If the real interest rate is 3% and the inflation rate is 7%, then the nominal interest rate
equals:
A. 3%.
B. 4%.
C. 7%.
D. 10%
This graph shows the cost functions of Moe’s mushroom gathering business, which is
perfectly competitive.
When the market price of mushrooms is $40 per bushel, if Moe chooses the profit
maximizing quantity he will
A. earn zero profits
B. earn negative profits (losses)
C. earn positive profits
D. shut down
An economy produces only 1,000,000 computers valued at $2,000 each. Of these,
200,000 are sold to consumers, 300,000 are sold to businesses, 300,000 are sold to the
government, and 100,000 are sold abroad. No computers are imported. The unsold
computers at the end of the year are held in inventory by the computer manufacturers.
What is the value of the investment component of GDP?
A. $0.3 billion
B. $0.4 billion
C. $0.6 billion
D. $0.8 billion
Moe divides his time between studying Physics and studying Economics. He has
discovered that he can earn grades as shown on this production possibilities curve.
Refer to the figure above. According to Moe’s PPF, moving from a grade of 80 in
economics to a grade of 90 in economics:
A. is inefficient.
B. comes at a lower opportunity cost than moving from a 90 to a 100 in economics.
C. is not feasible.
D. comes at a higher opportunity cost than moving from a 90 to a 100 in economics.
The quantity equation states that:
A. money times velocity equals nominal GDP.
B. money times velocity equals real GDP.
C. money times the average price level equals nominal GDP.
D. money times the average price level equals real GDP.
The very small city of Pleasantville is considering building a public swimming pool that
costs $1,000. The table shows the five voters in the city and their marginal benefit of a
swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must
vote.
Suppose that Sam proposes allowing a private firm to build the pool that would charge
the same one time fee to everyone for unlimited access to the pool. The outcome would
be that the pool would
A. be built and the fee would be $200.
B. not be built.
C. bebuilt and the fee would be $250.
D. be built and the fee would be $334.
Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per
worker. In all other respects, the two countries are the same. According to the principle
of diminishing returns to capital, an additional unit of capital will increase output
______ in Gamma compared to Omega, holding other factors constant.
A. more
B. less
C. not at all
D. by the same amount
A monopolist calculates its marginal revenue to be $15 and marginal cost to be $16.
The firm:
A. is loss minimizing.
B. should increase output.
C. is profit-maximizing.
D. should decrease output.
You are the Minister of Trade for a small island country in the South Pacific with the
following annual production possibilities curve:
You are negotiating a deal with a neighboring island that has the following annual PPC:
Refer to the figure above. Both islands specialize exclusively in the product for which
they have a comparative advantage. You have agreed to sell the other island 350
coconuts in exchange for 1,300 fish. After the trade your island has a total of _____
coconuts and _____ fish.
A. 150; 2,800
B. 500; 1,300
C. 150; 1,300
D. 500; 1,500
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, one can infer that the EPA determined
that:
A. the external benefit of using diesel fuel is less than 10 cents.
B. the external cost of using diesel fuel is greater than 10 cents.
C. the external cost of using diesel fuel is less than 10 cents.
D. the external cost of using diesel fuel is equal to 10 cents.
Which of the following is an example of structural unemployment?
A. Dora lost her job when the textile factory closed. She does not have skills to work in
another industry and has been unemployed for over a year.
B. Marsha was laid off from her job with the airline because the recession has reduced
the demand for airline travel. She expects to get her job back when the economy picks
up.
C. Alan, a software engineer, lost his job when the internet startup he worked for went
bankrupt. He interviewed with five companies in the area before taking a job with
another firm in the industry.
D. Jim had a job as an engineer, but quit when his wife was transferred to another state.
He looked for a month before finding a new job that he liked.
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 10.5
percent:
A. the natural rate of unemployment equals 10.5 percent.
B. there is a probably recessionary gap.
C. there is probably an expansionary gap.
D. the economy is probably at potential output.
You are the Minister of Trade for a small island country in the South Pacific with the
following annual production possibilities curve:
You are negotiating a deal with a neighboring island that has the following annual PPC:
Refer to the figure above. When the other island’s delegate offers to give you 1,000 fish
in exchange for 500 coconuts, you:
A. accept because you will then have a total of 2,500 fish.
B. refuse because the trade would leave you at a level of consumption that is less than
what you could produce on your own.
