Use the figure below to answer the following question(s).
Figure 11-2
Refer to Figure 11-2. When the economy is operating at point a, reliance on the
self-correcting mechanism will
a. result in higher resource prices and a shift to the left in the SRAS curve.
b. result in lower resource prices and a shift to the right in the SRAS curve.
c. lead to lower interest rates and a shift to the right in the AD curve.
d. lead to higher interest rates and a shift to the left in the AD curve.
e. do both a and d.
When employment discrimination results from the personal prejudices of employers,
economic theory suggests that
a. competitive forces will tend to reduce discrimination.
b. the wages of employees who are discriminated against will rise.
c. an employer who discriminates will have the same costs as those who do not
discriminate.
d. discrimination by an employer will reduce production costs since the employer can
pay lower wages.
If a local ready-mix cement company is the only producer of cement in the local
market, the monopoly power of the firm will
a. be small if entry barriers into the local market are high.
b. depend on how many other sellers of similar products there are in the national
market.
c. be total since there are not any other sellers of the same product in the local market.
d. be minimal if the entry barriers restricting competition from other firms are low.
Which of the following is the best example of an automatic stabilizer?
a. a balanced federal budget
b. the minimum wage
c. unemployment compensation program
d. discretionary fiscal policy
When a price floor is above the equilibrium price,
a. quantity demanded will exceed quantity supplied, so there will be a shortage.
b. quantity supplied will exceed quantity demanded, so there will be a surplus.
c. the market will be in equilibrium.
d. This is a trick question because price floors are generally set below the equilibrium
price.
When a firm in a price-taker industry is in long-run equilibrium, the market price equals
a. marginal cost but may be greater or less than average total cost.
b. both average total cost and marginal cost.
c. average total cost but may be greater or less than marginal cost.
d. marginal revenue but may be greater or less than both average total cost and marginal
cost.
Figure 3-5
In Figure 3-5, if the initial demand for margarine were D1, an increase in the price of
butter, which is a substitute for margarine, would tend to cause which of the following
changes in the market for margarine?
a. a shift in the demand curve from D1 to D2
b. a shift in the demand curve from D2 to D1
c. a movement along demand curve D1 from a to b
d. a movement along demand curve D1 from b to a
If the Fed shifts to a more restrictive monetary policy in order to help control inflation,
the policy shift will generally
a. stimulate aggregate demand and real output as soon as the policy is instituted.
b. reduce aggregate demand immediately and quickly bring the inflation under control.
c. reduce aggregate demand and help bring the inflation under control, but the primary
effects may not be felt for several months (or quarters).
d. lower real interest rates in the short run, but in the long run, real interest rates will
rise.
The three basic legal forms of business enterprise are
a. monopolists, competitors, and enterprises.
b. vertical, horizontal, and conglomerate corporations.
c. conglomerates, multinationals, and partnerships.
d. proprietorships, partnerships, and corporations.
If firms in a competitive price-searcher market are earning economic profits, which of
the following scenarios would best describe the change existing firms would face as the
market adjusts to long-run equilibrium?
a. An increase in demand for each firm and lower prices.
b. A decrease in demand for each firm and lower prices.
c. An increase in demand for each firm and higher prices.
d. A decrease in demand for each firm and higher prices.
In 2010 the federal government reduced the Social Security tax withholding rate from
12.4 percent (6.2 percent on both the employer and employee) to 8.4 percent (4.2
percent on both the employer and employee) on the wages of all workers. If the tax
were redefined such that the entire 12.4 percent was statutorily levied on employers,
economic analysis suggests that the actual burden of the tax would
a. remain unchanged.
b. shift more heavily toward employers.
c. shift more heavily toward employees.
d. be different than if the entire 12.4 percent was statutorily imposed on employees.
Which of the following did Thomas Malthus believe would make sustained economic
growth and the achievement of high income levels impossible?
a. rapid growth of government spending
b. the expansion of political democracy
c. the expansion of communism to the developed world
d. growth of population
Which of the following encourages people to engage in activities that yield uncertain
returns?
a. perfect information
b. economic profit
c. accounting profit
d. all of the above
Consumer surplus
a. is the difference between total willingness to pay and the total amount actually paid.
b. guarantees that the market value of a good in money is equal to the total economic
value of the good.
c. is always negative because of diminishing marginal utility.
d. is the total area under a consumer’s demand curve.
Other things constant, a decrease in resource prices will lead to
a. reduced profits and a reduction in short-run aggregate supply.
b. increased profits and a reduction in short-run aggregate supply.
c. reduced profits and an increase in short-run aggregate supply.
d. increased profits and an increase in short-run aggregate supply.
During the past 1000 years, the income per person of the world has
a. increased each century, and it is now five times greater than the level of 1000 years
ago.
b. risen rapidly in Western Europe, North America, Japan, and Australia, but there has
been little change in income per person in other parts of the world.
c. increased by approximately tenfold during the past 200 years, but there was only a
small increase during the 800 years prior to 1800.
d. persistently increased, but the largest increases occurred during the 1200 to 1800 era.
