Property right enforcement and markets can be imperfect, so environmental regulations
are often used to correct market failures that result in environmentaldamages. But
governmental regulation itself can be imperfect because
a. both environmental harms and the benefits of reducing them are uncertain and
difficult to measure.
b. regulation overrides the market, and therefore the regulators do not have market
information on the costs imposed on damaged parties or those required to reduce the
damages.
c. special interests often use the regulatory process to obtain political favors that waste
resources and conflict with the stated objectives of the regulation.
d. all of the above are true.
Figure 17-9
Refer to Figure 17-9. Without trade, the equilibrium price of carnations is
a. $8 and the equilibrium quantity is 300.
b. $6 and the equilibrium quantity is 200.
c. $6 and the equilibrium quantity is 400.
d. $4 and the equilibrium quantity is 500.
The Fed’s use of the interest rate it pays banks on their excess reserves
a. is a tool the Fed has used effectively over the past several decades to control the
money supply.
b. is a tool that can be used to reduce the supply of money, but it cannot be used to
expand it.
c. is a monetary tool that the Fed introduced in 2008.
d. is a tool that could be used to expand the money supply, but it could not be used to
reduce it.
Will a large quantity of bonds held in the Social Security Trust Fund make it easier to
deal with the retirement of the baby boomers?
a. Yes; the federal government will be able to redeem these bonds in the future without
raising taxes or increasing its borrowing.
b. Yes; the interest on these bonds will provide the federal government with a stream of
net revenue in the future.
c. Yes, but only if the federal government holds these bonds until they mature.
d. No; the federal government cannot redeem the bonds without raising revenues for
their redemption from other sources.
Which of the following is most likely to be associated with a strong union?
a. The demand for the products produced by the unionized labor is highly elastic.
b. There are few good substitutes for the products produced by the unionized labor.
c. It is easy to substitute capital for the labor of the union members.
d. Union labor composes a large proportion of the total cost of the product that they
help produce.
Which of the following would be likely to cause a nation’s currency to depreciate?
a. an increase in foreign demand for the nation’s products
b. a lower domestic rate of inflation than that of the nation’s trading partners
c. higher domestic interest rates
d. higher foreign interest rates
Which of the following will be required for a country to move up the income ladder and
achieve high-income status?
a. rapid growth of the money supply.
b. restrictions limiting the import of goods from other nations, particularly low-wage
countries.
c. tax incentives that encourage consumption rather than investment
d. sustained economic growth
There are 1,000 identical firms in a price-taker industry. In the short run, total revenues
of each firm exceed total costs. What will happen in the long run?
a. Nothing, because each firm is already maximizing its profits.
b. Many firms will enter the market and each firm will eventually operate at a loss.
c. Additional firms will enter the market, and price will be driven down to where each
firm will be making just enough to stay in business.
d. Additional firms will enter the market, but the price will remain the same because the
existing firms will not allow price to decrease.
In the short run, a firm that is a price taker will stay in business as long as
a. price equals average revenue.
b. marginal revenue is greater than or equal to marginal cost.
c. price exceeds average variable cost.
d. price is less than average variable cost.
One of the effects of patents is to
a. reduce incentives for innovation.
b. give firms incentives to worry less about minimizing production costs.
c. temporarily provide the patent owner with monopoly power.
d. reduce the degree of monopoly power in the short run.
When the money supply declined by approximately 30 percent during the 1929 through
1933 period,
a. real output increased.
b. the general level of prices increased.
c. the velocity of money increased by a proportional amount.
d. unemployment increased.
Higher prices for natural resources are
a. a natural and inevitable result of resource depletion.
b. not possible for more than a short time, as technological advances clearly guarantee
falling resource prices.
c. not the story of the last two centuries, because resource prices have declined through
most of this period.
d. the major cause of resource shortages in the world.
Use the figure to answer the following question(s).
Figure 11-6
If the output in the industry is produced by a monopolist, at what price will the good
sell and what quantity will be produced in Figure 11-6?
a. price, P1; quantity produced, Q1
b. price, P2; quantity produced, Q2
c. price, P3; quantity produced, Q1
d. price, P3; quantity produced, Q2
If an economy’s capital stock is greater at the end of the year than at the beginning of
the year, over this period,
a. net investment has been positive.
b. depreciation has exceeded net investment.
c. depreciation has exceeded gross investment.
d. net investment has exceeded gross investment.
Figure 4-17
Refer to Figure 4-17. If the government imposes a price ceiling in this market at a price
of $5.00, the result would be a
a. shortage of 20 units.
b. shortage of 10 units.
c. surplus of 20 units.
d. surplus of 10 units.
