People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of
producing an extra bottle of water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra
bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices
than producers of water have to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for
life.
Trade restrictions like tariffs and quotas will
a. protect American jobs and increase employment.
b. ensure that more dollars stay in the United States.
c. reduce the value of goods and services that we will be able to produce and consume.
d. make all Americans better off.
Use the figure below to answer the following question(s).
Figure 10-1
At which point in Figure 10-1 is the economy experiencing an economic boom?
a. A
b. B
c. C
d. D
If a German student pays her way to attend Harvard University, her actions will
a. create a supply of dollars and a demand for Euros in the foreign currency market.
b. create a supply of Euros and a demand for dollars in the foreign currency market.
c. cause the German Euro to appreciate.
d. cause the U.S. dollar to depreciate.
Which of the following guarantees the deposits in almost all banks up to a $250,000
limit per account?
a. the Federal Reserve
b. the FDIC
c. the U.S. Treasury
d. Bank of America Corporation
Public choice analysis indicates that elected political officials will find debt financing
a. unattractive because voters will recognize that excessive debt will lead to the future
collapse of the economy.
b. attractive because countries with a higher debt to GDP ratio generally grow more
rapidly.
c. unattractive because both politicians and voters will recognize that a larger
outstanding debt will mean higher future taxes.
d. attractive because current spending can provide voters with highly visible goods,
services, and transfer payments, while borrowing will push the most visible cost of this
spending into the future.
Which of the following contributed to the weak recovery from the 2008-2009
recession?
a. constant policy changes that generated uncertainty and undermined private
investment
b. the restrictive monetary policy followed by the Fed
c. the tax increases instituted by a Congress intent on balancing the budget
d. the inability of the federal government to borrow because of the sharply higher
interest rates
Use the figure below to answer the following question(s).
Figure 10-1
At which point in Figure 10-1 is the economy at long-run equilibrium?
a. A
b. B
c. C
d. D
A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your
opportunity cost of actually attending the concert is
a. $30.
b. $45.
c. $75.
d. $120.
Which of the following is true?
a. Changes in personal costs and benefits will exert a predictable influence on the
choices of people.
b. If one individual gains from an economic activity, then someone else must lose.
c. If a good is provided free to an individual by government, its production will not
consume valuable scarce resources.
d. If the intentions behind a policy are good, you can be assured that the outcome will
be desirable.
The coordination problem accompanying expansionary fiscal policy refers to
a. the tendency of increases in government expenditures to expand private sector output
by an even larger amount.
b. the possibility that demand stimulus programs will direct resources toward
unproductive projects and areas of full employment.
c. the possibility that borrowing to finance current spending will lead to lower future
interest rates.
d. the reluctance of Congress to approve increases in government spending during a
recession.
The paradox of excessive consumption argues that when households spend all they
earn,
a. actual output and potential output will be in equilibrium.
b. the financial anxiety of families will be low.
c. the economy will achieve rapid, sustainable growth.
d. consumption can stagnate because families are in a poor position to deal with
increases in debt and financial setbacks.
Positive economics
a. postulates relationships among economic variables that are potentially refutable by
real-world events.
b. is strictly quantitative and is, therefore, of little value to policy makers.
c. will usually indicate which economic policy is best.
d. is the same as normative economics.
If you win the lottery this would be great for you, but if everyone simultaneously won
the lottery this wouldn’t be nearly as good, why?
a. association is not causation
b. it is a violation of ceteris paribus
c. the fallacy of composition
d. what appear to be positive outcomes in society are actually normative.
If the firm’s fixed costs double while variable costs are unchanged, then
a. marginal cost more than doubles.
b. marginal cost doubles.
c. marginal cost remains unchanged.
d. average total cost remains unchanged.
e. average variable cost doubles.
Which of the following will lead to a decrease in aggregate demand in the United
States?
a. a higher price level
b. a decrease in the real interest rate
c. rapid growth in real income in Japan and Western Europe
d. an increase in the exchange rate value of the dollar
Which of the following statements about exchange is false?
a. The expectation of gain motivates people to engage in trade.
b. If a party to a potential exchange does not believe that it will lead to personal gain, he
or she can chose not to engage in the trade.
c. Voluntary exchange is generally mutually beneficial to the trading partners.
d. If one trading partner gains, the other must lose.
If the Fed wanted to expand the money supply as part of an antirecession strategy, it
could
a. increase the reserve requirements.
b. buy U.S. securities on the open market.
c. raise the discount rate.
d. sell U.S. securities on the open market.
Which of the following would be expected if the tariff on foreign-produced shoes were
decreased?
a. The domestic price of shoes would fall.
b. The supply of foreign shoes to the domestic market would decline, causing shoe
prices to rise.
c. The number of unemployed workers in the domestic shoe industry would decline.
d. The demand for foreign-produced shoes would decrease, causing the price of shoes
to increase in other nations.
High marginal tax rates, such as those instituted during the Great Depression, will
a. increase the incentive of people to earn.
b. lead to a proportional increase in tax revenue and a reduction in the size of the budget
deficit.
c. cause people to work, earn, and invest less than would be the case if marginal tax
rates were lower.
d. attract workers from other countries where tax rates are lower.
Modern economics as a field of study is usually thought to have begun with
a. Adam Smith and the writing of The Wealth of Nations.
b. David Ricardo and the writing of The Principles of Political Economy and Taxation.
c. Aristotle and the writing of Politics and Ethics.
d. Moses and the Ten Commandments.
Suppose a new oxygen-enrichment process will cut in half the energy required to smelt
copper. The firm selling licenses for this patented process will experience a greater
demand for its product when
a. the price of copper falls and smelters become more desperate to economize.
b. energy prices are expected to fall.
c. energy prices are expected to rise.
d. the price of steel, a substitute for copper, declines.
