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Which of the following actions would the Fed undertake if it wants to follow a more
restrictive monetary policy?
a. sell some of its holdings of government bonds
b. decrease government expenditures
c. urge the Treasury to sell more U.S. securities
d. reduce the reserve requirements
The crowding-out effect refers to the tendency of
a. the additional borrowing accompanying larger budget deficits to increase interest
rates and reduce private spending.
b. higher future taxes accompanying budget deficits to reduce private consumption.
c. the inflation rate to rise when the unemployment rate is low.
d. increases in private savings to reduce interest rates and, thereby, crowd-out
government expenditures.
Which of the following countries began liberal economic reforms during the 1980s and
now have significantly more economic freedom than during the mid-1980s?
a. Ireland and New Zealand
b. France and Italy
c. Sierra Leone and Haiti
d. United States and Germany
Which of the following is true of the business cycle record of the United States?
a. Recessions have been lengthier during the last two decades than was true prior to
1980.
b. Real GDP contracted throughout most of the 1950s.
c. Real GDP in 2000 was approximately the same as 1950.
d. Since 1950, the fluctuations in GDP have been less severe than before 1950.
Which of the following is most consistent with economizing behavior?
a. If you get the same satisfaction from a hamburger and a fish sandwich, you should
purchase the one that costs the most.
b. Even if you know how to paint, hiring someone to do the job is consistent with
economizing behavior, if your opportunity cost is high enough.
c. If the government provides a good free to citizens, the opportunity cost of the good is
zero.
d. If you get the same satisfaction from going to the opera and going to an art museum,
it makes no difference which you choose.
Which of the following is a primary difference between price takers and price searchers
that operate in markets with low barriers to entry?
a. The price searchers will maximize profits in the short run, but price takers will not.
Price takers can only maximize profits in the long run.
b. The price searchers will have to search for the price, while price takers will have to
take the price determined in the market.
c. The price searchers will be able to earn profit in the long run, but the price takers will
not.
d. The price searchers may be able to earn profit in the short run, but the price takers
will not be able to do so.
A recent study on enrollment at a liberal arts college concluded that demand elasticity is
0.65. The administration is considering a tuition increase to help balance the budget.
The revenue-maximizing decision is to
a. decrease tuition, which should boost enrollment enough to balance the budget.
b. decrease tuition, which would bring in more revenue.
c. leave tuition as is-an increase would not help balance the budget.
d. increase tuition, which would generate more revenue.
The idea that an action should be undertaken if and only if the benefits exceed the costs
is known as the concept of
a. economic efficiency.
b. public welfare maximization.
c. marginal comparative advantage.
d. monetary construction of values.
Consider two goods--one that generates external benefits and another that generates
external costs. A competitive market economy would tend to produce
a. too much of both goods.
b. too little of both goods.
c. too much of the good that generates external benefits and too little of the good that
generates external costs.
d. too little of the good that generates external benefits and too much of the good that
generates external costs.
Use the figure below to answer the following question(s).
Figure 11-3
Refer to Figure 11-3. When the economy is operating at point a, which of the following
will be most likely to happen?
a. an increase in resource prices
b. a decrease in resource prices
c. the current output will be sustained in the future
d. an increase in aggregate demand
Which of the following is a positive economic statement?
a. Too much government spending is the biggest problem facing the U.S. economy.
b. Creating jobs is the most serious problem facing the U.S. economy.
c. Raising taxes provides additional revenue that should be used to finance health care.
d. If taxes are over 50 percent of national income, job creation falls.
Since the 1960s, macroeconomists have become more aware
a. that increases in government expenditures are more effective than tax reductions as a
source of economic stimulus.
b. that persistent inflation will reduce the unemployment rate.
c. of both the potential and the limitations of fiscal and monetary policy as stabilization
tools.
d. of the fact that fiscal policy is more potent than monetary policy.
The Fed's purchase of U.S. government securities constitutes
a. a restrictive policy because it lowers the amount of total reserves in the banking
system.
b. a restrictive policy because it lowers the amount of excess reserves in the banking
system.
c. an expansionary policy because it raises the amount of total reserves in the banking
system.
d. an expansionary policy because it lowers the amount of required reserves in the
banking system.
The government sometimes provides public goods because
a. private markets would not produce any of the goods.
b. private markets would not produce the efficient quantity of the goods.
c. private markets would charge too high a price for the goods.
d. the government produces public goods more efficiently than private markets can.
Figure 4-25
Refer to Figure 4-25. The price that sellers receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. impossible to determine from the figure.
Use the figure below to answer the following question(s).
Figure 3-13
Refer to Figure 3-13. The market for margarine was initially in equilibrium at point e.
Other things constant, a decrease in the price of butter, a close substitute for margarine,
would likely move the equilibrium in this market toward point
a. r.
b. s.
c. t.
d. u.
