The small city of Pleasantville is considering building a public swimming pool that
costs $1,000. Each resident’s marginal benefit of the swimming pool is shown below.It
takes a 4/5 majority to pass any tax measure, and all residents must vote.
The total social benefit of the swimming pool is:
A. $1,490.
B. $1,000.
C. $1,590.
D. $1,120.
Lower nominal interest rates ______ the amount of money demanded and lower real
income ______ the amount of money demanded.
A. increase; increases
B. increase; decreases
C. increase; does not change
D. decrease; decreases
In Econland autonomous consumption equals 700, the marginal propensity to consume
equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government
purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate
expenditure equals:
A. 990 + 0.20Y.
B. 900 + 0.80Y.
C. 940 + 0.80Y.
D. 990 + 0.80Y.
In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars
government purchases must be:
A. increased by $1 billion.
B. decreased by $1 billion.
C. increased by more than $1 billion.
D. increased by less than $1 billion.
Ted and Alice want to make sure that their children will inherit lots of money when they
die, so that their children do not have to struggle the way they themselves did. Saving
more in response to this is a______ reason for saving.
A. life-cycle
B. bequest
C. private
D. precautionary
An economy produces 1,000,000 computers valued at $2,000 each. Households
purchase 200,000 computers, of which 100,000 are imported. Businesses purchase
300,000 domestically produced computers, the government purchases 300,000
domestically produced computers, and 100,000 domestically produced computers are
sold abroad. At the end of the year, the computer manufacturers hold the unsold
computers in inventory. What is the value of GDP?
A. $0.9 billion
B. $1.0 billion
C. $1.8 billion
D. $2.0 billion
If it is possible to make a change that will help some people without harming others,
then the situation is:
A. efficient.
B. inefficient.
C. fair.
D. unfair.
Low expected inflation leads to ____ increases in wages and costs and to ____ actual
inflation.
A. large; high
B. large; low
C. small; low
D. small; high
Suppose Acme and Mega produce and sell identical products and face zero marginal
and average cost. Below is the market demand curve for their product.
Suppose Acme and Mega decide to collude and work together as a monopolist with
each firm producing half the quantity demanded by the market at the monopoly price. If
Mega cheats on the agreement by reducing its price to $1 while Acme continues to
comply with the collusive agreement, then Mega will then sell ______ units and Acme
will sell ______ units.
A. 150; 50
B. 100; 50
C. 150; 0
D. 100; 0
The insight that people can always arrive at efficient solutions to the problems caused
by externalities if they can negotiate the purchase and sale of the right to perform
activities that cause externalities is called the _______.
A. Sherman Act
B. Coase Theorem
C. tragedy of the commons
D. prisoner’s dilemma
Frictional unemployment is:
A. the unemployment that results when people retire or leave the labor force.
B. the additional unemployment not captured in official statistics resulting from
discouraged workers and involuntary part-time workers.
C. the extra unemployment that occurs during periods of recession.
D. short-term unemployment that is associated with the process of matching workers
with jobs.
Refer to the table below. The marginal benefit of the 6th unit of activity is:
A. $1
B. $2
C. $4
D. $7
If the percentage change in the price of a good is less than the resulting percentage
change in the quantity demanded of that good, then the demand for that good is:
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly inelastic.
Hotelling’s model has been used to describe differentiation in the political “market.”
Suppose that 100 voters are evenly distributed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
If Candidate X is running for office against Candidate Z, then:
A. all voters to the left of Z will vote for X, and all voters to the right of Z will vote for
Z.
B. all voters who would have voted for Y will vote for X.
C. Candidate Z will win.
D. Candidate X might win.
Although GDP is not the same as economic well-being, high levels of GDP are
positively correlated with all of the following except:
A. longer life expectancies.
B. higher rates of literacy.
C. higher material standards of living.
D. higher rates of infant mortality.
Which of the following expenditures would increase the consumption component of
U.S. GDP?