Which of the following is likely to push the federal debt increasingly higher in the
coming decades?
a. a strong rebound from the recession of 2008-2009
b. increased expenditures on the Social Security and Medicare programs
c. an increase in tax revenues as the baby boom generation retires
d. increased political pressure to balance federal budgets
Which of the following would lead to an increase in the demand for rental apartments in
your area?
a. a reduction in the rental price of apartments
b. a sharp increase in the number of out-of-town students attending the local college
c. an increase in the cost of the materials used to construct apartment units.
d. an increase in unemployment and reduction in the income of people in your area
Which of the following is the most likely outcome of minimum wage laws?
a. an increase in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
b. an increase in the quantity of labor supplied by workers and a decrease in the
quantity of labor demanded by firms
c. a decrease in the quantity of labor supplied by workers and an increase in the quantity
of labor demanded by firms
d. a decrease in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent,
the
a. price level must have increased approximately 2 percent compared to the prior year.
b. price level must have decreased approximately 2 percent compared to the prior year.
c. price level must have decreased approximately 50 percent compared to the prior year.
d. unemployment rate must have increased during the year.
During the past 200 years, income per person has
a. increased in the developed countries of Western Europe and North America, but
declined in the rest of the world.
b. declined in the developed countries of Western Europe and North America, but
increased in the rest of the world.
c. increased far more rapidly in both developed and less developed countries than
during the centuries prior to 1800.
d. Increased far less rapidly in both developed and less developed countries than during
the centuries prior to 1800.
Which of the following is true for the world as a whole?
a. During the past 200 years, the income per person of the world has increased sharply,
but there has been little change in the years of life expectancy at birth.
b. During the past 200 years, the years of life expectancy at birth has increased sharply,
but there has been little change in the world’s income per person.
c. During the 800 years between 1000 and 1800, the increases in both world income per
person and life expectancy at birth were small, but both of these indicators have
increased sharply during the past 200 years.
d. Both income per person and life expectancy rose steadily during 1000-1800, but
neither of these indicators have increased much during the past 200 years as the
population of the world has become larger and larger.
Figure 3-23
Refer to Figure 3-23. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
When a supply and demand model is used to analyze the market for labor,
a. demand is generally no longer downward sloping.
b. the wage rate is used on the vertical axis as the market price.
c. employment is used on the horizontal axis as the market quantity.
d. both b and c.
In recent years, people have benefited from greater amounts of leisure time. This trend
a. has caused GDP to rise.
b. has caused GDP to fall.
c. made GDP fluctuate randomly
d. is not accounted for in GDP.
The exchange rate is
a. the price of one nation’s currency in terms of the currency of another nation.
b. the amount households will spend on imports.
c. the amount of foreign capital a nation receives when there is a trade surplus.
d. the amount charged by bankers for loanable funds
The Jones family has always been in the business of manufacturing and selling
automobile tires. Usually the profit they earn is reinvested in the business. This year
Seth, the youngest son, wants to invest the profit into starting a candy company. If Seth
is a shrewd businessman, what does his suggestion indicate?
With a strong and active federal government, why do we need state and local
governments?
Andy wants to maximize his grade-point average. Having spent six hours studying for
his final exam in economics, Andy calculates his grade and discovers that even with a
perfect score on the final, he will not pass the course. He decides to study two more
hours so he will not have wasted the first six hours. Is this a good decision? Why or
why not?
“My broker studies the stock market and the management of specific firms. When he
advises me to buy, I listen because he is an expert.” Analyze this view.
What are the proper monetary and fiscal responses to a recession under the activist view
and the nonactivist view?
Are abundant natural resources good or bad for economic growth?
Mr. Jones pays his employees by the hour. He believes they purposely work slowly to
maximize their personal satisfaction. What can he do to provide them with a stronger
incentive to work efficiently?
The Redwood City Council has decided that there is an overallocation of resources in
the lawn-care industry. Almost every homeowner owns a lawnmower, hose and
sprinkler, seeder, spreader, etc., and these items are used, at most, once a week. The
council will establish a legal monopoly and select a private firm that will be responsible
for all lawn care in the city. What types of rent-seeking activities can be expected as a
result of this action?
A radio station gives “free money” to those listeners whose names are drawn and
announced over the airwaves from postcards the listeners sent into the radio station. Is
the money really free for the listener?
Discuss the changes that have and will in the future affect the usefulness of the M1 and
M2 money supply figures as indicators of monetary policy.
If a firm operates in a competitive industry and its unionized labor force is successful in
bargaining for a wage increase, where is the firm likely to get the money to pay the
higher wages?
A survey of income by county revealed that four of the five wealthiest counties were
located in the suburbs surrounding Washington, D.C. Why?
How has macro-policy changed since the 1970s? How have the views of economists on
the trade-off between inflation and unemployment changed?
What benefits are to be gained from countries producing according to the law of
comparative advantage? What if a country is absolutely more productive in all goods?
How do new classical economists differ from Keynesian economists in their
assumptions about how government borrowing affects household consumption and
borrowing patterns?
According to the monetarists, what is the primary cause of a recession? Explain the
steps by which reductions in the money supply lead to reductions in real output.
Discuss the problems with GDP as a measure of a country’s current production and
income.
Suppose you had the choice of attending two universities. University A pays all of its
professors the same wage and awards the same raises. University B pays each professor
according to market wages and productivity. Which university would you rather attend
and why?
Suppose we coupled the pay of Congress with the federal budget, so that for every
billion dollars of deficit spending, a lawmaker’s pay would be reduced $1,000. How
would this affect fiscal policy?