Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is
$10,000. However, Richland’s real GDP per person is growing at 1 percent per year, and
Poorland’s real GDP per person is growing at 2 percent per year. After 50 years, real
GDP per person in Richland minus real GDP in Poorland is:
A. positive and greater than $10,000.
B. positive but less than $10,000.
C. zero.
D. negative.
Whenever the quantity demanded is not equal to the quantity supplied, the quantity that
is actually sold in the market is:
A. the quantity demanded.
B. the quantity supplied.
C. the smaller of the quantity demanded and the quantity supplied.
D. the greater of the quantity demanded and the quantity supplied.
The benefit of holding money is _______, while the opportunity cost of holding money
is _______.
A. the nominal interest rate; the fees charged by banks
B. the nominal interest rate; its usefulness in carrying out transactions
C. increased income; lost purchasing power
D. its usefulness in carrying out transactions; the nominal interest rate
Refer to the figure above. Suppose a law is passed requiring restaurants to charge no
more than $25 per meal. This law would
A. decrease both producer and consumer surplus by forcing restaurants to shut down.
B. unambiguously increase consumer surplus and not change producer surplus.
C. drive producer surplus to zero and maximize consumer surplus.
D. unambiguously reduce producer surplus, but not force restaurants to shut down.
The longest and most severe recession in the United States since 1925 began in _____.
A. 1929
B. 1945
C. 1957
D. 1982
The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.
In the long run equilibrium in this market,
A. price will equal $5, and there will be 20 firms in the industry.
B. price will equal $5, and there will be 10 firms in the industry.
C. price will equal $8, and there will be 20 firms in the industry.
D. price will equal $5 and total output will equal 500 units, but there is not enough
information to know how many firms there will be.
The quantity equation is always true because it:
A. is the definition of velocity rewritten.
B. is a law of economics.
C. has been empirically tested.
D. has been historically verified.
Which of the following would cause an increase in quantity supplied of wheat?
A. The price farmers receive for their wheat rises.
B. The price of fertilizer farmers’ use in their fields decreases.
C. The price firms pay for liability insurance falls.
D. New, better technology for farming is introduced.
Jobs in which there is a higher risk of injury or death will
A. include better insurance benefits than similar jobs.
B. pay less than otherwise similar jobs.
C. require regulation by the government.
D. pay more than otherwise similar jobs.
An increase in unemployment insurance benefits will:
A. increase the demand for labor.
B. decrease the demand for labor.
C. increase job search efforts of unemployed workers.
D. decrease job search efforts of unemployed workers.
An increase in marginal tax rates
A. increases a worker’s hourly after-tax wage.
B. increases the opportunity cost of leisure (not working).
C. reduces the opportunity cost of leisure (not working).
D. increases incentives to work more.
The delay between the date a policy change is needed and the date it is implemented is
called the:
A. recessionary gap.
B. expansionary gap.
C. outside lag.
D. inside lag.
Automatic stabilizers are provisions in the law that imply automatic ______ in
government spending or ______ in taxes when real output declines.
A. increases; increases
B. increases; decreases
C. no change; no change
D. decreases; decreases
In which of the following situations would GDP not change?
A. As domestic consumers buy fewer tobacco products, tobacco manufacturers instead
sell their products, at the same price, to foreign buyers.
B. Domestic consumers begin to buy less imported wine, and instead spend just as
much money on domestically produced wine.
C. Without reducing the number of automobiles sold, domestic automobile producers
decide to reduce the number of automobiles they produce, rather than producing cars
that would end up as unsold inventory.
D. More and more domestic consumers opt to build a new home, rather than spending
the same money on an already existing home.
Firms do not change prices frequently because:
A. there are legal prohibitions against doing so.
B. it is easier to change the quantity of capital used in production.
C. it is costly to do so.
D. customers will refuse to patronize firms that change prices frequently.
Shelly purchases a leather purse for $400. One can infer that:
A. she paid too much.
B. her reservation price was at least $400.
C. her reservation price was exactly $400.
D. her reservation price was less than $400.
If the price of textbooks increases by one percent and the quantity demanded falls by
one-half percent, then demand for textbooks is:
A. negative.
B. price inelastic.
C. price elastic.
D. perfectly inelastic.
Based on the information in the table, what quantity of reserves would the Federal
Reserve have had to inject into the economy in 1932 to prevent the money supply from
falling, given that the public increased the amount of currency it held and that banks
increased the reserve-deposit ratio?
