Suppose the economy is initially in long-run equilibrium and aggregate demand rises.
In the long run prices
a. and output are higher than in the original long-run equilibrium.
b. and output are lower than in the original long-run equilibrium.
c. are higher and output is the same as the original long-run equilibrium.
d. are the same and output is lower than in the original long-run equilibrium.
If governments provide free healthcare services,
a. this illustrates that governments can provide healthcare more economically than
private firms.
b. output and consumption of other goods will not be sacrificed.
c. resources with alternative uses are allocated to healthcare and there is an opportunity
cost of these resources.
d. the opportunity cost of the resources used to supply healthcare is zero.
If a small percentage increase in the price of a good results in a rather large percentage
reduction in the quantity demanded of the good, demand is said to be
a. vertical.
b. relatively inelastic.
c. relatively elastic.
d. robust.
Table 3-1
Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the
price of the product is $15, then who would be willing to purchase the product?
a. Mike
b. Mike and Sandy
c. Mike, Sandy, and Jonathan
d. Mike, Sandy, Jonathan, and Haley
A monopolist finds out that if he lowers his price from $10 to $8, sales rise from 100
units to 115 units. Therefore, in this price range,
a. marginal revenue is positive.
b. marginal revenue is negative.
c. the price elasticity of demand is greater than one.
d. both a and c are correct.
Which of the following about business cycles is true?
a. A “depression” is a recession that is mild and relatively brief.
b. The expansions and contractions of real world business cycles last varying lengths of
time.
c. The timing of business fluctuations is regular and, therefore, easily predictable.
d. During the recessionary phase of the business cycle, the rate of unemployment is
generally quite low.
Use the figure to answer the following question(s).
Figure 9-4
At the market price of $6 in Figure 9-4, indicate the firm’s total revenue and total cost at
its profit-maximizing level of output.
a. total revenue, $30 million; total cost, $22.5 million (approx.)
b. total revenue, $30 million; total cost, $30 million
c. total revenue, $40 million; total cost, $30 million
d. total revenue, $48 million; total cost, $38 million (approx.)
Use the production possibilities data below to answer the following question(s).
Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the farmer is
a. 8 hours of labor.
b. 2 hours of labor.
c. 4 pounds of meat.
d. 1/4 pound of meat.
Full employment is the situation in which the economy operates at an unemployment
rate equal to the sum of
a. structural and frictional unemployment.
b. cyclical and frictional unemployment.
c. structural and cyclical unemployment.
d. structural, frictional, and cyclical unemployment.
A perfectly elastic, long-run market supply curve is most likely to be achieved in
a. a price-taker industry.
b. a constant cost industry.
c. an increasing cost industry.
d. a price searcher industry.
Figure 2-9
Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost
is
a. 10 toasters.
b. 20 toasters.
c. 30 toasters.
d. 30 toothbrushes.
Taxes adversely affect the allocation of resources because
a. they do not always fall more heavily on the rich than on the poor.
b. the taxes collected are not enough to finance government spending.
c. not everyone pays taxes.
d. they distort prices and thus distort the decisions of households and firms.
In defining the money supply (M1), economists exclude savings deposits because
a. the purchasing power of savings deposits is much less stable than that of checkable
deposits and currency.
b. savings deposits are a form of investment and, thus, a better store of value than
money.
c. savings deposits are liabilities of commercial banks, whereas checkable deposits are
assets of the banks.
d. savings deposits are not generally used as a means of payment.
Figure 2-8
Points A, B, and C in Figure 2-8 indicate consumption and investment for three
economies. Other things constant, which of the economies is likely to grow more
rapidly in the future?
a. economy A
b. economy B
c. economy C
d. They would all be expected to grow at the same rate.
Which of the following would be an expected result of substantially higher wages in the
U.S. automobile industry?
a. an increase in the real wages of workers outside the industry
b. an increase in the price of automobiles produced in the United States
c. a reduction in the demand for foreign-produced automobiles
d. an increase in the profit rate of U.S. automobile producers
Suppose technological improvements reduced the cost of producing automobiles by 50
percent, causing the price of automobiles to decline by a similar amount. Which of the
following would necessarily result from this development?
a. Employment in the automobile industry would decrease.
b. Real income would increase.
c. Real income would decrease.
d. Both a and c are correct.
Within the Keynesian model, when total spending is less than the full-employment level
of output, firms will
a. continue to produce the current level of output.
b. cut production to reduce their inventory accumulation.
c. expand production to reduce their inventory accumulation.
d. cut production to build inventories.
