If a borrower and lender agree to an interest rate on a loan when inflation is expected to
be 7% and inflation turns out to be 10% over the life of the loan, then the borrower
______ and the lender ______.
A. gains; gains
B. gains; loses
C. is not affected; gains
D. loses; gains
If the Fed wishes to increase nominal interest rates, it must engage in an open market
______ of bonds that ______ the money supply.
A. sale; increases
B. sale; decreases
C. sale; does not change
D. purchase; increases
The Federal Reserve System is:
A. a group of twelve commercial banks.
B. the central bank of the United States.
C. the agency of the U.S. government that insures commercial bank deposits.
D. the branch of the U.S. Treasury that keeps the U.S. gold reserves.
Smith and Jones comprise a two-person economy. Their hourly rates of production are
shown below.
The opportunity cost of making a calculator for Smith is ______ and for Jones it is
______.
A. 0.10 computers; 0.05 computers
B. 10 computers; 20 computers
C. 1 computer; 0.5 computers
D. 0.6 computers; 1.2 computers
A graph that illustrates the maximum amount of one good that can be produced for
every possible level of production of the other good is called a(n):
A. production possibilities curve.
B. consumption possibilities curve.
C. production function.
D. supply curve.
The table below shows how the payoffs to two political candidates depend on whether
the candidates run a positive or negative campaign. The payoffs are given in terms of
the percentage change in the number of votes received.
In the Nash equilibrium of this game:
A. both candidates run positive campaigns.
B. one candidate runs a positive campaign, and the other runs a negative campaign.
C. as long as one party runs a positive campaign, the other does too.
D. both candidates run negative campaigns.
The longest and most severe recession in the United States since 1925 began in:
A. 1929.
B. 1945.
C. 1957.
D. 1982.
The Federal Aviation Administration requires large commercial jets to install more
safety equipment than small private planes. This policy is consistent with the
Cost-Benefit Principle because:
A. the marginal cost of safety is smaller on small private planes than on large
commercial jets.
B. there are relatively few small private planes.
C. one fewer commercial jet accident will save more lives than one fewer private plane
accident.
D. commercial airlines can afford to install safety equipment, but the owners of small
private planes cannot.
Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook
for a given class. The marginal cost of supplying each book is constant and equal to
$10, and Campus Books has no fixed costs. The table below shows the reservation
prices of the eight students enrolled in the class.
How many books will Campus Books sell if it must charge a single price to all of its
customers?
A. 3
B. 4
C. 5
D. 7
A study of the impact of various government policies on economic growth would be
considered:
A. microeconomics.
B. macroeconomics.
C. government economics.
D. marginal economics.
If the nominal interest rate is below the equilibrium value, then the quantity demanded
of money is ______ than the quantity supplied of money, bond prices will ____, and the
nominal interest rate will ____.
A. greater; fall; increase
B. greater; fall; decrease
C. greater; rise; increase
D. less; fall; increase
The table below shows the relationship between the number of times you get your car
washed each month and your total monthly benefit from car washes. Each car wash
costs $15.
What is the marginal benefit of the 3rd car wash each month?
A. $4
B. $12
C. $16
D. $48
When the demand for a good is inelastic, that good is likely to have:
A. many close complements.
B. few close complements.
C. many close substitutes.
D. few close substitutes.
The additional output a firm gets from hiring an additional unit of labor is the
A. value of the marginal product of labor
B. total product of labor
C. marginal product of labor
D. average product of labor
For a given inflation rate, if a stock market crash makes consumers less willing to
spend, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
Refer to the figure below. In the matrix above:
A. Jess has a dominant strategy, but Cory does not.
B. Cory has a dominant strategy, but Jess does not.
C. both Cory and Jess have the same dominant strategy.
D. neither Cory nor Jess has a dominant strategy.
The table below shows a pizzeria’s fixed cost and variable cost at different levels of
output. Pizza’s sell for $20 each.
When the pizzeria makes 50 pizzas a day, its average variable cost is ______.
A. $5
B. $10
C. $15
D. $20
Suppose Sarah owns a small company that makes wedding cakes. The table below
shows how Sarah’s total cost varies depending on the number of wedding cakes she
makes each day.
