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What famous economist said, "By pursuing his own interest he (an individual)
frequently promotes that of the society more effectually than when he really intends to
promote it?"
a. Alfred Marshall.
b. Adam Smith.
c. Karl Marx.
d. Robert L. Heilbroner.
The television network newscaster reports that the national inflation rate the past year
equaled 4 percent. This report would be of particular interest to a ____.
a. microeconomist.
b. normative economist.
c. macroeconomist.
d. Ceteris paribus.
e. social science economist.
The economy is considered to be at full employment when:
a. the actual rate of unemployment is less than the natural rate.
b. the leading economic indicators are unchanged for two consecutive quarters.
c. structural unemployment is zero.
d. frictional plus structural unemployment is less than the natural rate.
e. the rate of cyclical unemployment is zero.
Many student government candidates at colleges and universities propose rent controls
on local rental housing as a way to help students afford rental housing. Economic
theory suggests that this policy would harm students as a whole despite the fact that
some students who are able to find housing at the reduced price would benefit. Which
of the following are some of the offsetting secondary effects of the rent controls that
would work to the disadvantage of students?
a. There would be a shortage of rental housing, making it very difficult for students to
find places to rent and causing increased discrimination in the rental housing market.
b. There would be a reduction in the quality of rental housing.
c. There would be a reduction in the future supply of rental housing.
d. All of these would be secondary effects of the rent controls.
That part of disposable income not spent on consumption is:
a. saved.
b. invested.
c. wasted.
d. borrowed.
Cindy discovers that when she goes to the beach, she does not have to bring her radio.
She can put her blanket near someone who has a radio and listen all day (without
having to carry her radio, get sand in her speakers, or buy new batteries). This is an
example of:
a. private property abuse.
b. external costs.
c. a negative externality.
d. a positive externality.
Consider the Keynesian consumption function. If disposable income is greater than the
break-even level of disposable income, then households will be:
a. investing.
b. borrowing.
c. dissaving.
d. saving.
The Fed's countercyclical policy tools to eliminate a recession include lowering:
a. the required reserve ratio, cutting the discount rate, and selling government bonds on
the open market.
b. the required reserve ratio, raising the discount rate, and selling government bonds on
the open market.
c. the required reserve ratio, raising the discount rate, and buying government bonds on
the open market.
d. the discount rate, cutting the discount rate, and raising the margin requirement.
e. the reserve requirement, lowering the discount rate, and buying government bonds on
the open market.
The GDP chain price index is designed to adjust nominal GDP for changes in:
a. the level of transfer payments.
b. the quality of goods over time.
c. the costs of economic bads such as pollution and crime.
d. the general level of prices over time.
The rational expectations theory indicates that expansionary policy will:
a. stimulate real output in the long run but not in the short run.
b. expand real output and employment if the public quickly anticipates the effects of the
expansionary policy.
c. equalize real and nominal interest rates during lengthy periods of inflation.
d. fail to increase employment because individuals will anticipate it and take actions
that will offset its impact.
Exhibit 10-6 Aggregate supply curve
In Exhibit 10-6, where the
GDP = $1,200 billion,
a. everyone willing to work at the current wage is employed.
b. the economy has reached full employment.
c. GDP can increase to $1,100 billion without triggering an increase in the price level.
d. no further increases in the price level can generate more real GDP.
e. further increases in the price level must generate lower levels of employment.
Flexible, or floating, exchange rate is determined by the:
a. World Bank.
b. forces of supply and demand.
c. price of gold.
d. Federal Reserve.
The stock of money people hold to pay everyday predictable expenses is the:
a. transactions demand for holding money.
b. precautionary demand for holding money.
c. speculative demand for holding money.
d. store of value demand for holding money.
Two goods that are substitutes are:
a. bacon and eggs.
b. camera and film.
c. tennis racket and tennis balls.
d. movie theater tickets and video rentals.
e. coffee and cream.
