Externalities are unintended costs or benefits that are imposed on unsuspecting people
and that result from:
a. poor planning.
b. intentional damages.
c. excessive costs.
d. excessive losses.
e. the economic activity of others.
In the aggregate expenditures model, if aggregate expenditures (AE) are greater than
GDP, then:
a. inventory is depleted.
b. inventory is accumulated.
c. inventory is unchanged.
d. employment decreases.
Which of the following would be most likely to encourage capital formation in a
less-developed country?
a. The expectation of sustained high inflation.
b. The expectation that property rights will be highly secure in the years ahead.
c. The imposition of high tariffs and other restraints limiting imports.
d. Higher personal and corporate tax rates.
Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss
As shown in Exhibit 3A-2, if the market is in
equilibrium, then ____ represents consumer surplus.
a. DFEBC c. DEA
b. AEBC d. BEG
The full employment level of real GDP can be represented on an aggregate supply and
demand diagram as a(n):
a. vertical line.
b. upward-sloping line.
c. horizontal line.
d. downward-sloping line.
If you were a government official that wanted to raise the equilibrium price of milk,
which of the following actions would you take?
a. Take milk from government storage and sell it.
b. Encourage farmers to produce more milk.
c. Subsidize purchases of dairy equipment.
d. Encourage farmers to produce less milk.
According to Keynesians, an increase in the money supply will have its greatest impact
on GDP when the aggregate demand curve intersects:
a. the vertical portion of the aggregate supply curve.
b. the upward sloping portion of the aggregate supply curve.
c. the horizontal portion of the aggregate supply curve.
d. either the upward sloping or the vertical portions of the aggregate supply curve.
e. either the horizontal or vertical portions of the aggregate supply curve.
Depreciation or consumption of fixed capital depreciation measures:
a. net investment less gross investment.
b. the loss of productive ability due to capital intensive production.
c. capital that is wasted in the production process.
d. the value of existing capital stock used up in the production process.
e. the decline in the value of inventories caused by inflation.
Exhibit 9-1 GDP and consumption data GDP
ConsumptionAggregate ExpendituresUnplanned inventory
$0 $0.5
1 1.0
2 1.5
3 2.0
4 2.5
5 3.0
6 3.5
7 4.0
8 4.5
As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1
trillion, net exports are -$0.5 trillion, and GDP is $7 trillion, then GDP will:
a. remain unchanged.
b. increase by $2 trillion.
c. decrease by $2 trillion.
d. increase by $4 trillion.
e. decrease by $4 trillion.
When economists say the supply of a product has decreased, they mean that:
a. the supply curve has shifted to the left.
b. the product price has decreased, and as a consequence, suppliers are producing less
of the product.
c. producers are now willing to sell more of this product at each possible price.
d. the supply curve has shifted to the right.
Exhibit 15-2 Balance Sheet of Springfield National Bank AssetsLiabilities
Total reserves $500 Demand deposits $1,000
Loans $500 In Exhibit 15-2, if Springfield National has excess reserves equal to $300,
and the required reserve ratio increases to 35 percent, it will:
a. be able to cover its increased reserve requirements from its excess reserves.
b. have to call in loans worth $350.
c. have to call in loans worth $250.
d. have to call in loans worth $200.
e. have to call in loans worth $150.
Gross domestic product is a measure of:
a. market value of a nation’s capital assets (physical capital).
b. expenditures on and sales revenues derived from all goods and services exchanged
during a period.
c. market value of the output produced during a period.
d. asset holdings of people and the happiness that they derived from the ownership of
those assets.
Which of the following is correct?
a. Economic development is more quantitative than economic growth.
b. A country cannot achieve economic growth with a limited base of natural resources.
c. Infrastructure is capital provided by the private sector.
d. All of the above are true.
e. All of the above are false.
Unemployment that results from fundamental technological changes in production, or
from the substitution of new goods for customary ones, is:
a. the natural rate of unemployment.
b. full employment.
c. cyclical unemployment.
d. frictional unemployment.
e. structural unemployment.
Coins and dollar bills are money in the form of:
a. barter.
b. currency.
c. capital stock.
d. investment.
If the rate of inflation in a given time period turns out to be higher than lenders and
borrowers anticipated, then the effect will be:
a. a redistribution of wealth from borrowers to lenders.
b. a net gain in purchasing power for lenders relative to borrowers.
c. no change in the distribution of wealth between lenders and borrowers.
d. none of these.
Under socialism, which of the following industries would probably be owned by the
government?
a. Steel.
b. Electricity.
c. Agriculture.
d. All of these.
To construct GDP, exports:
a. and imports must be subtracted.
b. and imports must be included.
c. must be included and imports must be ignored.
d. must be included and imports must be subtracted.
Assume all banks in the system started with the balance sheet shown in Exhibit 15-4
and the Fed makes a $1,000 open market purchase. The result would be a(n):
a. infinite contraction of the money supply.
b. infinite expansion of the money supply.
c. $1,000 expansion of the money supply.
d. $5,000 expansion of the money supply.
Taryn Corporation The accountant for Taryn Corporation prepared the following list of
account balances from the company’s records for the year ended December 31, 2014:
Read the information for Taryn Corporation. Prepare a balance sheet for Taryn
Corporation in good form.
Inflation was a major problem in the United States during the early years of the Great
Depression.
The opportunity cost of producing a good or service is the good or service that is
foregone by choosing to produce another good with the same resources in a given
period of time.
An increase in the discount rate by the Federal Reserve causes the money stock to
expand.
In a simplified system where all banks have uniform reserve requirements and
checkable deposits are the only form of money, the money multiplier is equal to 1 over
the required reserve ratio.
It’s difficult for a private firm to provide a public good because of free riders.