Refer to the figure above. The diagram shows Sven’s Production Possibilities for one
day. For Sven, the opportunity cost of spending one more hour studying:
A. is diminishing with each additional hour.
B. is increasing with each additional hour.
C. is exactly one hour of paid work.
D. is the marginal benefit from studying.
Chris has determined that the probability of earning a 95 on the next economics test is
10%, the probability of earning an 85 is 40%, and the probability of earning a 75 is
50%.
Chris’s expected score on this test can be determined by solving
A. (.33)(95) + (.33)(85) + (.33)(75).
B. (10)(95) + (40)(80) + (50)(70).
C. (.1)(95) + (.4)(85) + (.5)(75).
D. (95 + 85 + 75)/3.
Susan Suarez would like to work forty hours per week, but can only find twenty hours
per week of work. In the official employment statistics, Susan is classified as:
A. employed.
B. unemployed.
C. out of the labor force.
D. underemployed.
Refer to the figure above. When the external cost is included, the efficient equilibrium
price is ____, and the socially optimal quantity is ______.
A. $125; 350
B. $125; 225
C. $150; 400
D. $150; 300
One shortcoming of GDP as an indicator of society’s social well-being is that it fails to
take into account the:
A. growth in productivity.
B. increase in the quantity of goods.
C. non-market production.
D. change in the price level.
When some fraction of the benefit of an activity is received by people not participating
in the activity, it is called a(n):
A. winner’s curse.
B. positive externality.
C. external cost.
D. efficient allocation.
Water flowing in a river is a _____ good, but a single serving bottle of water is a
______ good.
A. public; commons
B. public; private
C. public; collective
D. collective; private
Refer to the figure above. Suppose the economy is in a short-run equilibrium at output
Y1 and inflation rate π2. The economy is currently experiencing ______, and the correct
fiscal policy response to this situation, to return the economy to potential GDP, is to
______.
A. a recessionary gap; increase government spending
B. an expansionary gap; decrease government spending
C. a recessionary gap; increase taxes
D. an expansionary gap; decrease taxes
Which of the following is most likely to be a fixed factor of production at a university?
A. The number of personal computers.
B. The number of lecture halls.
C. The number of professors and lecturers.
D. The amount of chalk.
For an economy starting at potential output, a decrease in planned investment in the
short run results in a(n):
A. expansionary output gap.
B. recessionary output gap.
C. increase in potential output.
D. decrease in potential output.
Refer to the figure above. This game has _____ Nash equilibrium(s).
A. 0
B. 1
C. 2
D. 4
In order to achieve a socially optimal level of output, activities that generate negative
externalities should be:
A. banned.
B. subsidized.
C. taxed.
D. bought out by the government.
Given the typical shapes of the marginal cost and marginal benefit curves for collecting
information,
A. it always pays to get more information.
B. consumers tend to become experts about most goods.
C. consumers remain completely ignorant about most goods.
D. the equilibrium is somewhere between complete ignorance and becoming an expert.
All else being equal, if the prospect of a recession leads the Federal Reserve to ease
monetary policy, the equilibrium value of the exchange rate for the U.S. dollar will:
A. rise.
B. fall.
C. remain fixed.
D. either rise or fall depending on whether the supply or demand for dollars changes
more.
Refer to the figure above. When the demand is P2 = $15, this firm should ______
A. continue to operate in the short run and think about shutting down in the long run.
B. discontinue operation in the short run since there is a loss when operating.
C. keep operating as long as loss is not greater than total cost.
D. discontinue operation in the short run since average total cost is greater than price.
The Federal Reserve can decrease the money supply by:
A. increasing reserve requirements.
B. decreasing the discount rate.
C. introducing deposit insurance.
D. conducting open market purchases.
A nation’s standard of living, as measured by real GDP per person, increases:
A. only if average labor productivity increases.
B. only if the share of population employed increases.
C. only if both average labor productivity and the share of population employed
increase.
D. if either average labor productivity and/or the share of population employed
increase.
An increase in the government’s budget deficit ______ the real interest rate and ______
the equilibrium quantity of national saving.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Price elasticity of demand for transportation generally is:
A. the same as price elasticity of the demand for bus tickets.
B. greater than price elasticity of the demand for bus tickets.
C. less than price elasticity of the demand for bus tickets.
D. greater than price elasticity of the demand for bus tickets when bus tickets are
expensive, but less than price elasticity of the demand for bus tickets when the prices of
bus tickets fall.
As the quality of available resources becomes worse:
A. aggregate demand falls.
B. aggregate demand rises.
C. aggregate supply falls.
D. aggregate supply rises.
Refer to the figure above. Marginal Cost is upward sloping because
A. marginal costs always increase when output increases.
B. this firm is operating in the short run.
C. marginal productivity of at least one input is declining.
D. marginal productivity of at least one input is increasing.
In an open-market sale the Federal Reserve ______ government bonds and the supply
of bank reserves ____.
A. buys; increases
B. buys; decreases
C. sells; increases
D. sells; decreases
An economic recession in the U.S. ______ the demand for exports from Canada
resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output
gap in Canada.
A. reduces; expansionary
B. increases; expansionary
C. reduces; recessionary
D. increases; recessionary
Holding other factors constant, a higher relative price of a firm’s output will:
A. increase national saving.
B. decrease national saving.
C. increase investment.
D. decrease investment.
Refer to the table above. Relative to column C, it appears that column D represents
______.
A. an increase in quantity supplied.
B. an increase in demand.
C. a decrease in quantity demanded.
D. a decrease in supply.
Governments contribute to increased average labor productivity in each of the
following ways EXCEPT by:
A. establishing well-defined property rights.
B. maintaining political stability.
C. imposing taxes on wages.
D. allowing the free and open exchange of ideas.
Starting from full employment at the initial target inflation rate, if there is an adverse
inflation shock, then the Federal Reserve must _____ in order to keep inflation from
becoming permanently higher.
A. increase the target inflation rate.
B. decrease the target inflation rate.
C. maintain the initial target inflation rate.
D. shift the short-run aggregate supply curve up.
For an economy starting at potential output, an increase in planned investment in the
short run results in a(n):
A. expansionary output gap.
B. recessionary output gap.
C. increase in potential output.
D. decrease in potential output.
When the price of a good falls, the ratio of the marginal utility of that good divided by
its price _______ and as a result, consumers purchase _______ of that good.
A. rises; more
B. falls; more
C. rises; less
D. falls; less
Economists refer to the talents, training, and education of workers as:
A. human capital.
B. physical capital.
C. average labor productivity.
D. labor supply.
Refer to the figure above. Based on the diagram, the nominal interest rate equals
______ and the money supply equals ____.
A. 7%; 300
B. 1%; 500
C. 5%; 500
D. 3%; 700
If being labeled a nerd (someone who studies a lot and has high grades) in high school
or college is a social negative then, according to the textbook:
A. this is a cruel and unfair stereotype.
B. those who study hard would be better off it this negative stereotype was eliminated.
C. the negative stereotype serves to discourage some students from studying hard thus
increasing the payoff to those who do.
D. the negative stereotype serves to comfort those who don’t study and make poor
grades.
Assume that average labor productivity is the same in each country. Based on the
information in the table, which country has the highest real GDP per capita?
A. Country A
B. Country B
C. Country C
D. Country D