ECB 780 Test 1 | Course Paper

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Figure 16-1

Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or

monetary policy is pursued. Using the static AD–AS model in the figure above, this

would be depicted as a movement from

A) A to B.

B) B to C.

C) C to B.

D) B to A.

E) A to E.

Table 10-1

Using the table above, what is the approximate growth rate of real GDP from 2012 to

2013?

A) 1%

B) 2%

C) 3%

D) 4%

To examine how the total production of an economy has changed over time, it would be

better to examine

A) real GDP.

B) nominal GDP.

C) GDP at current prices.

D) the GDP deflator.

Which of the following is a possible solution when a scarce resource is subject to the

tragedy of the commons?

A) access to the commons can be restricted through community norms and laws

B) offer subsidies to consumers

C) force people to move away from the commons

D) persuade people to use less of the scarce resource through an advertising campaign

Which of the following best explains why unemployment rates are higher in the

European economies than in the United States?

A) More Europeans go to school fulltime and are therefore not able to participate in the

labor market.

B) Unemployment benefits are more generous in Europe than in the United States.

C) Workers in Europe are less productive than workers in the United States.

D) European industries pay a lower wage rate than industries in the United States.

Figure 14-1

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid

automobile and is the only such company for the past four years. BMW is now

considering producing its own luxury hybrid automobile and Lexus must decide

whether or not to lower the price of its luxury hybrid to counter BMW’s entry into the

luxury hybrid niche.

Should Lexus lower its price in order to deter BMW’s entry into the luxury hybrid

automobile market?

A) In terms of profit earned, it makes no difference whether Lexus lowers its price or

not; in either case it will make $280 million profit if BMW enters.

B) No, it should keep the same price and work to capitalize on its brand loyalty.

C) Yes, it will drive BMW out of the market.

D) No, because BMW will enter the market regardless of Lexus’ decision about its

price.

Economics is the study of the ________ people make to attain their goals, given their

________ resources.

A) purchases; unlimited

B) choices; scarce

C) income; available

D) decisions; household

If the Fed raises the interest rate, this will ________ inflation and ________ real GDP

in the short run.

A) reduce; raise

B) increase; lower

C) increase; raise

D) reduce; lower

Table 12-12

Using the table above, answer the following questions. The numbers in the table are in

billions of dollars.

a. What is the equilibrium level of real GDP?

b. What is the MPC?

c. If potential GDP is $7,000 billion, is the economy at full employment? If not, what is

the condition of the economy?

d. If the economy is not at full employment, by how much should government spending

increase so that the economy can move to the full employment level of GDP?

In the short run, a profit-maximizing firm’s decision to produce should be guided by

whether

A) it makes a profit.

B) its marginal profit is maximized.

C) its total revenue exceeds its fixed cost.

D) its total revenue covers its variable cost.

Consumption spending is $16 million, planned investment spending is $4 million,

unplanned investment spending is $2 million, government purchases are $6 million, and

net export spending is $1 million. What is aggregate expenditure?

A) $22 million

B) $26 million

C) $27 million

D) $29 million