Countries with more economic freedom tend to invest a ____ share of their GDP and
the productivity of that investment is ____ than for countries that are less free. (Fill in
the blanks.)
a. larger; higher
b. larger; lower
c. smaller; higher
d. smaller; lower
If firms in competitive price-searcher markets are earning economic losses, what effect
will the exit of existing firms have?
a. Demand for the product of each firm will be reduced until the losses are eliminated.
b. Demand for the product of each firm will increase until all firms earn zero profit.
c. Demand for the product of each firm will increase until price is greater than average
total cost.
d. Demand for the product of each firm will fall until price equals marginal cost.
During the 1960s, most economists believed that expansionary macro-policy
a. that caused inflation would permanently reduce unemployment.
b. that caused inflation would permanently increase unemployment.
c. could not be utilized to reduce unemployment.
d. did not affect inflation.
Suppose the economy is initially in long-run equilibrium and then it experiences a
supply shock in the form of sharply higher energy prices. Which of the following is
true?
a. The short-run aggregate supply curve shifts leftward and the long-run supply curve
shifts rightward.
b. The short-run aggregate supply curve shifts rightward and there is a movement along
the aggregate demand curve.
c. The short-run aggregate supply curve does not shift and the long-run aggregate
supply curve shifts rightward.
d. The short-run aggregate supply curve shifts rightward but the long-run aggregate
supply curve does not shift.
e. The short-run aggregate supply curve shifts leftward and there is a movement along
the aggregate demand curve.
Which of the following makes it more likely that a country will get caught in a vicious
circle of debt financing, higher taxes, and sluggish growth?
a. Politicians like to raise taxes, but they are reluctant to spend on education, health
care, and roads.
b. High levels of debt will eventually lead to higher taxes just to pay the interest on the
debt, but high taxes will slow economic growth.
c. As outstanding debt increases, politicians will be reluctant to run budget deficits,
which will cause the economy to slow.
d. As outstanding debt increases, short-sighted politicians will want to run large budget
surpluses in order to pay off the national debt quickly.
If price rises, what happens to the demand for a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain–economic theory has no answer to this question.
Between 1960 and 2012, the proportion of workers belonging to a union
a. decreased substantially in the private sector.
b. was approximately constant in the private sector.
c. decreased substantially in the government sector.
d. was approximately constant in the government sector.
Use the figure to answer the following question(s).
Figure 9-9
When the market price is $60 in Figure 9-9, the firm’s maximum daily profit will be
approximately
a. zero.
b. $100.
c. $900.
d. $1,200.
The international substitution effect exists because a
a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will make domestically produced goods less expensive relative to
foreign goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will encourage Americans to import more foreign goods.
Compared to the outcome when the firms are price takers, competitive price-searcher
markets will result in
a. a wider variety of products and higher prices.
b. less product variety and higher prices.
c. a wider variety of products and lower prices.
d. less product variety and lower prices.
If the government wants to raise tax revenue and shift most of the tax burden to the
consumers, it would impose a tax on a good with a
a. flat (elastic) demand curve and a steep (inelastic) supply curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. steep (inelastic) demand curve and steep (inelastic) demand curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.
When economists say goods are scarce, they mean
a. consumers are too poor to afford the goods and services available.
b. consumers are unwilling to buy goods unless they have very low prices.
c. goods are generally freely available from nature in most countries.
d. the desire for goods and services exceeds our ability to produce them with the limited
resources available.
Which of the following is a major deficiency of fiscal policy as a stabilization tool?
a. Congress is reluctant to make changes in either taxes or expenditures.
b. The Constitution requires the president to submit and Congress to pass a balanced
budget.
c. Both political and economic factors make it unlikely that changes in fiscal policy will
be timed correctly.
d. A change in fiscal policy exerts major effects on the economy quickly.
Which of the following is true?
a. Managed equity funds that have yielded attractive returns during the last 5 or 10
years can generally be counted on to yield similar returns in the future.
b. Managed funds generally outperform indexed equity mutual funds.
c. An investment strategy that yielded a high rate of return in the past will often be
disastrous in the future.
d. Indexed equity mutual funds are usually tied directly to either the Consumer Price
Index or the GDP deflator.
The federal funds market is the market where
a. the federal government raises funds to cover its budget deficit.
b. the Federal Reserve System makes loans to commercial banks.
c. commercial banks with excess reserves make loans to commercial banks seeking
reserves.
d. commercial banks make loans to the Federal Reserve.
When employment discrimination results from the personal prejudices of employers,
economic theory suggests that
a. it is costless for employers to discriminate against groups they do not like.
b. the wages of employees who are discriminated against will actually rise.
c. an employer who discriminates will experience higher costs.
d. discrimination by an employer will reduce production costs since the employer can
pay lower wages.