If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply,
it could
a. decrease the reserve requirements imposed on commercial banks.
b. purchase U.S. government securities and other financial assets in the open market.
c. decrease the interest rate on loans extended to banks and other financial institutions.
d. increase the interest rate paid on excess reserves encouraging banks to hold excess
reserves rather than extend more loans.
Which of the following would be most likely to increase your opportunity cost of
attending college?
a. a recession in the economy that made finding a job more difficult
b. receiving a very attractive offer to start a job today that would permit you to earn
about 50 percent more than you expected to make after graduation
c. the retirement of your favorite professor under whom you hoped to study during the
next semester
d. information indicating that salaries were declining and that there were very few
openings for college graduates in your field
Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into
the air. How will the price and output of paper in a competitive market compare with
their values under conditions of ideal economic efficiency?
a. The price will be too high, and the output will be too large.
b. The price will be too low, and the output will be too large.
c. The price will be too low, and the output will be too small.
d. The price will be too high, and the output will be too small.
An increase in the real interest rate will increase the
a. current market value of assets yielding income in the future.
b. size of the inflationary premium.
c. cost of current consumption goods relative to future consumption.
d. net present value of $100 to be received one year from now.
The economic way of thinking is
a. a set of historical generalizations that indicates what goods should be produced.
b. a body of statistical data that indicates how an economy should be organized.
c. a set of basic concepts that helps one understand human choices.
d. a set of complex, highly abstract theories that provides persons skilled in statistics
with the information necessary to tell others what choices they should make.
If the demand for a good is elastic, then total revenue
a. increases as price increases.
b. remains constant as quantity demanded increases.
c. increases as price decreases.
d. decreases as quantity demanded increases.
e. decreases as price decreases.
Which of the following groups are overrepresented among those with low incomes?
a. youthful inexperienced workers
b. college students working on graduate degrees
c. single-parent families
d. all of the above
When the number of families with someone employed by the government is added to
those receiving income from transfer programs, the share of American families
receiving income from the government is
a. less than 20 percent
b. approximately 50 percent of the total
c. approximately 62 percent of the total
d. a little more than 75 percent of the total
The reporter on one broadcast network says 2011 GDP increased to an all-time high.
Commenting on the same figure, a second reporter says GDP in 2011 was less than in
2010. Which of the following explanations is consistent with the statements of both
reporters?
a. The first reporter was referring to real GDP, and the second was referring to nominal
GDP.
b. The first reporter was referring to nominal GDP, and the second was referring to real
GDP.
c. The first reporter was referring to GDP as measured by the expenditure approach, and
the second was referring to GDP as measured by the income cost approach.
d. The first reporter was referring to GDP as measured by the income cost approach,
and the second was referring to GDP as measured by the expenditure approach.
During the short-run period of the production process, a firm will be
a. unable to vary any of its factors of production.
b. able to vary only some of its factors of production.
c. able to vary all of its factors of production.
d. able to vary the size of its plant.
Answer the following questions:
Antitrust action restructures a previously monopolized industry into a competitive
industry. If economies of scale are unimportant in the industry, the expected result of
this movement from monopoly to competition is
a. a reduction in output and an increase in price in the industry.
b. a reduction in both price and output in the industry.
c. an increase in both price and output in the industry.
d. an increase in output and a reduction in price in the industry.
According to the modern expectational Phillips curve, unemployment will temporarily
fall below the natural rate of unemployment when
a. any inflation is present.
b. inflation turns out to be lower than what people expected.
c. inflation turns out to be higher than what people expected.
d. inflation turns out to be equal to what people expected.
According to new classical economists, the most appropriate policy during a recession
would be for the government to
a. increase the minimum wage.
b. impose wage and price controls.
c. cut taxes and increase the budget deficit.
d. do nothing.
Which of the following would increase a firm’s average total costs?
a. economies of scale
b. an increase in input prices
c. an improvement in technology
d. an increase in demand for the firm’s product
Which of the following is most important for the achievement of long-term prosperity
and strong economic growth?
a. expansionary monetary policy
b. expansionary fiscal policy
c. price stability
d. a balanced federal budget
Fixing exchange rates and limiting the convertibility of currency will
a. improve international trade.
b. increase the ability of people to gain from specialization.
c. lead to black markets and less trade.
d. increase productivity and living standards.
Political institutions are more likely to allow and encourage the emergence of good
economic institutions and policies when
a. the top government executives have enough power to impose good economic
arrangements on the nation.
b. constitutional constraints prevent laws and regulations that weaken the rights of
property owners, curtail voluntary exchange, and provide for decentralization of
government.
c. the elected executive and legislative branches have fewer constraints on what they
can do, leaving them free to innovate and improve economic institutions.
d. well organized interest groups exert a powerful influence on the political process.