Other things constant, an increase in consumer income will
a. shift the demand curve for automobiles to the left.
b. shift the demand curve for automobiles to the right.
c. cause a movement along the demand curve for automobiles, but it will not shift the
demand curve.
d. lead to a reduction in the supply of automobiles.
When the supply of workers is plentiful, one would predict that market wages would be
a. determined solely by factors that affect supply.
b. determined solely by factors that affect demand.
c. low, other things equal.
d. high, other things equal.
During 2009 and 2010, the federal government financed approximately ______ percent
of its spending through borrowing. (Fill in the blank)
a. 20
b. 30
c. 40
d. 60
General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden,
and sells it in the United States. In which country’s GDP is it included?
a. Sweden and the United States
b. The United States because it was sold there
c. The United States because GM is a U.S. company
d. Sweden because it was produced there
If a new entrant (or an established firm) wants to leave a contestable market,
a. all, or nearly all of, the invested capital values can be recovered.
b. another firm will always enter to take its place.
c. it must accept large losses in its capital investment, so it is unlikely to exit.
d. its leaving will be contested by regulators in the market who seek to prevent exit.
Figure 3-15
Refer to Figure 3-15. Which area represents the increase in producer surplus when the
price rises from P1 to P2 due to new producers entering the market?
a. BCE
b. ACF
c. DEF
d. AFEB
During an economic boom,
a. the actual rate of unemployment will exceed the natural rate of unemployment.
b. the output of the economy will exceed its long-run potential output.
c. widespread unemployment will cause inflation to increase.
d. the actual rate of unemployment will equal the natural rate of unemployment.
Which of the following statements is true for a monopolist?
a. a monopolist will charge the highest price for which he can sell units of his product.
b. unregulated monopolists can gain by producing their chosen output at a low cost.
c. if a firm has a monopoly, it will always be able to earn economic profit.
d. none of the above statements are true.
Firms that are price searchers
a. will eventually find and charge the highest price at which consumers will purchase
any units.
b. face inelastic demand curves for their products.
c. do not confront rival sellers like price takers do.
d. face a downward-sloping demand curve.
The “loanable funds market” is a term used by economists to describe the
a. demand for goods and services by households.
b. market that includes resources such as labor and capital.
c. supply of goods and services by firms.
d. market that coordinates the borrowing and lending of individuals and firms.
Physical and human capital investments are
a. different in that the opportunity for economic profit is present for physical capital but
not for human capital investments.
b. different in that human capital decisions do not involve future income considerations,
while physical capital investments do.
c. similar in that nonmonetary considerations play an equally important role in both.
d. similar in that both involve forgoing current income (and consumption) in an effort to
achieve higher future income (and consumption).
Assume that corn and soybeans are alternatives that could be grown by most farmers.
An increase in the price of corn will
a. increase the supply of corn.
b. increase the supply of soybeans.
c. decrease the supply of soybeans.
d. decrease the supply of corn.
e. have no effect on the supplies of corn and soybeans.
The change in the quantity of goods and services demanded in the U.S. is based on the
logic that as the price level rises,
a. real wealth falls, interest rates rise, and net exports fall.
b. real wealth falls, interest rates rise, and net exports rise.
c. real wealth rises, interest rates fall, and net exports fall.
d. real wealth rises, interest rates fall, and net exports rise.
The use of government taxation and expenditures to achieve macroeconomic goals is
called
a. cyclical policy.
b. monetary policy.
c. fiscal policy.
d. industrial policy.
Compared to countries with less economic freedom, countries with more economic
freedom
a. achieve higher per person income levels, but they also have higher poverty rates.
b. grow more rapidly, but the income levels of the poor are largely unaffected by the
higher growth rates of the freer economies.
c. achieve both higher income levels per person and lower rates of poverty.
d. grow less rapidly and experience higher poverty rates.
Consider the labor market for nurses, which initially is in equilibrium. Suppose the
output price for nursing services increases. Holding all else equal, what effect will this
have on the labor market for nurses?
a. The equilibrium wage will increase, and the equilibrium quantity of nurses will
increase.
b. The equilibrium wage will increase, and the equilibrium quantity of nurses will
decrease.
c. The equilibrium wage will decrease, and the equilibrium quantity of nurses will
increase.
d. The equilibrium wage will decrease, and the equilibrium quantity of nurses will
decrease.
If we observe a decrease in the price of a good and an increase in the amount of the
good bought and sold, this could be explained by
a. an increase in the supply of the good.
b. an increase in the demand for the good.
c. a decrease in the demand for the good.
d. a decrease in the supply of the good.
The sharp increase in the excess reserves held by the commercial banking system since
the second half of 2008 increases the potential for
a. a sharp contraction in the money supply, which is likely to increase the length and
severity of the recession.
b. a rapid increase in the money supply, potentially leading to inflation.
c. a gradual increase in the money supply, following the trend of the previous decade.
d. a reduction in the ability of banks to extend additional loans.
