Competitive firms are price takers largely because of intensive advertising by their
competitors.
A decrease in government spending and taxes would be an example of fiscal policies
that reinforce each other.
About one-fourth of all American households have annual incomes of $100,000 or
more.
The public debt as a percent of GDP is lower in the United States than in many other
industrial nations.
The economy’s GDP gap is negative when actual GDP is greater than potential GDP.
If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the
inflation premium is 13 percent.
In the U.S. economy, corporations account for about 20 percent of the firms and about
84 percent of the total sales revenue.
If the price of labor increases relative to the price of capital, and as a result the quantity
of capital hired decreases, the output effect of the price increase is greater than the
substitution effect.
In a monopoly, price is greater than marginal cost.
If the price level doubled in a 23-year period, we can conclude that the average annual
rate of inflation over that period was about 3 percent.
Federal Reserve Banks are bankers’ banks.
From the “economic perspective,” people make purposeful decisions based on
hypotheses.
The institution of private property is supported by clear claims to ownership.
Most business firms in the United States are corporations.
Changes in business inventories are excluded from the definition of investment in the
national income accounts.
Federal deposit insurance discourages but does not prevent bank runs.
The study of why an economy’s production capacity increases over time is the subject
of growth economics.
Loans made to customers are a liability on a bank’s balance sheet.
In the circular flow model, households function on the selling side of the resource
market and the buying side of product markets.
Recognition and operation lags enhance the effectiveness of monetary policy.
The World Trade Organization was established by the United States to advocate
strategic trade policy.
If the price of a product produced by an input decreases, the quantity demanded, but not
demand, for the input will also decrease.
The distribution of income in the United States after taxes and transfers are taken into
account is less equal than it is before taxes and transfers are taken into account.
Monopolistically competitive firms exist due to high barriers to entry.
A highly progressive tax takes relatively more from the rich than it does from the poor.
If effective, a government-set price ceiling will lower equilibrium price and quantity in
a market.
The price of gold is volatile because the supply is highly inelastic, so changes in
demand have a large effect on price.
Unfair advertising practices are investigated by the Federal Trade Commission.
During recent years the U.S. unemployment rate has been substantially higher than the
rate in most of the other major industrial nations.
If the reserve requirement is 20 percent, the money multiplier will be 4.
The fundamental economic problem is that productive resources are scarce in relation
to the demand for them.
An increase in aggregate supply increases the real domestic output and reduces the
price level effects from an increase in aggregate demand.
The incidence of poverty is very high among the elderly.
Strategic trade policy is part of the protectionist argument for increasing domestic
employment.
Normal profit is:
A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.
A bank owns a 10-story office building. In the bank’s balance sheet, this would be an
example of:
A. an asset.
B. a liability.
C. capital stock.
D. a checkable deposit.
The fundamental objective of monetary policy is to assist the economy in achieving:
A. a rapid pace of economic growth.
B. a money supply that is based on the gold standard.
C. a full-employment, noninflationary level of total output.
D. a balanced budget consistent with full employment.
Refer to the above graph. Which of the lines in the above diagram represent(s) a
regressive tax?
A. Both A and B
B. D only
C. C only
D. B only
Refer to the above diagram. The quantity difference between areas A and C for the
indicated price reduction measures:
A. marginal cost.
B. marginal revenue.
C. monopoly price.
D. a welfare or efficiency loss.
Inflation initiated by increases in wages or other resource prices is labeled:
A. demand-pull inflation.
B. demand-push inflation.
C. cost-push inflation.
D. cost-pull inflation.
Refer to the above information. Average total cost is:
A. .
B. .
C. .
D. .
In a duopoly, if one firm increases its price, then the other firm can:
A. keep its price constant and thus increase its market share.
B. keep its price constant and thus decrease its market share.
C. increase its price and thus increase its market share.
D. decrease its price and thus decrease its market share.
The Sunshine Corporation finds its costs are $40 when it produces no output. Its total
variable costs (TVC) change with output as shown in the accompanying table. Use this
information to answer the following question.
Refer to the above information. The average total cost of 3 units of output is:
A. $65.
B. $21.67.
C. $40.
D. $35.
The equality-efficiency trade-off would be most closely associated with which one of
the following statements?
A. The rich get richer and the poor get poorer.
B. The only way to create income equality is to take from the rich and give to the poor.
C. If cutting the income pie in more equal slices tends to shrink the pie, what amount of
shrinkage will society tolerate?
D. People are less concerned with the larger question of income distribution than they
are with the more specific issue of income inadequacy.