If the market for wedding cakes is perfectly competitive, and wedding cakes sell for
$95 each, then Sarah should produce ______ cakes per day.
A. 0
B. 3
C. 5
D. 6
Data for an economy show that the unemployment rate is 6 percent, the participation
rate 60 percent, and 200 million people 16 years or older are not in the labor force. How
many people are employed in this economy?
A. 30 million
B. 188 million
C. 282 million
D. 300 million
Suppose the figure below illustrates the demand curve facing a monopolist.
If the monopolist decreases its price from $12 to $10, its total revenue will ______.
A. increase by $1000
B. decrease by $1000
C. increase by $600
D. decrease by $600
Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5%
and household incomes increase by 5%, we should conclude that real incomes of
households have:
A. increased.
B. stayed constant.
C. decreased.
D. increased more slowly than has inflation.
The Federal Open Market Committee makes decisions about ______ policy.
A. monetary
B. fiscal
C. banking
D. deposit insurance
As U.S. real GDP rises, wealthier households may decide to buy ______ foreign goods
and assets, which would cause a(n) ______ of the U.S. dollar.
A. more; appreciation
B. more; depreciation
C. fewer; appreciation
D. fewer; depreciation
If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5
units, and $105 in revenue when it sells 6 units, then one can infer the firm is a:
A. perfect competitor.
B. profit maximizer.
C. price taker.
D. monopolist.
An increase in the demand for workers producing computers for export versus
producing agricultural products that can be imported more cheaply from abroad is an
example of how increasing wage inequality can result from:
A. the diminishing marginal product of labor.
B. the diminishing marginal product of capital.
C. increasing reservation prices.
D. globalization.
In the Keynesian model, it is assumed that, when demand for a firm’s product changes,
the firm:
A. changes prices to meet the demand.
B. changes production levels to meet the demand.
C. changes prices and production levels to meet demand.
D. changes prices, but holds production levels constant, to meet the demand.
Total taxes paid divided by total before-tax income is called the:
A. average tax rate.
B. substitution effect.
C. opportunity cost.
D. marginal tax rate.
Suppose that the demand for electricity has been found to be price inelastic. The most
likely explanation for this finding is that:
A. electricity is a luxury good.
B. the fraction of income spent on electricity is large.
C. few substitutes for electricity exist.
D. electricity is sold in a monopoly market.
According to the textbook, the Manning study suggests that a large share of the increase
in medical expenditures since World War II has been caused by:
A. advances in medical technology.
B. the increase in high-deductible policies.
C. the annual stipend given to the poor to defray medical expenses.
D. the increase in first-dollar medical insurance.
An extremely high rate of inflation is called _____.
A. super inflation
B. deflation
C. disinflation
D. hyperinflation
For Michael, the first cup of coffee he drinks every morning is heavenly. The second
one is pretty good, but not as good as the first, and if he drinks a third cup he feels
jittery and sick. For Michael, the marginal utility from drinking a cup of coffee is
clearly:
A. decreasing.
B. increasing.
C. positive.
D. negative.
Suppose you believe that plaid flannel shirts are an inferior good, and want to test this
with economic data. You expect to find that the income elasticity for plaid flannel shirts
is:
A. close to zero.
B. greater than zero, but less than one.
C. greater than one.
D. less than zero.
Consider two restaurants located next door to each other: Quick Burger and The
Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and
noise will bother customers seated outside at The Sunshine Café. The table below
shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger
does and does not operate a drive-through window.
If Quick Burger has the legal right to operate a drive-through, and Quick Burger and
The Sunshine Café CANNOT negotiate with each other, then will Quick Burger operate
a drive-though window?
A. No, because it is not socially efficient to operate a drive-through.
B. Yes, because Quick Burger’s payoff is higher when it operates a drive-through.
C. No, because it would lower the payoff for The Sunshine Café.
D. It cannot be determined.
Refer to the figure below. The marginal utility of the 7th pizza is
A. 100.
B. 5.
C. -100.
D. -5.