A. $0.30 billion
B. $0.66 billion
C. $0.89 billion
D. $3.54 billion
There are two separate labor markets in Toontown, illustrated by the graphs below. Both
labor markets currently pay $6.00 per hour, and both require the same skills and
qualifications. The Toontown City Council is considering enacting a $7.50 living wage
ordinance, which would require all Toontown employers to pay wages of at least $7.50
per hour.
The current wage of $6.00 is
A. an equilibrium in Market A, but too low in Market B.
B. an equilibrium in Market B, but too low in Market A.
C. an equilibrium in Market A, but too high in Market B.
D. an equilibrium in both Markets.
Economic activity moves from a period of expansion to a ______ and then moves into a
period of ______ until it reaches a _____.
A. peak; expansion; trough
B. peak, recession; trough
C. trough; expansion; peak
D. trough; recession; peak
Firms that produce goods with few or no substitutes will find that:
A. lowering price increases total revenues.
B. raising price decreases total revenues.
C. raising price increases total revenues.
D. raising price leaves total revenues unchanged.
You save $10 on gas every week since you live close to the bus stop. You have class
five days a week. What is your average benefit per day for living close to the bus stop?
A. $10
B. $5
C. $2
D. $1.43
Firms will invest in new equipment whenever:
A. the expected cost of the equipment exceeds the expected benefit.
B. the expected cost of the equipment is less than the expected benefit.
C. the expected cost of the equipment is greater than the value of the marginal product
of the equipment.
D. public saving is greater than private saving.
The U.S. dollar exchange rate, e, where e is the nominal exchange rate expressed as
Japanese yen per U.S. dollar, will appreciate when:
A. real GDP in the U.S. increases.
B. real GDP in Japan increases.
C. the U.S. Federal Reserve eases monetary policy.
D. U.S. consumers increase their preference for Japanese cars.
Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel
fuel contains. These controls were designed to fully offset the cost of pollution
generated by diesel fuel vehicles. The effect of the regulation is estimated to increase
the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above. Assuming that the supply of diesel fuel has a
positive slope and demand has a negative slope, the quantity of diesel fuel sold after
imposition of the regulation will:
A. remain the same.
B. increase.
C. decrease.
D. decrease only if diesel fuel is a normal good.
Health and safety regulations in the labor market:
A. are always efficient because they improve working conditions.
B. should be evaluated by comparing their costs to their benefits.
C. are necessarily inefficient if they impose additional costs on employers.
D. can lead to an increase in frictional unemployment.
The cross-price elasticity for bread and potatoes is estimated to be 0.5. This implies
bread and potatoes are:
A. normal goods.
B. substitutes.
C. unrelated.
D. complements.
If the Fed wishes to reduce nominal interest rates, it must engage in an open market
______ of bonds that ______ the money supply.
A. sale; increases
B. sale; decreases
C. purchase; decreases
D. purchase; increases
From an economic perspective, the best response to increased wage inequality is to:
A. block future technological change.
B. stop all international trade.
C. provide transition aid to disadvantaged workers.
D. make skill-biased technological change illegal.
If the professional opinions of economists regarding the natural rate of unemployment
vary between 4.5 and 6 percent, then when the actual rate of unemployment equals 5
percent:
A. the natural rate of unemployment equals 5 percent.
B. there is a recessionary gap.
C. there is an expansionary gap.
D. therecould be either an expansionary or recessionary gap, or the economy could be
at potential depending on the accuracy of measurement.
Advances in information and communication technology are the principal factors cited
for the:
A. slowdown in productivity growth between 1973 and 1995.
B. speedup in productivity growth between 1973 and 1995.
C. slowdown in productivity growth since 1995.
D. speedup in productivity growth since 1995.
Three different voters demand curves for a public park are shown on the graphs below.
Suppose the city can purchase land for the park at a cost of $20 per acre. The optimal
park size would be __________ acres.
A. 2
B. 4
C. 6
D. 8
Holding other factors constant, if terrorist attacks increase the desire for precautionary
saving, then the real interest rate will ______ and the equilibrium quantity of saving and
investment will _______.
A. increase; increase
B. decrease; decrease
C. increase; decrease
D. decrease; increase
Macroeconomics is distinguished from microeconomics by its concentration on:
A. choices.
B. the performance of national economies and ways to improve upon their performance.
C. individual markets.
D. the level of prices in specific markets.
Refer to the figure above. A decrease in demand is represented by shifting from:
A. curve A to curve B.
B. curve B to curve A.
C. curve C to curve D.
D. curve D to curve C.