 check issued by the federal government as part of the Pell Grant program to
help college students pay for school
Economists have argued that rent control is “the best way to destroy a city, other than
bombing.” Why would economists say this?
a. They anticipate that low rents will cause low-income people to move into the city,
reducing the quality of life for other people.
b. They anticipate that rent control will benefit landlords at the expense of tenants,
increasing inequality in the city.
c. They anticipate that rent controls will cause a construction boom, which will make
the city crowded and more polluted.
d. They anticipate that rent control will eliminate the incentive to maintain buildings,
leading to a deterioration of the city.
If nominal or money GDP increases 6 percent in 2011 (compared to 2010), and real
GDP increases 4 percent over the same period, which of the following must be true?
a. Exports exceeded imports.
b. The general price level as measured by the GDP deflator fell during 2011.
c. The economy entered a recession in 2011.
d. Inflation during 2011 was 2 percent.
Why does a tax change affect aggregate demand?
a. A tax change alters saving by an equal amount.
b. A tax change alters imports and net exports.
c. A tax change alters government spending by an equal amount.
d. A tax change alters disposable income and consumption spending.
Figure 3-16
Refer to Figure 3-16. When the price falls from P2 to P1, producer surplus
a. decreases by an amount equal to C.
b. decreases by an amount equal to A + B.
c. decreases by an amount equal to A + C.
d. increases by an amount equal to A + B.
Which of the following will most likely occur in the United States as the result of an
unexpected rapid growth in real income in Canada and Mexico?
a. an increase in aggregate demand and output in the short run
b. an reduction in aggregate demand and output in the short run
c. a reduction in the price level
d. a decrease in the natural rate of unemployment in the United States
When consumers cannot tell the difference at the time of sale between high-quality
products and those with defects, strong sales of the low-quality products will tend to
depress price and drive the high-quality products from the market. Economists call this
a. the curse of advertising.
b. the imperfect information problem.
c. the brand name problem.
d. an open-access resource.
Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a
world price of $1.00, the gain in producer surplus as a result of a tariff of $0.50 per unit
is represented by area
a. c + h
b. h
c. c
d. c + g
e. g
During normal times, if the marginal propensity to consumer is 3/4, and the government
borrows $10 billion in order to increase spending by that amount, real output will
expand by
a. more than $40 billion, because both the additional borrowing and the additional
spending will stimulate real output.
b. $40 billion, because the net multiplier will be 4.
c. less than $40 billion, because the additional borrowing will place upward pressure on
real interest rates, weakening the impact of the multiplier.
d. $10 billion, because during normal times, the government can borrow funds without
any increase in interest rates.
If the average total cost curve is always above the demand curve of a monopolist,
a. the profits of the monopolist will be large.
b. the monopolist must be producing inefficiently.
c. even a monopolist will suffer economic losses.
d. entry will occur, forcing the monopolist to reduce price and expand output.
Which of the following is true?
a. Specialization and trade leads to mutual gains for countries.
b. Protectionism (i.e., policies that limit trade in certain goods) promotes both economic
prosperity and greater employment.
c. Countries that have a lot of resources, like the United States, are always hurt by trade.
d. Countries will have a higher standard of living when they produce as many goods as
possible domestically.
While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00,
Sally notices that she could get a value meal that contains both the cheeseburger and
medium drink and also a medium order of fries for $2.75. She thinks to herself, “Is it
worth the extra 25 cents to get the medium fries?” To an economist, Sally’s decision is
an example of
a. marginal decision making.
b. basing decisions on total, rather than marginal, value.
c. an unintended consequence.
d. the fallacy of composition.
As the percentage of the labor force belonging to a union fell in the United States
during the 1955 through early 2000 period, the share of national income going to labor
a. increased 10 percent.
b. remained approximately the same.
c. decreased 10 percent.
d. decreased 20 percent.
Measuring poverty using an absolute income scale like the poverty line can be
misleading because
a. income measures do not include the value of in-kind transfers.
b. money is valued less highly by the poor than by the rich.
c. the poor are not likely to participate in the labor market.
d. income measures are adjusted for the effects of labor-market discrimination.
Suppose the Fed bought $150 million of U.S. securities from the public. The reserve
requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if
the public’s holdings of currency are constant and the banks have loaned all excess
reserves, the money supply will increase by
a. $150 million.
b. $300 million.
c. $600 million.
d. $750 million.
The demand for a factor of production depends largely on the
a. supply of the factor.
b. supply of other factors of production.
c. demand for other factors of production.
d. demand for the products that it helps to produce.
If changes in monetary policy are going to help stabilize the economy, they must
a. be expansionary.
b. be restrictive.
c. reduce the real rate of interest.
d. be properly timed.
e. stimulate aggregate demand.
Use the figure below to answer the following question(s).
Figure 11-3
Refer to Figure 11-3. If the economy is currently operating at point a, which of the
following would a Keynesian economist be most likely to favor?
a. a tax cut
b. an increase in government expenditures
c. a shift to a more expansionary monetary policy
d. a reduction in the budget deficit
Which of the following is true?
a. Managed equity funds generally outperform indexed equity mutual funds.
b. Managed equity funds merely hold stocks in the same proportion they are
represented in a broad stock market index such as the Standard & Poor’s 500.
c. Indexed equity funds generally have lower management and operating costs than
managed funds.
d. Indexed equity funds generally engage in more stock trading than managed funds.
A person is considered unemployed if she is
a. working at a part-time job.
b. taking a vacation from a job.
c. working at a full-time job in a foreign country.
d. not working but is actively looking for work.
Which one of the following is the largest component of the money supply (M1) in the
United States?
a. demand and other checking deposits
b. gold certificates
c. credit cards and traveler’s checks
d. Federal Reserve notes
Most economists believe that
a. a monetary policy that achieves price stability will reduce uncertainty and provide the
framework for strong economic growth.
b. demand stimulus policies will reduce the long-term average rate of unemployment.
c. expansionary monetary policy, if persistently followed, will reduce nominal interest
rates.
d. inflation is primarily the result of large budget deficits and other elements of
expansionary fiscal policy.
Other things constant, if wheat production is a price-taker industry, a decrease in the
price of fertilizer used to grow wheat will
a. increase the supply of wheat.
b. increase the demand for wheat.
c. decrease the supply of wheat.
d. do both a and b.
Which of the following transactions would be included in this year’s GDP?
a. Noah purchases a five-year-old house from William.
b. Noah rents a five-year-old house from William.
c. Noah purchases 100 shares of AT&T stock from William.
d. Noah purchases an antique at William’s garage sale.
If you paid $100 for a truckload of cabbage on Monday, how much should you be
willing to sell it for on Friday, the day before it spoils?
a. $100
b. $100 plus normal accounting profit
c. $50 because it has lost value since Monday
d. whatever you can get for it
Under the current Social Security system, married persons may draw benefits based on
a. only their own earnings.
b. their own earnings or draw 50 percent of the benefits earned by their spouse.
c. their own earnings plus 50 percent of their spouse’s earnings.
d. their own earnings plus 100 percent of their spouse’s earnings.
If the exchange rate of the English pound goes from $1.80 to $1.60, the pound has
a. appreciated, and the English will find U.S. goods cheaper.
b. appreciated, and the English will find U.S. goods more expensive.
c. depreciated, and the English will find U.S. goods more expensive.
d. depreciated, and the English will find U.S. goods cheaper.