An example of a government policy to increase physical capital formation is:
A. the construction of an interstate highway system.
B. government support for basic research.
C. maintaining a well-functioning legal system.
D. the provision of publicly-funded education.
You expect a share of EconNews.Com to sell for $65 a year from now. If you are
willing to pay $62.73 for one share of the stock today, and you expect a dividend
payment of $4, what rate of return do you require?
A. 3.6%
B. 6.2%
C. 6.4%
D. 10%
When a market is not in equilibrium:
A. government intervention is required to achieve equilibrium.
B. firms will increase contributions to political action committees.
C. the economic motives of sellers and buyers will move the market to its equilibrium.
D. it will simply stay in a state of disequilibrium.
For a given nominal exchange rate and foreign price level, an increase in the domestic
price level ______ the real exchange rate.
A. increases
B. decreases
C. may either increase or decrease
D. offsets any change in
Refer to the figure above. At quantities less than 50 doughnuts,
A. marginal cost is declining.
B. marginal returns to inputs must be increasing.
C. average cost is declining because marginal cost is increasing.
D. average cost is declining because marginal cost is less than average cost.
Which of the following is an example of the bequest motive for saving?
A. Pat puts $400 per month in his 401(k) retirement account.
B. Jordan sets aside $200 per month in case she has to pay for a new roof for her house.
C. Gerry and Terry put $2,000,000 in a trust fund that will go to their children when
they die.
D. Chris keeps $15,000 in a money market account to pay expenses in case he loses his
job.
The common feature in pure monopoly, oligopoly, and monopolistic competition is:
A. the absence of close substitutes.
B. blocked entry.
C. interdependent decision making by firms.
D. downward sloping demand.
If a natural monopoly decreases the quantity of output it produces:
A. its average costs will decrease.
B. its average costs will increase.
C. it will have to decrease the price that it charges.
D. its profits will increase.
In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under
President Bush, was composed of approximately _____; the American Recovery and
Reinvestment Act, under President Obama, was composed of approximately ______.
A. one-fourth tax cuts and three-fourths spending increases; two-thirds tax cuts and
one-third spending increases
B. half tax cuts and half spending increases; only spending increases
C. two-thirds tax cuts and one-third spending increases; one-fourth tax cuts and
three-fourths spending increases
D. only tax cuts; half tax cuts and half spending increases
Capital income in the U.S. equals approximately ______ of GDP.
A. one third
B. two fifths
C. one half
D. two thirds
When a drug company introduces a new drug on the market its research, development,
and testing costs are ________, and the chemicals used in manufacturing the drug are
_______________.
A. start up costs; fixed costs
B. fixed costs; start up costs
C. start up costs; variable costs
D. marginal costs; variable costs
A bond is a(n):
A. regular payment made to owners of a firm.
B. claim to partial ownership of a firm.
C. agreement issued by a financial intermediary linking savers and investors.
D. legal promise to repay a debt.
In Cuba, a bureaucratic committee makes the production decisions for the country’s
firms and factories. Therefore, Cuba is an example of a:
A. centralized economy.
B. capitalist economy.
C. mixed economy.
D. pure free-market economy.
Stockholders receive returns on their financial investment in the form of ______ and
_____.
A. interest payments; dividends
B. capital gains; dividends
C. coupon payments; capital gains
D. capital gains; interest payments
A tax cut that affects both aggregate demand and potential output is predicted to _____
the long-run equilibrium level of output, while inflation _____.
A. increase; increases
B. increase; decreases
C. increase; may increase, decrease, or remain unchanged
D. decrease; decrease
Despite some problems with equating GDP with economic well-being, higher real GDP
per person does imply greater economic well-being because it tends to be positively
associated with:
A. crime, pollution, and economic inequality.
B. better education, health and life expectancy.
C. poverty, depletion of nonrenewable resources, and congestion.
D. unemployment, availability of goods and services, and better education.
Wealth equals:
A. current income minus spending on current needs.
B. assets minus liabilities.
C. saving minus investment.
D. investment minus saving.
Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly
Groceries is produced by the following production process:
If the corn was grown and the jar of popcorn produced in the year 2009, but the jar was
sold at Friendly Groceries in the year 2010, what is the contribution of these
transactions to GDP in the year 2009?