As the real interest rate in the domestic loanable funds market increases,
a. the cost of purchasing goods and services during the current period will decrease.
b. the net inflow of capital from abroad will increase.
c. the inflationary premium will rise and the money rate of interest will decline.
d. a trade surplus will occur.
A business produced $10 million of goods in 2010 but sold only $9 million. Is the $1
million increase in inventory counted as part of the 2010 gross domestic product?
a. No, because inventories are intermediate goods.
b. No, because if these inventories were sold in 2011, they would be counted twice.
c. Yes, because these inventories are part of the output of the economy in 2010.
d. Yes, but they will be added to the 2010 GDP only if they are sold in 2011.
Which of the following most accurately indicates the implications of an economy's
production possibilities curve?
a. If all the resources of an economy are being used efficiently, more of one good can be
produced only if less of another good is produced.
b. If all the resources of an economy are being used efficiently, it is generally possible
to produce more of one good without having to sacrifice the production of other goods.
c. Over time, it is generally impossible for a country to expand its production of goods.
d. An economy will automatically move toward a point that lies outside of the
production possibilities curve unless proper government policy constrains production.
Generally, the demand for energy in the long run will be
a. approximately equal in elasticity to the demand for energy in the short run.
b. considerably less elastic than in the short run.
c. considerably more elastic than in the short run.
d. perfectly inelastic because we must have energy to survive.
Which of the following about fiscal policy is true?
a. The expansionary fiscal policy of the 1980s stimulated aggregate demand and led to
high rates of inflation during the latter half of the decade.
b. The restrictive fiscal policy of the 1990s led to sluggish economic growth during the
decade.
c. Even though fiscal policy was highly expansionary during the 1980s, the inflation
rate fell and remained at relatively low levels.
d. Even though fiscal policy was restrictive during the 1990s, the real growth rate of the
economy was strong.
e. Both c and d are true.
In the Keynesian aggregate expenditure model, the equilibrium level of income is
achieved when
a. actual saving equals actual investment.
b. planned aggregate expenditures equal total output.
c. consumption equals income times the marginal propensity to consume.
d. the marginal propensity to consume equals planned output.
The most likely impact of an unanticipated increase in the money supply is
a. an increase in the real interest rate, which in turn stimulates investment and GDP.
b. a decrease in the real interest rate, which in turn stimulates investment and GDP.
c. a reduction in the general level of prices, which will increase the disposable income
of households.
d. an improvement in technology, which will stimulate both output and employment.
If the price of airline tickets falls, what will happen to the demand curve for flight
attendants?
a. It will shift to the right.
b. It will shift to the left.
c. The direction of the shift is ambiguous.
d. It will remain unchanged.
The free entry and exit of firms in a competitive price-searcher market guarantees that
a. both economic profits and economic losses can persist in the long run.
b. both economic profits and economic losses disappear in the long run.
c. economic profits, but not economic losses, can persist in the long run.
d. economic losses, but not economic profits, can persist in the long run.
Which of the following would reduce the price of basketballs and increase the quantity
sold?
a. An increase in the demand for basketballs.
b. A decrease in the demand for basketballs.
c. A decrease in the supply of basketballs.
d. An increase in the supply of basketballs.
Mathematically, the marginal propensity to consume is
a. consumption divided by income.
b. the change in consumption divided by the change in income.
c. income divided by consumption.
d. the change in income divided by the change in consumption.
New York City limits the number of taxi cabs that can legally operate in the city. The
most likely result of this practice is that
a. cab fares will be lower.
b. cab fares will be higher.
c. the cost of operating a taxicab will be lower.
d. subway fares will decrease.
When individuals are unemployed because they lack the qualifications to fill available
jobs, this is called
a. frictional unemployment.
b. natural unemployment.
c. cyclical unemployment.
d. structural unemployment.
A bank that has $10,000 in excess reserves can extend new loans up to a maximum of
a. $1,000.
b. $9,000.
c. $10,000.
d. $100,000.
Under a system of flexible exchange rates, in the long run, a nation's balance on current
account and capital account transactions will
a. increase continuously.
b. decrease continuously.
c. tend to net out to zero, indicating a balance between the debits and credits.
d. tend to increase if the nation is running a balance of trade surplus and decrease if it is
running a balance of trade deficit.
If a firm is using a resource hired in a perfectly competitive market, and if the price of
the resource exceeds the marginal revenue product of the resource,
a. more of the resource should be used.
b. less of the resource should be used.
c. the firm should pay a lower price for the resource.
d. the firm should pay a higher price for the resource.
e. the firm is using the optimal amount of the resource
In a majority-rules democracy, economic thinking suggests that we should expect to see
institutions and policies that
a. are short-sighted.
b. take the long view, sacrificing current benefits to get larger future benefits.
c. benefit the common citizen at the expense of narrow special interest groups which,
after all, have fewer voters.
d. are biased against income transfer programs, regardless of constitutional limits.
