How did the Fed’s conduct of open market operations change during the economic crisis
of 2008?
a. Open market operations are no longer the most common tool that the Fed utilizes.
b. The Fed now buys and sells a broader range of assets than only government
securities.
c. The Federal Open Market Committee cannot act without the approval of the
Treasury.
d. The Fed now must have adequate funds available before purchasing government
securities.
In economics, the term that refers to the time, effort, and other resources needed to
search out, negotiate, and consummate an exchange is
a. transaction costs.
b. specialization costs.
c. pecuniary costs.
d. comparative costs.
An airline can increase its profit by offering standby customers an unsold seat at a
substantial discount just before takeoff because
a. additional passengers are needed to balance the load.
b. the marginal cost of additional passengers is very small.
c. additional passengers add little to fixed costs.
d. such passengers add more to profits than do those with reserved seats.
If variable cost at each output level doubles,
a. ATC doubles.
b. AFC doubles.
c. MC remains unchanged.
d. MC doubles.
e. MC less than doubles.
Between 1994 and 2004, the monthly charge for cellular phone service decreased from
$120 per month to $30 per month. At the same time, the number of subscribers
increased from less than 10 million to more than 75 million. Which of the following
provides the best explanation for these changes?
a. an increase in consumer income between 1994 and 2004
b. a reduction in the price of residential phone service, a substitute for cellular phone
service
c. an increase in the wages of workers in the cellular phone industry
d. technological improvements that reduced the cost of supplying cellular phone service
The English economist, Thomas Malthus, believed that sustained growth of income per
person would be impossible because of
a. rapid growth of capital formation if population increased above the subsistence level.
b. rapid growth of population if income increased above the subsistence level.
c. rapid growth of government if income increased above the subsistence level.
d. political democracy if income increased above the subsistence level.
Which of the following is true of a production possibilities curve?
a. It reveals the maximum amount of any two goods that can be produced from a fixed
quantity of resources.
b. It reveals the ideal level of technology for a country.
c. It assumes that the prices of the two products are equal.
d. For a country that could produce many different goods, it shows which two goods are
most important to produce.
Which of the following is not a basic question that each economy must answer?
a. Which resources are scarce?
b. For whom shall the goods be produced?
c. How shall goods be produced?
d. What goods shall be produced?
Which of the following is most consistent with the idea that if it’s worth doing, it’s
worth doing imperfectly?
a. When Mia cleaned her apartment, she didn’t clean under the refrigerator.
b. Mason is so disorganized that he spends 15 minutes every day trying to find his
glasses.
c. The senator stated, “No price is too high to save a life!”
d. Ford’s new policy is to make every car completely safe.
Which of the following would cause the actual deposit expansion multiplier to be less
than its potential?
a. the general public holding of funds in the form of currency rather than bank deposits
b. the holding of excess reserves by commercial banks
c. the general public holding of funds in the form of coins rather than bills
d. both a and b
Which of the following is an important side effect of government licensing and other
grants of monopoly power?
a. The number of options available to consumers is increased.
b. Competition is enhanced.
c. Firms will produce more efficiently.
d. Rent-seeking is encouraged.
Which of the following is most important if a country wants to move from a
low-income to a high-income status?
a. high rates of monetary growth.
b. sustained economic growth.
c. high real interest rates.
d. high nominal interest rates.
With time, a depreciation in the value of a nation’s currency in the foreign market will
cause the nation’s
a. imports to increase and exports to decline.
b. exports to increase and imports to decline.
c. imports and exports to decline.
d. imports and exports to rise.
If a profit-maximizing restaurant is going to increase its revenues by charging senior
citizens (persons age 65 and over) lower prices than other customers,
a. the demand of senior citizens for the services of the restaurant must be inelastic.
b. senior citizens must have lower incomes than other potential customers.
c. the demand of senior citizens for the services of the restaurant must be elastic.
d. senior citizens must have higher incomes than other potential customers.
e. other customers must enjoy food more than senior citizens.
Which of the following tends to increase the attractiveness of a retirement system based
on savings and investment rather than pay-as-you-go principles?
a. a persistent increase in the number of workers relative to the number of retirees
b. a large number of workers relative to the number of retirees
c. a reduction in the number of workers relative to the number of retirees
d. a persistent increase in the life expectancy of retirees.
According to the adaptive expectations hypothesis,
a. inflation will cause the long-run unemployment rate to decline.
b. the economic record during the current period strongly influences decision-maker
expectations about the future.
c. decision makers will consider the expected impact of policy changes when forming
their expectations about the future rate of inflation.
d. future inflation will adapt to conform with the expectations of decision makers.
Which one of the following accurately states the view of activists who favor
discretionary stabilization policy?
a. Neither monetary nor fiscal policy will exert an impact on the real level of economic
activity.
b. Since we have only limited ability to forecast the future direction of the economy, the
best policy is to do nothing.
c. Our ability to forecast the future direction of economic activity is quite good, and
therefore, discretionary macroeconomic policy is now capable of eliminating
fluctuations in the business cycle if policy makers would follow the advice of leading
economists.
d. The index of leading indicators and other forecasting tools provide policy makers
with valuable information that permits them to institute stabilizing changes in
macroeconomic policy.