C. accept because the trade will leave you at a level of consumption that is more than
what you could produce on your own.
D. counter, offering to give them 400 coconuts in exchange for 1,000 fish.
If a firm is earning zero economic profits:
A. its revenues are sufficient to pay explicit costs, but not implicit costs.
B. the owner will not be able to pay himself or herself a salary.
C. it will shut down in the long run, but will continue to operate in the short run.
D. the owners are earning a return on their time and investment that is equal to the
opportunity costs of that time and investment.
As the real interest rate increases, the quantity of saving supplied ______ and the
quantity of saving demanded ____.
A. increases; increases
B. increases; decreases
C. does not change; does not change
D. decreases; increases
National saving is saving by:
A. households for retirement.
B. the government.
C. households and firms.
D. the entire economy.
Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a
savings account, and buys $100 worth of shares in a stock mutual fund. Pat’s saving is
_____, and Pat’s saving rate is _____.
A. $50; 5.0%
B. $50; 5.9%
C. $100; 10%
D. $150; 15%
In the long run, output gaps are eliminated by:
A. reducing potential output.
B. increasing potential output.
C. price changes.
D. increased efficiency in labor markets.
The following data show the relationship between the number of drivers who leave for
work at 8:00 am, their average commute times, and their marginal benefit associated
with the commute times.
Refer to the information given above. If commuters view the highway as having a zero
price, one can predict that __________ drivers will leave for downtown at 8:00 am:
A. 500
B. 400
C. 300
D. 200
Which of the following statements is always true?
A. Absolute advantage implies comparative advantage.
B. Comparative advantage does not require absolute advantage.
C. Absolute advantage requires comparative advantage.
D. Comparative advantage requires absolute advantage.
Saving done for the purpose of leaving an inheritance is called ______ saving.
A. public
B. bequest
C. precautionary
D. life-cycle
A labor contract provides for a first-year wage of $10 per hour, and specifies that the
real wage will rise by 3 percent in the second year of the contract. The CPI is 1.00 in
the first year and 1.07 in the second year. What dollar wage must be paid in the second
year?
A. $10.30
B. $10.70
C. $11.00
D. $11.02
Data for an economy shows that the unemployment rate is 6%, the participation rate 60
percent, and 200 million people 16 years or older are not in the labor force. How many
people are employed in this economy?
A. 30 million
B. 188 million
C. 282 million
D. 300 million
If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that
sell for $25,000 each, then when the market value of total output is calculated:
A. oranges receive a greater weight than cars.
B. oranges receive the same weight as cars.
C. oranges receive a smaller weight than cars.
D. the market value of oranges is excluded.
Professor Plum, who earns $75,000 per year, read in the paper today that the university
pays its basketball coach one million dollars per year in exchange for the coach’s
agreement to remain at the university for at least three more years. The coach earns
more than Professor Plum because:
A. demand for sporting events exceeds demand for college courses.
B. universities value sports over academics.
C. the coach is able to earn economic rent due to his unique talents.
D. the coach has more human capital than does Prof. Plum.
If the annual real rate on a 10-year inflation-protected bond equals 1.9 percent and the
annual nominal rate of return on a 10-year bond without inflation protection is 4.4
percent, what average rate of inflation over the ten years would make holders of
inflation-protected bonds and holders of bonds without inflation protection equally well
off?
A. 1.9%
B. 2.5%
C. 4.4%
D. 6.3%
When someone supports a view but remains silent during debate to minimize the risk of
being misunderstood, it is known as
A. tact.
B. risk neutrality.
C. statistical discrimination.
D. the disappearing political discourse theory.
The seven Fed governors, the president of the Federal Reserve Bank of New York, and
four of the presidents of the other regional Federal Reserve Banks constitute the:
A. National Monetary Commission.
B. Board of Governors.
C. Federal Open Market Committee.
D. Federal Reserve System.
A regular payment received by stockholders for each share they own is called a:
A. coupon payment.
B. dividend.
C. bond.
D. capital gain.
Inflation ______ the signals sent by price changes to demanders and suppliers of goods
and services.
A. amplifies
B. obscures
C. enhances
D. has no impact on
The entire group of buyers and sellers of a particular good or service makes up:
A. only the demand curve.
B. only the supply curve.
C. a market.
D. the equilibrium.