If the U.S. price level decreased relative to price levels in foreign countries, what would
be the impact on domestic aggregate supply and aggregate demand curves?
a. the aggregate supply curve would shift outward and the aggregate demand curve
would remain unchanged
b. the aggregate supply curve would shift inward and the aggregate demand curve
would remain unchanged
c. the aggregate demand curve would shift outward and the aggregate supply curve
would remain unchanged
d. the aggregate demand curve would shift inward and the aggregate supply curve
would remain unchanged
e. the domestic aggregate demand and supply curves would remain unchanged
An income tax is progressive if the
a. tax rate decreases as income increases.
b. percentage of income paid in taxes increases as income increases.
c. percentage of income paid in taxes stays the same regardless of the size of income.
d. dollar amount paid in taxes increases with income.
The short run sequence of events following an unanticipated shift to a more
expansionary 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.
Unemployment compensation payments
a. rise during a recession and thereby help stimulate consumption.
b. rise during a recession and thereby retard consumption.
c. rise during economic expansion and thereby help stimulate consumption.
d. rise during economic expansion and thereby retard consumption.
When the price of a product rises, the increase in quantity supplied will generally be
greater in the long run than the short run because
a. producers maximize short-run, not long-run, profits.
b. over time, new firms will enter the industry and old firms will expand their
operations in response to the price increase.
c. consumers are less resistant to higher prices in the long run than in the short run
because they have fewer options in the long run.
d. consumer income will expand in the long run, causing resource prices to rise, which
will induce producers to increase output.
How does the concept of elasticity allow us to improve upon our understanding of
supply and demand?
a. Elasticity allows us to analyze supply and demand with greater precision than would
be the case in the absence of the elasticity concept.
b. Without elasticity, we would not be able to address the direction in which price is
likely to move in response to a surplus.
c. Without elasticity, we would not be able to address the direction in which price is
likely to move in response to a shortage.
d. Without elasticity, it is very difficult to assess the degree of competition within a
market.
If the Fed injects additional reserves into the banking system, why will banks generally
want to expand their loans and investments?
a. Banks are legally required to expand loans when the Fed creates excess reserves.
b. Maintaining reserves in excess of demand deposits is against the law.
c. Banks fear the Fed will remove the excess reserves.
d. Loans and investments generally earn more interest income for the banks than excess
reserves.
A marginal change usually is a
a. change that involves little, if anything, that is important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term change.
d. small, incremental adjustment.
When the economy is operating at an output rate less than full-employment capacity,
a. a strong demand for resources will cause resource prices to rise.
b. actual unemployment will be less than the natural rate of unemployment.
c. the rate of inflation will tend to rise.
d. weak demand for investment will place downward pressure on real interest rates.
What percent of the families classified as poor in 2010 were headed by an elderly (age
65 and over) person?
a. approximately two-thirds
b. approximately 9 percent
c. approximately 32 percent
d. approximately 50 percent
When a shortage of a good is present due to a price ceiling,
a. the amount supplied will be greater than the amount demanded.
b. the quality of the good will generally improve.
c. non-price factors, such as discrimination or waiting in line, will play a greater role in
the allocation of the good.
d. the demand for the product will increase and, thereby, eliminate the shortage.
A tax for which the average tax rate decreases with income is defined as a
a. regressive tax.
b. proportional tax.
c. neutral tax.
d. progressive tax.
Which of the following is part of the synthesis view of fiscal policy?
a. During a severe recession, the best policy is a “balanced budget policy.”
b. During a recession, higher real interest rates and lower net exports will help direct the
economy back to full employment.
c. Since changes in discretionary policy are easy to time, fiscal policy should be altered
in response to each minor disturbance.
d. Automatic stabilizers help reduce the fluctuations in aggregate demand and output.
Between 1991 and 2008, the federal minimum wage increased from $4.25 per hour to
$6.55 per hour, while the CPI increased from 136.2 to 215.3. We can conclude from this
that
a. the minimum wage increased in nominal and in real terms.
b. the minimum wage decreased in nominal terms but increased in real terms.
c. the minimum wage increased in nominal terms but decreased in real terms.
d. more information is needed to determine what happened to the real minimum wage
over the period.
Which of the following increases the likelihood that a group of sellers can increase
profits as the result of collusion?
a. the presence of a large number of firms in the industry
b. intense quality competition among firms
c. low barriers to entry into the industry
d. a stable demand for the product
A union representing a group of workers will tend to be stronger when
a. there are no good substitutes for the labor services of the unionized workers.
b. the domestic producers of the good produced by the unionized workers face intense
competition from foreign suppliers of the good.
c. the cost of employing the unionized workers is a large part of the total cost of the
product that they produce.
d. the demand for the good produced by the unionized workers is highly elastic.
