The BEST example of making a choice at the margin is whether to:
A) buy a new computer.
B) quit your job.
C) eat another slice of pizza.
D) attend college.
If the opportunity cost of manufacturing automobiles is lower in the United States than
in Britain and the opportunity cost of manufacturing airplanes is higher in the United
States than in Britain, then the United States will:
A) export both airplanes and automobiles to Britain.
B) import both airplanes and automobiles from Britain.
C) export airplanes to Britain and import automobiles from Britain.
D) import airplanes from Britain and export automobiles to Britain.
Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed
because the steel plant in his town closed and moved to Mexico. Sam is _____
unemployed.
A) cyclically
B) permanently
C) frictionally
D) structurally
Suppose an economy’s aggregate price level increases and its aggregate level of real
GDP decreases. This could arise from a _____ shock.
A) positive demand
B) negative supply
C) positive supply
D) negative demand
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a), it is in:
A) full employment.
B) an inflationary gap.
C) a liquidity trap.
D) stagflation.
If the marginal propensity to consume is 0.5, individual autonomous consumption is
$10,000, and disposable income is $40,000, then individual consumption spending is:
A) $20,000.
B) $25,000.
C) $30,000.
D) $45,000.
A policy of expansionary austerity involves increasing government spending to increase
private-sector confidence, leading to an increase in output and employment.
A) True
B) False
Before the 2008 financial crisis, shadow banks were:
A) much smaller than depository banks.
B) strictly regulated and therefore offered their customers lower rates of return than
depository banks.
C) required to hold more reserves than depository banks.
D) not subject to regulations, such as capital requirements and reserve requirements.
The unemployment rate equals the number _____ divided by the number _____ times
A) unemployed; employed
B) unemployed; population
C) employed; labor force
D) unemployed; labor force
The basis of the circular-flow diagram is that:
A) the best models avoid making assumptions.
B) goods and services flow in a circle in the factor market.
C) resources are sold along with goods and services in the resource market.
D) the flow of money into each market or sector is equal to the flow of money coming
out of that market or sector.
Look at the table The Demand for Chocolate-Covered Peanuts. Barbara demands 20
bags of chocolate-covered peanuts when the price of each bag is:
A) $0.90.
B) $0.80.
C) $0.70.
D) $0.60.
Economists may disagree about policies because they:
A) approach the issue using the same sets of values.
B) use different economic models.
C) enjoy disagreeing with each other.
D) only consider issues in positive economics.
If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008
it was 2%, the opportunity cost of holding money:
A) decreased.
B) became negative.
C) increased.
D) did not change.
If more women enter or reenter the labor force, the natural rate of unemployment is
likely to:
A) decrease.
B) remain unchanged.
C) increase.
D) decrease if they are well educated.
Dividing real GDP by the population:
A) results in consumption per capita.
B) results in nominal GDP per person.
C) gives real GDP per capita.
D) is a measure of happiness.
Life insurance companies are financial intermediaries that sell policies to savers and
guarantee a payment to the policyholder’s beneficiaries when the policyholder dies.
A) True
B) False
In a Ricardian model of international trade, the production possibility frontiers are
_____, indicating that the opportunity cost of increasing the production of one item
relative to another _____.
A) convex; is constant
B) concave; increases
C) straight lines; is constant
D) straight lines; decreases
Maturity transformation is conversion of long-term liabilities to short-term assets.
A) True
B) False
If an economy doubles its growth rate in per capita GDP over 14 years, then the growth
rate in per capita GDP averaged 5% per year.
A) True
B) False
Table: The Lemonade Market
Look at the table The Lemonade Market. If the price of lemonade is $1.25 per cup, we
expect to see:
A) a rising price to eliminate the shortage.
B) a rising price to eliminate the surplus.
C) a falling price to eliminate the shortage.
D) a market in equilibrium.
Which one of the following measures long-run economic growth?
A) a rise in employment
B) an increase in the money supply
C) a sustained increase in the production of goods and services
D) an increase in the labor force
Figure: Four Markets for DVDs
Look at the figure Four Markets for DVDs. If D1 or S1 is the original curve and D2 or
S2 is the new curve, which of the graphs illustrates what may happen in the market for
DVDs if there is an increase in the cost of a movie ticket at the local theater?
A) A
B) B
C) C
D) D
If the economy is at potential output and the Fed increases the money supply so that
actual output exceeds potential output, eventually nominal wages will:
A) increase.
B) decrease.
C) remain the same.
D) fluctuate randomly.
If interest rates decrease, making bonds less attractive, the demand for stock will _____
and the price of stock will _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Suppose the Federal Reserve buys $50 million in Treasury bills from commercial
banks. If the reserve ratio is 10%, the monetary supply might eventually _____ by
_____.
A) increase; $500 million
B) increase; $450 million
C) decrease; $450 million
D) decrease; $500 million
If labor is scarce in Sri Lanka but capital is abundant, when Sri Lanka opens to trade,
the price of labor will _____ and the price of capital will _____.
A) rise; rise
B) fall; fall
C) rise; fall
D) fall; rise
Governments can use foreign exchange controls to help them fix the value of their
currency.
A) True
B) False
Inflation:
A) is a movement of the economy toward economic growth.
B) can be thought of as an increase in a nation’s standard of living.
C) is a sustained fall in the overall level of prices.
D) is an increase in the overall level of prices.
According to the real business cycle theory, the primary source of fluctuations in real
output is changes in the:
A) level of investment spending by manufacturing firms.
B) rate of growth of total factor productivity.
C) rate of growth of the aggregate price level.
D) level of spending on durable goods by households.
Deflation leads to winners and losers; for example:
A) mortgage holders lose, but banks awaiting mortgage payments benefit.
B) landlords lose, but people paying rent gain.
C) savings account holders lose, but the banks gain.
D) bond and stock holders lose, but the brokerage company gains.
Consider the market for iPods. What happens if a fantastic new alternative MP3 player
is developed and at the same time a boat carrying a large shipment of iPods is attacked
by pirates and sunk?
A) Price decreases and quantity increases.
B) Price increases and quantity increases.
C) The change in price is indeterminate and quantity decreases.
D) Price increases and the change in quantity is indeterminate.