An important difference between the situation faced by a profit-maximizing competitive
price-searcher firm in the short run and the situation faced by that same firm in the long
run is that in the short run,
a. price may exceed marginal revenue, but in the long run, price will equal marginal
revenue.
b. price may exceed marginal cost, but in the long run, price will equal marginal cost.
c. price may exceed average total cost, but in the long run, price will equal average total
cost.
d. there are many firms in the market, but in the long run, there are only a few firms in
the market.
Expansion in the size of government relative to the market sector will eventually retard
economic growth because
a. larger governments will be more involved in activities for which they are ill-suited.
b. the higher taxes to finance a bigger government will lead to larger and larger
deadweight losses from taxation.
c. the incentive to engage in innovative activities and respond to change is weaker in
government than in the market sector.
d. all of the above are correct.
Use the figure to answer the following question(s).
Figure 9-8
If the market price in Figure 9-8 increases to $4, indicate the firm’s profit-maximizing
output and total revenue.
a. output, 15; total revenue, $45
b. output, 15; total revenue, $60
c. output, 17; total revenue, $68 (approx.)
d. output, 20; total revenue, $80
Data on the relationship between the percentage of the workforce unionized and the
share of national income allocated to labor suggest that unionization has
a. greatly altered the labor-capital distribution of national income.
b. increased the share of national income allocated to labor.
c. had a positive effect on the wages of nonunion workers.
d. had no significant impact on the share of income going to labor.
An increase in the demand for a resource
a. will cause the price of that resource to fall.
b. may be the result of a decrease in the demand for products utilizing this resource.
c. will cause the price of the resource to fall by a smaller amount in the short run than in
the long run.
d. will increase the price of the resource and, thereby, increase the incentive of potential
suppliers to provide the resource in the future.
The proponents of rational expectations believe that
a. there will be a substantial time lag before people anticipate the eventual effects of a
shift to a more expansionary macro-policy.
b. macro-policies that stimulate demand and place upward pressure on the general level
of prices will temporarily increase output and employment.
c. the inflationary side effects of expansionary policies will be anticipated quickly, and
therefore, even their short-run effects on real output and employment will be minimal.
d. discretionary changes in macro-policy can be made in a manner that will reduce the
economic ups and downs of a market economy.
Which of the following grew rapidly after the passage of the Medicare and Medicaid
programs in the mid-1960s?
a. the share of healthcare expenditures financed directly by the consumer
b. the share of healthcare expenditures financed by third parties
c. the prices of healthcare relative to the prices of other goods and services
d. both b and c
A nation’s trade deficit will tend to expand when
a. its economy is expanding.
b. its economy is shrinking.
c. its investment environment is less attractive to foreigners.
d. both b and c above are true.
If the demand for a good is highly inelastic, a tax on the good
a. places the burden of the tax equally on buyers and sellers
b. permits sellers to pass most of the cost increase resulting from the tax on to the
consumers of the product
c. reduces the profits earned by sellers since they must write the check to pay the tax
d. makes the demand more inelastic
e. makes the demand more elastic
Price controls will tend to cause misallocation of resources because
a. production (or opportunity) cost no longer corresponds to market price.
b. people are unable to determine their preferences at the high or low price.
c. producers no longer have incentive to be profitable.
d. consumers no longer have incentive to spend their income efficiently.
Which of the following would appear on the liability side of the balance sheet of a
commercial bank?
a. demand and other transaction deposits
b. loans outstanding
c. U.S. government securities
d. vault cash
Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6
percent in 2005-2007, under the adaptive expectations hypothesis what will the
expected rate of inflation at the beginning of 2008?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more
expansionary monetary policy, the policy shift will
a. reduce aggregate demand and real output in the short run.
b. lead to a higher rate of unemployment in the short run.
c. stimulate real output in the short run, but in the long run, its primary impact will be
on the general level of prices.
d. lead to an increase in the general level of prices in the short run, but in the long run,
its primary impact will be an expansion in real output.
If unemployment in the United States was approximately 5 percent, most economists
would believe that the economy was
a. experiencing abnormally high unemployment.
b. at or near full employment.
c. experiencing an abnormally high labor force participation rate.
d. in the midst of a strong economic boom.
If the consumer price index (CPI) was 125 at year-end of 2008 and 132.5 at year-end
2009, inflation during 2009 was
a. zero; prices were stable during 2009.
b. 6.0 percent.
c. 7.5 percent.
d. 12.5 percent.