A. $0.50
B. $2.00
C. $2.50
D. $3.00
The duration of an unemployment spell is a measure of the:
A. income lost while unemployed.
B. length of time a spell of unemployment lasts.
C. number of times during a year a worker becomes unemployed.
D. number of workers unemployed during a specific period of time.
Average labor productivity times the proportion of the population employed equals:
A. real GDP.
B. real GDP per person.
C. real GDP per worker.
D. output per worker.
Direct regulation of workplace safety by the Occupational Safety and Health
Administration (OSHA) will result in
A. inefficient outcomes.
B. too much safety.
C. too little safety.
D. the optimal amount of safety.
Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby
river. While the firm benefits from dumping waste into the river, the waste reduces the
fish and bird reproduction. This causes damage to local fishermen and bird watchers. At
a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird
watchers will not suffer any damage. The relevant gains (in thousands of dollars) and
losses for the three parties are listed below.
Refer to the information given above. Suppose you observe that Erie has not added a
filter. You could conclude that the Coase Theorem failed to solve the externality
problem because:
A. Erie’s benefits to operating without a filter are greater than the benefits of a filter to
the fishermen and bird watchers.
B. negotiation with many individual fishermen and bird watchers was too costly.
C. Erie has a property right to the river.
D. regulators prevent application of the Coase Theorem when the environment is at
stake.
When using the AD–AS model to understand business cycles, the question, “what are the
fundamental causes of business cycles?” can be thought of as the question:
A. “what factors move the economy away from long-run equilibrium?”
B. “what factors move aggregate demand and aggregate supply in different directions?”
C. “what factors increase or decrease potential GDP?”
D. “what factors increase or decrease the expected rate of inflation?”
Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and
values a cruise in bad weather at $50. According to a very reliable source, the
probability of nice weather is 60% and the probability of bad weather is 40%. Trip
insurance is sometimes available. If purchased, it allows travelers to delay the cruise
until the weather is nice.
Suppose that the price of the cruise is $1200. If Mel is not risk averse, Mel should buy
trip insurance
A. never.
B. only if it costs less than $780.
C. only if it costs less than $20.
D. only if it costs less than $50
If the bank agrees to make a loan at a 7% interest rate and the inflation rate is 3%, then
4% is the ______ rate.
A. nominal interest
B. real interest
C. hyperinflation
D. disinflation
Sam owns a candy factory and hires workers in a competitive labor market to pack
cases of candy. The company’s weekly output of cases of candy varies with the number
of workers hired, as shown in the table:
If each case sells for $5 more than the cost of the materials used in producing it, then
the value of marginal product for the 2nd worker is _______.
A. $150
B. $310
C. $315
D. $750
Finding both parties to a trade who have something the other party wishes to trade for is
called a:
A. unitof account.
B. store of value.
C. medium of exchange.
D. double coincidence of wants.
The quantity and quality of human capital, physical capital, technology, natural
resources, entrepreneurship, and the legal and political environment determine the:
A. unemployment rate.
B. labor force participation rate.
C. average labor productivity.
D. real interest rate.
Assume that each day ten thousand children watch Sesame Street on public television
and that the educational benefits of watching Sesame Street generate private benefits of
$100 per child per year and a positive externality of $50 per child per year. No products
are advertised on Sesame Street but once a year the stations hold a pledge drive. During
pledge drives viewers are asked to make voluntary contributions to the public station in
order to keep the programming viable.
Suppose that each parent has just one child who watches Sesame Street. That parent has
a private incentive to contribute ____ during the pledge drive.
A. $0
B. $50
C. $100
D. $150
Reserve requirements set by the Federal Reserve are the:
A. minimum value of the ratio of reserves to bank deposits that commercial banks are
allowed to maintain.
B. maximum value of the ratio of reserves to bank deposits that commercial banks are
allowed to maintain.
C. minimum amount of currency banks must hold in their vaults.
D. maximum amount of currency banks are allowed to hold in their vaults.
GDP can be measured as each of the following EXCEPT:
A. the market value of production.
B. total expenditure on final goods and services.
C. incomes of capital and labor.
D. total business revenues.
If a 10% decrease in the price of good leads to a 20% increase in the quantity demanded
of that good, the price elasticity of demand for that good would be:
A. ½.
B. 2.
C. 10.
D. 20.