An increase in the number of students graduating with a major in psychology would
result in
a. a decrease in the supply of psychologists that would increase the wage of
psychologists and decrease the number employed.
b. an increase in the supply of psychologists that would decrease the wage of
psychologists and increase the number employed.
c. a decrease in the demand for psychologists that would decrease the wage of
psychologists and decrease the number employed.
d. an increase in the demand for psychologists that would increase the wage of
psychologists and increase the number employed.
When natural resources are not traded, or where markets are not allowed to function as
well as they can under a system of well-defined property rights, the problems of ____
and ____ are common.
a. higher taxes; increased regulation
b. waste; scarcity
c. inflation; unemployment
d. slow growth; fluctuating currency values
If the Fed decreases the money supply,
a. aggregate demand and aggregate supply both increase.
b. aggregate demand increases, which leads to movement along the short-run aggregate
supply curve.
c. aggregate demand decreases, which leads to movement along the short-run aggregate
supply curve.
d. aggregate supply increases, which leads to movement along the aggregate demand
curve.
e. aggregate supply decreases, which leads to movement along the aggregate demand
curve.
If a good is scarce,
a. there will be shortages of it if the good is rationed by markets.
b. the good will have a price in a market setting.
c. there will be enough of the good freely available from nature to satisfy the human
desire for it.
d. all of the above are true.
A decrease in the dollar price of the English pound will make
a. U.S. exports to England increase.
b. U.S. exports less expensive for the English.
c. imports from England more expensive for Americans.
d. U.S. exports to England decrease.
Relative to a no-trade situation, if the United States imported jeans, the U.S. domestic
price of jeans would
a. rise, but domestic output would fall.
b. decline, but domestic output would rise.
c. decline as would domestic output.
d. rise as would domestic output.
Use the production possibilities data below for Honduras and Nicaragua to answer the
following question(s).
Table 2-2
Refer to Table 2-2. According to the law of comparative advantage, both Honduras and
Nicaragua could gain if
a. Honduras produced all of the apples and oranges and Nicaragua did not produce
anything.
b. Honduras specialized in producing apples, Nicaragua specialized in producing
oranges, and they traded.
c. Honduras specialized in producing oranges, Nicaragua specialized in producing
apples, and they traded.
d. Nicaragua and Honduras were both were self-sufficient and did not trade.
According to the traditional (crowding-out) view, large budget deficits during normal
times will lead to
a. bank failures in the future.
b. a smaller capital stock in the future.
c. lower interest rates in the future.
d. a bankrupt government in the future.
Resource markets are like any other market in that
a. the increase in quantity supplied in response to a higher price will generally be
greater in the long run than in the short run.
b. the amount demanded of a resource is inversely related to its price.
c. higher prices encourage people to search for substitutes.
d. all of the above are correct.
If a household has $40,000 in taxable income and its tax liability is $20,000, the
household’s average tax rate is
a. 10 percent.
b. 25 percent.
c. 40 percent.
d. 50 percent
Which of the following factors weakens the case for government provision of goods
and services relative to private-sector provision?
a. monopoly
b. externalities
c. public goods
d. the special-interest effect
Once decision makers fully adjust to an increase in prices,
a. the natural rate of unemployment will decline.
b. competitive forces will restore the usual relationship between product prices and
costs.
c. producers’ profits will exceed their normal level.
d. producers will expand output beyond the economy’s potential.
Which of the following is a distinguishing characteristic of a user charge?
a. Persons pay roughly in proportion to the extent that they use the good or service.
b. Persons with high incomes pay a larger amount than persons with lower incomes for
the same good or service.
c. Persons with high incomes pay a larger percentage of their income than persons with
lower incomes for the same good or service.
d. Persons with high incomes pay a smaller percentage of their income than persons
with lower incomes for the same good or service.
Figure 5-1
In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were
produced in a normal competitive market. Which of the following would be true if the
firms in the industry were instead able to get government licensing restrictions to limit
competition in the market?
a. The restricted market supply would be S3, resulting in a lower price and a higher than
efficient level of output.
b. The restricted market supply would be S3, resulting in a higher price and a less than
efficient level of output.
c. The restricted market supply would be S2, resulting in a lower price and a higher than
efficient level of output.
d. The restricted market supply would be S2, resulting in a higher price and a less than
efficient level of output.
Reductions in personal income tax rates that increase labor supply and work effort, can
be expected to also
a. decrease consumption spending.
b. increase consumption spending.
c. decrease investment spending.
d. increase export sales.
Diane’s Auto World installs tires on automobiles, light trucks, and sport utility vehicles.
She is a profit-maximizing business owner whose firm operates in a competitive
market. The marginal cost of installing a tire is $10. The marginal productivity of the
last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage
that Diane was willing to pay the last worker hired?
a. $5
b. $10
c. $20
d. There is insufficient information to answer this question.
The prisoners’ dilemma is used to illustrate the basic idea that
a. oligopolistic firms would be better off if they collude, but each has an incentive to
cheat on the collusive agreement.
b. oligopolistic firms are always worse off when they collude.
c. oligopolistic firms never have an incentive to cheat on collusive agreements, unlike
prisoners.
d. students who cheat on economics exams end up in jail.
Federal tax legislation makes it cheaper for individuals and families to pay for health
care
a. by purchasing an insurance policy through their employer rather than paying for it
directly with their own money.
b. by purchasing an insurance policy through their employer rather than directly
purchasing health insurance from the company of their choice.
c. directly rather than through an insurance policy offered through their employer.
d. by both a and b above.