Figure 11-20
The profit-maximizing price the monopoly will charge in Figure 11-20 is
a. irrelevant since the firm should shut down
b. $11
c. $16
d. $18
e. $22
Which of the following most clearly limits the ability of the commercial banking
industry to expand the money supply?
a. the reserve requirements mandated by the Fed
b. the number of commercial bank charters issued by the Fed
c. the dollar value of the bonds issued by the U.S. Treasury
d. the federal funds interest rate that commercial banks pay (and receive) for short-term
loanable funds
When is debt financing most likely to harm future generations of Americans?
a. When the debt is held by domestic investors.
b. Any time the debt is held by foreign investors.
c. When the debt is held by foreign investors and the funds are channeled into
productive investment projects.
d. When the debt is held by foreign investors and the funds are used to finance either
current consumption or unproductive investments.
If a firm enlarges its factory size and realizes higher average costs of production then
a. it has experienced economies of scale.
b. it has experienced diseconomies of scale.
c. it has experienced constant returns to scale.
d. the long-run average cost curve slopes downward.
e. the long-run average cost curve shifts upward.
During the last four decades,
a. the total expenditures of Americans on health care have been relatively constant.
b. the share of health-care expenditures covered by a third party (either the government
or an insurance company) has increased substantially.
c. the prices of health-care services have risen but not as rapidly as the general level of
prices.
d. health-care providers have lowered prices in response to the rapid increase in medical
technology.
Which of the following will most likely result from an unexpected increase in prices
that decreases real wages and resource prices?
a. a decrease in unemployment
b. an increase in unemployment
c. a decrease in the nominal interest rate
d. a decrease in aggregate supply and real output
Figure 9-12
Figure 9-12 illustrates a
a. competitive price-taker firm that is earning economic profit.
b. competitive price-taker firm that is only able to break even when it is maximizing
economic profit.
c. firm that should shut down immediately.
d. competitive price-taker firm that is making economic losses.
Figure 17-10
Refer to Figure 17-10. As a result of the tariff, there is a deadweight loss that amounts
to
a. B.
b. E.
c. D + F.
d. B + D + E + F.
A successful advertising campaign would likely
a. increase price elasticity of demand by stressing the uniqueness of the product.
b. reduce price elasticity of demand by stressing the uniqueness of the product.
c. reduce price elasticity of demand by informing consumers of the availability of
substitutes.
d. not alter the demand curve.
e. generally make the demand curve shift inward.
If the U.S. purchases oil from Nigeria, what is the effect in the foreign exchange
market?
a. It will increase demand for U.S. dollars.
b. It will decrease demand for U.S. dollars.
c. It will increase supply of U.S. dollars.
d. It will decrease supply of U.S. dollars.
Other things constant, the price elasticity of demand for a product will tend to be
smaller (more inelastic) if
a. people spend a large share of their income on the product.
b. people spend an insignificant share of their income on the product.
c. the population in the market area is large.
d. there are many good substitutes for the product.
Figure 2-4
Which of the following is true of Figure 2-4?
a. If the economy operates at point A, it is impossible to produce more of both food and
clothing.
b. If the economy operates at point B, it is impossible to increase the output of clothing
without giving up food production.
c. If the economy operates at point A, resources are being used efficiently.
d. If the economy operates at point B, resources are being used inefficiently.
The large increase in the excess reserves held by the commercial banking system during
the second half of 2008,
a. increases the likelihood of a sharp contraction in the money supply, which would
increase the length and severity of the recession.
b. increases the likelihood of a rapid increase in the money supply, potentially leading
to future inflation.
c. is merely a continuation of the trend present since 1990.
d. reduces the ability of banks to extend additional loans.
In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy
a. can permanently reduce unemployment if we are willing to tolerate higher inflation.
b. can reduce unemployment in the long run if we are willing to tolerate higher
inflation.
c. may be able to reduce unemployment but cannot retard inflation.
d. may be able to reduce unemployment in the short run, but there is little evidence that
expansionary policies can reduce unemployment permanently.
Which of the following is a primary difference between price searchers and price
takers?
a. Price searchers maximize profits, but price takers do not.
b. Price searchers have to cut their price to sell additional output, but price takers do
not.
c. The market demand for goods produced by price searchers is downward sloping,
while the market demand for goods produced by price takers is horizontal.
d. Profit-maximizing price searchers will expand output to the quantity where marginal
revenue equals marginal cost, but price takers will not.
Which of the following would cause a firm’s cost curves to shift upward?
a. a reduction in resource prices
b. a decrease in taxes
c. an improvement in technology
d. an increase in government regulations
Which of the following best reflects the nonactivist view of stabilization policy?
a. Monetary and fiscal policies exert little impact on the economy.
b. Discretionary policy changes often make matters worse.
c. Fiscal policy should be used to help stabilize the economy; monetary policy should
not.
d. Expansionary monetary policy is the primary source of rapid economic growth.
Assume that a college student purchases only diet soda and potato chips. The
substitution effect associated with a decrease in the price of a potato chips will result in
a. an increase in the consumption of diet soda only.
b. a decrease in the consumption of diet soda only.
c. an increase in the consumption of potato chips and a decrease in the consumption of
diet soda.
d. a decrease in the consumption of potato chips and an increase in the consumption of
diet soda.
Figure 15-4
Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three
countries shown,
a. country III has the most unequal income distribution.
b. country II has the most unequal income distribution.
c. country I has the most unequal income distribution.
d. country III has the most equal income distribution.
e. country II has a more equal income distribution than Country I.