If an economy is at its potential output level, which of the following is not true?
a. The economy is at its full-employment output level.
b. Unemployment is at the natural level.
c. The price level is zero.
d. The output level being produced can be sustained indefinitely given the economy’s
resources and technology.
e. The only unemployment is frictional or structural.
Fiscal policy analysis indicates that large tax increases during a severe recession will
result in
a. an increase in the incentive to earn and the maintenance of a balanced federal budget.
b. higher tax revenues and an expansion in government spending.
c. smaller budget deficits, which will speed an economic recovery.
d. a reduction in aggregate demand and a worsening of the recession.
If a competitive price-taking firm is operating in long-run equilibrium and market
demand suddenly falls, the short-run result will be
a. greater economic profit.
b. a normal profit.
c. lower average total cost.
d. lower average variable cost.
e. economic losses.
When the current Social Security surpluses end and the bonds in the trust funds are
reduced in order to make payments to retirees, the financing for the redemption of the
trust fund bonds will come from
a. higher taxes or more government borrowing.
b. the surplus funds deposited in government banking accounts.
c. equity capital being liquidated.
d. the sale of private equities and securities that the government has been purchasing
with the funds.
Which of the following is most likely to happen as the result of lower real interest rates
in the United States?
a. the dollar will depreciate on the foreign exchange market and imports will grow
relative to exports.
b. the dollar will appreciate on the foreign exchange market, and exports will grow
relative to imports.
c. the dollar will depreciate on the foreign exchange market, and exports will grow
relative to imports.
d. the dollar will appreciate on the foreign exchange market, and imports will grow
relative to exports.
Which of the following adjustments will most likely occur when output exceeds the
economy’s long-run capacity?
a. Prices will decline, bringing actual output into balance with its potential.
b. The natural rate of unemployment will increase and, thereby, restore equilibrium.
c. Higher resource prices and costs will reduce short-run aggregate supply until output
falls to the economy’s long-run capacity.
d. Lower interest rates will increase the economy’s long-run capacity and restore
equilibrium.
Use the figure to answer the following question(s).
Figure 8-3
According to Figure 8-3, at what output would a properly constructed marginal cost
curve cross the ATC curve?
a. 3
b. 4
c. 5
d. 6
Which one of the following is an area of agreement among modern macroeconomists
with regard to the use of fiscal policy?
a. Congressional action is necessary if automatic stabilizers are going to be an effective
stabilization tool.
b. It is difficult to time changes in discretionary fiscal policy in a manner that will
promote stability.
c. Fiscal policy is more potent than the early Keynesian view implied.
d. Budget deficits are a highly effective tool with which to combat a severe recession.
Which of the following is most likely to be a serious obstacle retarding the growth of
less-developed nations?
a. a lack of knowledge about modern technology
b. a lack of natural resources
c. slow population growth
d. low capital formation as the result of a weak legal system
Which of the following will most likely reduce the natural rate of unemployment?
a. an increase in the minimum wage
b. an increase in unemployment benefits
c. an increase in the proportion of prime-age workers (35-54) as a share of the labor
force
d. an increase in the labor force participation rate of teenagers
Which of the following is a residual reward that accrues to business decision makers
who use resources so as to increase their value?
a. opportunity cost
b. earnings of employees
c. economic profit
d. interest earnings of corporate bondholders
When an economy is in long run equilibrium,
a. it will be impossible to sustain the current rate of output in the future.
b. the interest rate will decline.
c. the foreign exchange value of the dollar will tend to appreciate.
d. the actual and natural rates of unemployment will be equal.
Profits and losses play an important role in helping
a. to signal to government which businesses are suffering losses so that they can be
subsidized.
b. consumers decide which products they value the most by looking at each firm’s
profit.
c. to allocate scarce resources in a manner that maximizes the value created to society.
d. ensure that the total profits in the economy exactly equal the total losses.
Figure 17-6
The domestic country is China.
Refer to Figure 17-6. If China were to abandon a no-trade policy in favor of a free-trade
policy,
a. Chinese producers of pencil sharpeners would become worse off.
b. Chinese consumers of pencil sharpeners would become better off.
c. total surplus in the Chinese economy would increase.
d. All of the above are correct.
Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of
gasoline and that the demand for gasoline is highly inelastic while the supply is highly
elastic. Under these circumstances, the benefit of the subsidy
a. will go primarily to producers.
b. will go primarily to consumers.
c. will be split equally between consumers and producers.
d. cannot be determined because the actual benefit of a subsidy is not influenced by the
elasticities of supply and demand.