Economists who believe that policy errors are the source of economic instability argue
that the crisis of 2008 was primarily the result of
a. housing regulations that undermined sound lending practices and Fed policies that
generated the housing boom and bust.
b. the stock market crash.
c. the actions of speculators who drove up the world price of oil, the domestic price of
gasoline, and other energy sources.
d. persistently high interest rates during the decade leading up to the crisis.
The expenditure multiplier indicates that
a. changes in investment, government, or consumption spending can trigger much larger
changes in output.
b. an increase in saving will cause output to rise by a multiple of the additional saving.
c. a market economy will be more stable than classical economists thought.
d. the marginal propensity to consume is greater than one.
Figure 3-21
Refer to Figure 3-21. At the quantity Q2,
a. the value to buyers and the cost to sellers are both P2.
b. the value to buyers is P2 and the cost to sellers is P3.
c. the value to buyers and the cost to sellers are both P3.
d. the value to buyers is P3 and the cost to sellers is P2.
If a reduction in government borrowing leads to lower real interest rates in the United
States,
a. U.S. investors will decrease their investments abroad.
b. U.S. exports will decrease relative to imports.
c. the inflow of loanable funds from abroad will moderate the fall in the real rate of
interest.
d. the dollar will depreciate in the foreign exchange market.
Which of the following would help control the future costs of healthcare?
a. a new government program that would cover the cost of prescription drugs purchased
by all healthcare consumers
b. an increase in the share of healthcare expenditures financed with low co-payment
insurance
c. allowing consumers to purchase healthcare insurance from out-of-state providers
d. an increase in the tax benefits of purchasing healthcare through one’s employer
The primary source of revenue for the Federal Reserve is
a. the interest earned on the bonds held by the Fed.
b. its annual appropriation from Congress.
c. the interest earned on discount loans to banks.
d. the dividends earned on the stocks held by the Fed.
Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12
trillion and that the GDP deflator rose from 100 to 150. Which of the following
expresses GDP for 2009 in terms of 1999 prices?
a. $7.5 trillion
b. $8.0 trillion
c. $9.0 trillion
d. $18.0 trillion
Which of the following will most likely increase aggregate supply in the long run?
a. unfavorable weather conditions in agricultural areas
b. an increase in the expected inflation rate
c. higher real interest rates
d. an increase in the rate of capital formation
As output rises, marginal product eventually diminishes and
a. marginal cost increases.
b. total cost falls.
c. fixed cost increases.
d. average product becomes negative.
The government is pursuing an expansionary fiscal policy if it
a. decreases government spending and increases taxes.
b. increases government spending or increases taxes.
c. decreases government spending or reduces taxes.
d. increases government spending and/or reduces taxes.
Suppose the labor-force participation rate of men is greater in Troy than in Sparta. This
could be because the men of Troy
a. spend more time in school and have earlier and longer retirements than men in
Sparta.
b. spend more time in school and have later and shorter retirements than men in Sparta.
c. spend less time in school and have earlier and longer retirements than men in Sparta.
d. spend less time in school and have later and shorter retirements than men in Sparta.
Over the last 60 years, the average annual growth of real GDP in the United States has
been approximately
a. 1 percent.
b. 3 percent.
c. 5 percent.
d. 9 percent.
When the markets of an economy are more competitive, economic growth
a. is harmed by the resulting low rates of profit for industry.
b. is enhanced because producers have a stronger incentive to provide goods efficiently.
c. will be slower because prices do not rise as rapidly.
d. is unaffected.
Which one of the following will most likely be harmed by legislation exempting
teenagers from the minimum wage?
a. a high school student seeking a part-time job
b. a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled
teenagers in the employment market
c. a large family that often employs the services of low-skilled, part-time workers
d. an illiterate 40-year-old worker with few labor skills
If the consumer sentiment index turns down sharply over a period of several months,
which of the following is most likely to occur in the near future?
a. an increase in aggregate demand and expansion in real output
b. a reduction in aggregate demand and a contraction in real output
c. a reduction in aggregate demand and expansion in real output
d. an increase in aggregate demand and a contraction in real output
Which of the following developments will most likely lead to an increase in the
velocity of money?
a. a decrease in the expected inflation rate
b. an increase in money interest rates
c. a sharp decline in using credit cards
d. a decrease in real income
The rational expectations hypothesis implies that use of discretionary macro-policy as a
stabilization tool will
a. be ineffective, even in the short run.
b. be effective in the short run but ineffective in the long run.
c. be effective both in the short run and long run.
d. make it possible to trade-off a higher rate of inflation for a lower rate of
unemployment.