Which one of the following labor resources will likely have the most inelastic supply
schedule in the short run?
a. filling station attendants
b. sales clerks
c. construction laborers
d. dentists
Who among the following is most likely to favor an appreciation of the U.S. dollar?
a. a German professor visiting Chicago
b. an American farmer who depends on exports
c. an American professor on a tour of Austrian universities
d. Disney World in Orlando, Florida, a popular destination for foreign tourists
According to the traditional (crowding-out) view, budget deficits will
a. reduce interest rates.
b. increase interest rates and retard private investment.
c. reduce the investments of foreigners in the United States.
d. increase the capital stock available to future generations.
What percentage of U.S. healthcare expenditures is currently paid for by a third party,
either the government or an insurance company?
a. less than 10 percent
b. approximately 30 percent
c. approximately 50 percent
d. more than 85 percent
Which of the following is true?
a. The size of the economic pie to be divided among a country’s residents is fixed.
b. Government tax and transfer programs have exerted a strong equalizing impact on
the distribution of income in the United States.
c. The method of allocating income is relevant to the issue of fairness as well as the
pattern of income distribution.
d. The optimal distribution of income can be determined by objective economic criteria.
When collective decision making is utilized to resolve economic questions regarding
the allocation of resources,
a. decentralized decision making is inevitable.
b. central planning and political bargaining will replace market forces.
c. individual preferences are of no importance.
d. economic equality will result.
Which of the following most clearly indicates that fiscal policy is becoming more
restrictive?
a. An increase in the budget deficit relative to GDP
b. A reduction in the budget deficit relative to GDP
c. An increase in government expenditures as a share of GDP
d. A reduction in tax revenues as a share of GDP
Which of the following has enhanced the ability of investors, without any special
business skills, to benefit from the ownership of corporate America?
a. the increased availability of mutual funds that make it possible for even small
investors to purchase a diverse stock portfolio at a low cost
b. an increased tendency of small investors to buy and sell stock frequently, using stock
tips from investment experts
c. the virtual disappearance of business failures among corporations with publicly
traded stock shares
d. all of the above
Regulatory policies requiring lenders to extend more low down-payment loans to
higher-risk borrowers along with the Fed’s low short-term interest rate policy during
2002-2004 caused
a. housing prices to fall during that period.
b. a reduction in the use of adjustable rate mortgages to finance the purchase of
housing.
c. a reduction in housing construction during 2002-2005.
d. mal-investment, that is, excessive investment in housing construction during
2002-2005.
When several hurricanes hit Florida in 2004, a number of local governments imposed
price controls that prevented sellers from raising their prices for badly needed products
like plywood and generators. In the areas where the controls were imposed, they
resulted in
a. an expanded availability of these badly needed products.
b. a reduced availability of these badly needed products.
c. an increase in the speed with which people recovered from the hurricanes.
d. a more efficient allocation of these goods for which price controls were in effect.
During the financial crisis of 2008, Fed policy
a. caused the monetary base to shrink significantly.
b. approximately doubled the M1 money supply.
c. approximately doubled the monetary base.
d. maintained the monetary base at a constant level.
An increase in the U.S. demand for foreign exchange will cause
a. an increase in the price of foreign exchange, which is a depreciation of the U.S.
dollar, making foreign goods cheaper to U.S. residents.
b. an increase in the price of foreign exchange, which is a depreciation of the U.S.
dollar, making foreign goods more expensive to U.S. residents.
c. a decrease in the price of the U.S. dollar, which is an appreciation of the U.S. dollar.
d. an increase in the price of foreign exchange, which is an appreciation of the U.S.
dollar.
e. a decrease in the price of foreign exchange, which is an appreciation of the U.S.
dollar.
Which of the following is true for firms that produce in markets where there are no
barriers to entry?
a. The firms will always make positive economic profits in the long run.
b. The firms will always make positive economic profits in the short run.
c. The firms will always make zero economic profits in the short run.
d. The firms will always make zero economic profits in the long run.
The modern view of the Phillips curve suggests that
a. when inflation is less than anticipated, unemployment will fall below the natural rate.
b. when inflation is steady, actual unemployment will equal the natural rate of
unemployment.
c. systematic demand stimulus policies will be unable to affect prices in the long run.
d. there will be a trade-off between inflation and unemployment in the long run.
Drawing on her account at Regional Bank, Samantha writes a check to Isabella, who
deposits the check in her account at Local Bank. Once the check has cleared, which of
the following will occur to the reserves of the banking system and the M1 money
supply?
a. Bank reserves will increase; M1 will increase.
b. Bank reserves will increase; there will be no change in M1.
c. There will be no change in bank reserves; M1 will increase.
d. There will be no changes in either bank reserves or M1.