Figure 2-10
Refer to Figure 2-10. If the economy moves from point C to point B, then which of the
following statements is correct?
a. The economy benefited from a technological advance in the production of baseballs.
b. The opportunity cost of each additional baseball is 2 bananas.
c. The opportunity cost of each additional banana is 2 baseballs.
d. The move involves no opportunity cost; it simply reflects the desires of the
economy’s citizens.
Which of the following about economic growth is true?
a. The developed nations are growing rapidly and the less-developed nations are
stagnating.
b. Most of the countries that have achieved the highest growth rates in the world during
the last quarter of a century were classified as LDCs in 1980.
c. It is an oversimplification to divide the world into the growing, developed nations
and the stagnating, less-developed nations.
d. Both b and c are true.
e. All of the above are true.
Suppose the population (age 16 and over) of Vietnam is 100 million; 5 million are
unemployed, and 40 million hold jobs. The labor force participation rate in Vietnam is
a. 10 percent.
b. 45 percent.
c. 50 percent.
d. 90 percent.
People who receive the benefit of a good without contributing to its costs of production
are called
a. contributors in kind.
b. free riders.
c. frequent flyers.
d. cost maximizers.
The Consumer Price Index compares the
a. prices of all goods and services in the economy compared to the prices of those goods
and services in a base year.
b. prices of consumer goods and services that a household purchases to the prices of
those goods and services purchased in a base year.
c. prices of producer goods and services that are made for consumers to the prices of
those goods and services in a base year.
d. prices of goods and services that are purchased by producers to the prices of those
goods and services in a base year.
e. prices of goods and services that are purchased by consumer manufacturers to the
prices of those goods and services in a base year.
Which of the following was a contributing factor to the rising default and foreclosure
rates beginning in the latter half of 2006?
a. the increasing share of 30-year, fixed rate loans as a share of outstanding mortgages
b. the rigid standards of rating agencies, such as Moody’s and Standard and Poors,
which limited the development of mortgage-backed securities
c. the price-stability policies of the Federal Reserve during 1998-2008
d. the erosion of lending standards during the preceding decade
Which of the following is fully tax deductible (it is either subtracted or excluded from
taxable income) under the current tax system of the United States?
a. out-of-pocket medical expenses
b. healthcare insurance purchased through one’s employer
c. healthcare insurance purchased directly by an individual or family
d. all of the above
A technological breakthrough lowers the cost of manufacturing microwave ovens. As a
result, the market changes to a new equilibrium because of
a. an upward movement along the demand curve for microwave ovens.
b. a rightward shift in the demand curve for microwave ovens.
c. a rightward shift in the supply curve for microwave ovens.
d. a shortage of microwave ovens.
The natural rate of unemployment occurs if there is no
a. unemployment.
b. frictional unemployment.
c. structural unemployment.
d. cyclical unemployment.
Use the figure below to answer the following question(s).
Figure 6-1
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits
among voters for a government project. For which types of projects would government
action most likely work well, undertaking only efficient projects and rejecting
inefficient ones?
a. types A and B
b. types B and D
c. types B and C
d. types A and D
John Smith is a typical citizen. Economic theory suggests that he is likely to make a
more informed choice when he buys a personal computer than when he votes for a
congressional candidate. This view is
a. false because the actions of legislators will exert a greater impact on Smith’s welfare
than will the purchase of the computer.
b. false; Smith will tend to choose more carefully when he makes public choices than
when he makes private choices.
c. uncertain; it would be true if, and only if, Smith’s spending on personal computers
exceeds his tax bill.
d. true; since Smith can decide what computer to buy, but his individual vote is very
unlikely to decide the outcome of a congressional election, he has more incentive to
inform himself about the computer than the congressional election.
The main source of profit for financial institutions is
a. their ownership of stocks in commercial corporations.
b. their ownership of real assets received in foreclosures on loans to households.
c. the fees charged for holding and servicing checking accounts.
d. the difference between interest paid on deposits and interest received on loans.
e. the difference between the cost of creating new money and the interest paid on loans.
A nation benefits from international trade if it
a. exports more than it imports.
b. imports more than it exports.
c. imports goods for which it is a low opportunity cost producer.
d. exports goods for which it is a low opportunity cost producer.
In the long run, a competitive price-searcher firm will
a. produce a greater variety of goods than do firms in other market structures
b. produce a greater output level than would a perfectly competitive firm
c. produce where price equals average total cost
d. earn an economic profit
e. suffer a loss because of its advertising budget
Which of the following policies would be most likely to reduce the efficiency of a
country’s economic organization?
a. a legal structure that establishes secure property rights
b. imposition of tariffs and other barriers limiting international trade
c. competitive markets
d. a stable monetary system