Which of the following would generally cause firms to expand output in the short run?
a. a proportional increase in the prices of goods and services and the costs of producing
them
b. higher profit margins as the result of an unexpected increase in the prices of goods
and services
c. an unexpected reduction in aggregate demand
d. an increase in wages and the prices of other resources
If an economy uses its resources inefficiently, this situation would be illustrated on a
production possibilities diagram as
a. an inward shift of the production possibilities curve.
b. an outward shift of the production possibilities curve.
c. operating at a point outside the production possibilities curve.
d. operating at a point inside the production possibilities curve.
Figure 3-22
Refer to Figure 3-22. Which of the four graphs represents the market for peanut butter
after a major hurricane hits the peanut-growing south?
a. A
b. B
c. C
d. D
Which of the following would cause an increase in the price of gasoline and an
expansion in the equilibrium quantity?
a. an increase in the price of crude oil, a key ingredient required for the production of
gasoline
b. the introduction of a miracle carburetor that substantially improves the gas mileage
of automobiles
c. a recession that substantially reduces the income of households
d. an increase in the popularity and use of Sport Utility Vehicles that consume a lot of
gasoline per mile driven
Compared to a no-trade situation, if Italy imported wine,
a. the price of domestic Italian wine would decline.
b. Italian wine producers would increase their prices.
c. Italian wine producers would increase their profits.
d. domestic wine production in Italy would expand.
“Government failure” exists when political decision-makers choose actions that
a. seek efficient outcomes rather than fair outcomes.
b. seek fair outcomes rather than efficient outcomes.
c. conflict with efficient allocation of resources.
d. conflict with the outcome favored by the majority of voters.
In the short run, if prices were above equilibrium,
a. excess aggregate demand for goods and services would place downward pressure on
prices.
b. excess aggregate supply of goods and services would place upward pressure on
prices.
c. excess aggregate demand for goods and services would place upward pressure on
prices.
d. excess aggregate supply of goods and services would place downward pressure on
prices.
Which of the following is often referred to as the basic postulate of economics?
a. Individuals act only out of selfish motives.
b. Incentives matter–individuals respond in predictable ways to changes in personal
costs and benefits.
c. The accuracy of the assumptions is the best test of an economic theory.
d. The value of a good is objective; it is equal to the cost of producing the good.
The crowding-out effect refers to the possibility that an
a. increase in the money supply will result in a decline in taxes.
b. increase in consumption spending will crowd out government spending.
c. increase in private savings will crowd out the taxable income of households.
d. increase in government borrowing will result in higher interest rates, which will
crowd out private investment and consumption.
If an unanticipated decrease in aggregate demand results in an output below the
economy’s long-run capacity, long-run equilibrium will eventually be restored by
a. an increase in the rate of inflation.
b. lower resource prices and lower real interest rates.
c. higher resource prices and higher real interest rates.
d. a decrease in the natural rate of unemployment.
Figure 4-25
Refer to Figure 4-25. Consumer surplus before the tax was levied is represented by area
a. A.
b. A + B + C.
c. D + E + F.
d. F.
Which of the following is a valid reason for government provision rather than market
provision of certain economic goods and services?
a. When the government provides economic goods, they are free; costs are only
incurred when such goods are provided by private firms.
b. Voters tend to be better informed than market consumers.
c. Decision makers in the market are motivated by self-interest, whereas, political
decision makers are primarily motivated by the desire to help others.
d. Public goods tend to be undersupplied through the market since it is difficult for
potential suppliers to withhold such goods from nonpaying consumers, while the
government can use taxes to overcome this problem.
Use the figure to answer the following question(s).
Figure 10-3
If the cost and demand conditions of this competitive price-searcher firm depicted in
Figure 10-3 are representative of the market, what will happen in the future?
a. Firms will go out of business, and the market price will rise.
b. The current market price will tend to persist into the future.
c. New firms will enter the market, and the market price will decline.
d. The firms in this industry probably will collude in order to increase their profitability.
A depreciation of one’s currency means that
a. the country’s exports will become more expensive.
b. the country’s imports will become more expensive.
c. the country’s imports will become less expensive.
d. it now requires less of this currency in exchange for one unit of another currency.
e. it now requires more units of other currencies in exchange for one unit of this
currency.
If the quantity of euro demanded were greater than the quantity supplied, then the price
of the
a. euro would rise.
b. euro would fall.
c. dollar would rise.
d. euro would be in equilibrium.
Environmental regulation by the government
a. leads to ideal outcomes in most cases.
b. is often based on goals for pollution levels that were determined by market signals.
c. is most appropriate when the pollution of concern comes from many sources.
d. is most likely to be economically efficient when the regulation provides substantial
benefits for special-interest groups.