A. You buy a new house.
B. You buy a pizza.
C. You buy 1,000 shares of stock.
D. You buy a used book about finance.
Refer to the table below. An output level of 25 units, this firm’s accounting profit is
______, and its economic profit is ______.
A. zero; $8
B. $125; $113
C. $125; zero
D. zero; -$8
A firm’s demand for labor will increase if
A. the price of the firm’s output increases.
B. the price of the firm’s output decreases.
C. the marginal product of labor decreases.
D. the wage rate rises.
A government policy to build bridges and dams is an example of a policy to promote
economic growth by:
A. increasing human capital.
B. increasing physical capital.
C. improving technology.
D. improving the social and legal environment
If resources are misallocated in a perfectly competitive market, then in the long run
profit opportunities will:
A. bring about a more efficient allocation of resources.
B. bring about a less efficient allocation of resources.
C. not bring about a reallocation of resources unless there is government regulation.
D. not bring about a reallocation of resources unless firms are subsidized.
Refer to the figure below. This graph describes a good that:
A. generates positive externalities.
B. should be banned.
C. generates negative externalities.
D. the government should subsidize.
Suppose the production of cotton causes substantial environmental damage because the
pesticides used by cotton farmers often make their way into nearby rivers and streams,
and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for
the environmental damage caused by the pesticides used to grow cotton, then the
market equilibrium price will be ______ and the market equilibrium quantity will be
______.
A. inefficiently high; inefficiently low
B. inefficiently high; inefficiently high
C. inefficiently low; inefficiently high
D. inefficiently low; inefficiently low
Miniville is an isolated town located on the southern shore of Lake Condescending, a
very large lake. The western edge of Miniville is adjacent to impassable mountains and
there are no towns or businesses for many miles to the east. The 300 residents of
Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the
mountains. Lake Shore Drive, the only street in town, provides access to Miniville’s
homes and businesses. All residents live between the lake and the street; businesses
locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points
labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive,
respectively. All residents of Miniville shop at the store located closest to their homes.
Because all residents of Miniville shop at the store located closest to their homes, the
optimal location for the first store to open in Miniville is:
A. at the western end of Lake Shore Drive.
B. there is no single optimal location for the first store.
C. Point A.
D. Point C.
Suppose there are three power-generating plants, each of which has access to 5 different
production processes. The table below summarizes the cost of each production process
and the corresponding number of tons of smoke emitted each.
process
For all three firms, the marginal cost of pollution abatement is:
A. increasing
B. decreasing
C. constant
D. decreasing and then increasing
Refer to the figure below.
If a price ceiling were imposed at point G, the consumer surplus would be represented
by the area ______.
A. BJEH
B. BAEH
C. JAE
D. GAEF
Taken together, factors such as education, training, experience, intelligence, and work
habits are known as:
A. statistical discrimination factors.
B. human capital.
C. productivity factors.
D. learned behaviors.
During times of high unemployment, colleges often observe an increase in enrollment
even if tuition remains unchanged. Why?
A. Students go to college even when the net benefit is negative.
B. The opportunity cost of attending college is lower when unemployment is high.
C. The opportunity cost of attending college is higher when unemployment is high.
D. The benefit of attending college is lower because college graduates are less likely to
find jobs.
The assumption that firms meet the demand for their products at preset prices is the key
assumption upon which ______ is built.
A. the basic Keynesian model
B. Okun’s Law
C. the supply and demand model
D. quantity equation for money
The following table provides data for an economy in a certain year._
Given the data in the table, compute the investment component of GDP.
A. 300
B. 400
C. 800
D. 900
If two countries are economically identical except that there is significant air and water
pollution in one, then the level of GDP:
A. will be higher in the country with pollution.
B. will be higher in the country with no pollution.
C. will be the same in both countries.
D. will be greater than the level of economic well-being in each country.
Sydney purchases a newly issued, two-year government bond with a principal amount
of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures
(and after receiving the coupon payment for the first year), Sydney sells the bond in the
bond market. What price (rounded to the nearest dollar) will Sydney receive for his
bond if newly issued one-year government bonds are paying a 5% coupon rate?
A. $9,906
B. $10,000
C. $10,095
D. $10,600
All of the following tend to make economic policymaking difficult and inexact except
the:
A. lack of precise knowledge about the state of the economy.
B. inability to develop statistical models of the economy.
C. lack of knowledge about the future course of the economy if no policy changes are
implemented.
D. imprecise knowledge of the level of potential output.
Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled
D(Monday). On Tuesday, the news featured a story explaining that the coffee crop has
been contaminated with disease-causing bacteria. The following week:
A. the demand function remained at D(Monday), but the quantity demanded decreased.
B. demand shifted to D(A) because some people decided to stop drinking coffee in light
of the health hazard.
C. demand shifted to D(B) in anticipation of future price increases.
D. there would be no change in either the demand function or the quantity demanded
because not enough time had passed for the report’s effects to be felt.