The marginal revenue product of labor in a competitive market decreases as a firm
increases the quantity of labor used because of the:
A. law of diminishing returns.
B. law of diminishing marginal utility.
C. homogeneity of the product.
D. free mobility of resources.
Refer to the above graph. As the price level changes, real domestic output remains
constant with which line?
A. 1
B. 2
C. 3
D. 4
A government is considering undertaking one or more construction projects. The
estimated marginal cost and benefit of each project are given in the table.
Refer to the above table and information. What is the total amount that the government
should spend on construction projects?
A.$8 million
B.$14 million
C.$19 million
D.$37 million
The circular flow model shows that the goods and services produced by business firms
are sold through:
A. product markets.
B. stock markets.
C. money markets.
D. resource markets.
According to proponents of human capital theory, education:
A. increases a worker’s productivity.
B. identifies more productive workers for employers but does not directly increase
productivity.
C. should result in all workers with college degrees earning more than all workers who
hold only high school diplomas.
D. is an investment with primarily higher returns and lower risks than those available
through investments in physical or financial capital.
A decrease in aggregate demand is likely to result from:
A. a decrease in the price level.
B. an increase in the price level.
C. an appreciation in the value of the U.S. dollar.
D. a decrease in the excess capacity of factories.
Some firms in the technology sector have achieved economies of scale because costs
have been reduced by:
A. price discrimination.
B. rent-seeking.
C. network effects.
D. fair-return pricing.
Critics of the minimum wage contend that imposing a wage higher than the equilibrium
wage in a competitive industry would:
A. decrease the number of workers employed in that industry.
B. decrease the quantity of labor supplied to that industry.
C. increase the demand for labor in the industry.
D. increase employment in that industry.
(Applying the Analysis) Which of the following claims is not made by opponents of a
value-added tax (VAT)?
A. Savings and investment are discouraged because future consumption is penalized.
B. The VAT is regressive, potentially leading to additional progressive taxes to offset
the regressive VAT.
C. Sellers bear a disproportionately large burden of the tax.
D. The VAT is a hidden tax, and thus easier to raise to support the expansion of
government.
The elasticity of demand for labor varies:
A. directly with changes in the interest rate.
B. directly with labor’s share of the total cost of the product.
C. inversely with the elasticity of demand for the final product.
D. inversely with the ease of substituting labor for other productive factors.
The European Union promotes:
A. free trade among all nations.
B. free trade among member nations, but not necessarily with nonmember nations.
C. higher tariffs worldwide to promote more national stability.
D. higher tariffs among member nations to encourage more trade between Western
Europe and the United States and Japan.
The graph above shows the market for a product where S1 is the original supply curve
and S2 is the new supply curve following a tax on producers to reduce pollution. The
tax per unit of output is:
A.AB.
B.AC.
C.BG.
D.AJ.
Answer the next question on the basis of the following five schedules, all of which
represent income tax schedules for an economy. All figures are in billions of dollars.
Which of the above schedules represent(s) a regressive tax?
A. V only
B. III and V
C. IV only
D. I only
If the demand and supply curves for product X are stable, a government-mandated
increase in the price of X will:
A. increase the supply of X and decrease the demand for X.
B. increase the demand for X and decrease the supply of X.
C. increase the quantity supplied of X and decrease the quantity demanded of X.
D. decrease the quantity supplied of X and increase the quantity demanded of X.
Total cost minus total variable cost equals:
A. average fixed cost.
B. total fixed cost.
C. average variable cost.
D. marginal cost.
Refer to the above information. Average fixed cost is:
A. .
B. .
C. .
D. .
Discrimination that results in minorities being paid less than whites for identical work
would be an example of what explanation for wage differentials?
A. Noncompeting groups.
B. Compensating differences.
C. Market imperfections.
D. Principal-agent problems.
Refer to the above graph. What will shift D1 to D2?
A. An increase in the price of a substitute input (if the output effect is greater than the
substitution effect).
B. A decrease in the price of a substitute input (if the substitution effect is greater than
the output effect).
C. A decrease in the price of a substitute input (if the output effect is greater than the
substitution effect).
D. An increase in the price of a complementary resource.
Which set of fiscal policies would tend to offset each other?
A. A decrease in government spending and taxes
B. A decrease in government spending and no change in taxes
C. An increase in government spending and a decrease in taxes
D. A decrease in government spending and an increase in taxes
Which statement concerning the kinked demand curve model of oligopoly is false?
A. It addresses the question of price stickiness.
B. It assumes when one oligopolist raises the price, all others follow.
C. The portion of the demand curve above the kink is more elastic than the portion
below.
D. The firm’s marginal costs can sometimes shift without changing the
profit-maximizing price and output.