The new classical view of fiscal policy holds that
a. budget deficits will stimulate consumption.
b. budget deficits will decrease the saving rate.
c. individuals fail to recognize that debt-financing implies higher future taxes.
d. individuals fully anticipate the added tax liability implied by the debt financing and
will increase their saving so they can meet this obligation.
Wages in the United States are higher than those in Mexico primarily because
a. output per worker is higher in Mexico than in the United States.
b. output per worker is higher in the United States.
c. the human and physical capital of American workers is lower than that of their
Mexican counterparts.
d. all of the above are correct.
An individual’s demand curve for a good is derived by
a. varying the income level and observing the resulting total utility derived from both
goods.
b. varying the price of one good and observing the resulting quantities of the other
good.
c. shifting the budget line to the left and calculating the loss in total utility.
d. varying the price of one good and observing the resulting quantities demanded of that
good.
Figure 15-1
As shown in Figure 15-1, the distance between points B and D means that 60 percent of
families earn less of total income than required for perfect equality.
a. 30 percent
b. 60 percent
c. 90 percent
d. insufficient information to answer question.
The fiscal policy response to the recession of 2008-2009 was
a. a substantial increase in the budget deficit just as Keynesian analysis would
recommend.
b. a balanced budget, just as Keynesian analysis would recommend.
c. a substantial increase in the budget deficit, which was highly inconsistent with
Keynesian analysis.
d. a shift of the federal budget toward a large surplus, which reflected the views of the
critics of Keynesian economics.
A student entering college wants to assess the value of investing in human capital. To
determine whether the investment will be profitable, she should compare the
a. value of her total expected future earnings with the total of her direct and indirect
costs of college.
b. present discounted value of future earnings with the total of her direct and indirect
costs of her education.
c. present discounted value of her additional future earnings as the result of the college
education with the present discounted value of only her direct costs of college.
d. present discounted value of her additional future earnings as the result of the college
education with the present discounted value of her direct and indirect costs of college.
The natural rate of unemployment is not zero because
a. some workers will always have few skills.
b. unemployment will always rise during the recessionary phase of the business cycle.
c. the economy is characterized by dynamic change and imperfect information.
d. not every member of society is capable of participating in the labor force.
The term ceteris paribus means that
a. everything is changing.
b. all variables except those specified are constant.
c. no one knows which variables will change and which will remain constant.
d. the basic postulate of economics does not apply for the case being considered.
A deadweight loss results from the imposition of a tax on a good because the tax
a. induces the government to increase its expenditures.
b. reduces the quantity of exchanges between buyers and sellers.
c. causes a disequilibrium in the market.
d. imposes a loss on buyers that is greater than the loss to sellers.
If the U.S. exports passenger jet aircraft, what is the effect in the foreign exchange
market?
a. It will create demand for U.S. dollars.
b. It will reduce demand for U.S. dollars.
c. It will increase supply of U.S. dollars.
d. It will decrease supply of U.S. dollars.
Market prices provide information to consumers, helping them coordinate their
activities so long as
a. competition is present and buyers and sellers are free to choose mutually agreeable
prices.
b. prices are not allowed to rise too high, causing a shortage.
c. prices are legally kept equal in all markets, preventing unfair price increases in
markets with shortages and unfair price decreases when a market surplus is present.
d. the government carefully screens producers and effectively keeps inefficient
producers out of the market.
Regarding wealth and environmental quality,
a. richer people are more willing to make sacrifices to gain greater environmental
quality.
b. poor nations are less resilient when faced with the threats caused by environmental
degradation.
c. richer people are more able to make sacrifices to gain greater environmental quality.
d. all of the above
Public choice theory indicates that the behavior of people in government
a. differs from the behavior of people in the private sector because they are motivated
by the public interest rather than their own personal self-interest.
b. differs from the behavior of people in the private sector because public sector
decision roles do not allow people to pursue their own self-interests.
c. is the same as people in the private sector only if decisions are made by majority
vote.
d. is best understood by applying the same principles we use to predict the behavior of
people in the private sector.
Which of the following is not counted as income when the official poverty rate is
calculated?
a. Medicaid benefits
b. dividends derived from the ownership of stock
c. earnings derived from a part-time job
d. money income derived from transfer payments
Opening trade between a nation that has “cheap labor” and one that has “expensive
labor” will
a. lower the standard of living in both countries.
b. raise the standard of living in both countries.
c. raise the standard of living in the “expensive labor” country and lower the standard of
living in the “cheap labor” country.
d. raise the standard of living in the “cheap labor” country and lower the standard of
living in the “expensive labor” country.
Because barriers to entry are low in competitive price-searcher markets, in the long run,
a firm’s price will be equal to
a. marginal revenue.
b. average total cost.
c. average variable cost.
d. average fixed cost.
If a demand curve for a good were completely vertical, it would be considered
a. perfectly elastic.
b. perfectly inelastic.
c. of unitary elasticity.
d. relatively inelastic.
Use the figure to answer the following question(s).
Figure 11-10
If the monopolist is regulated by the “marginal cost pricing” technique, what price in
Figure 11-10 will be charged?
a. P1
b. P2
c. P3
d. P4
Which of the following transactions would be included in this year’s GDP for the
United States?
a. You buy a rug imported from Mexico.
b. You buy stock in an American textile company.
c. You purchase a table over the Internet from a North Carolina furniture manufacturer.
d. You purchase a table over the Internet from a Mexican manufacturer.
Which of the following most clearly states the “paradox of thrift”?
a. If households simultaneously attempt to increase their savings, the result may be a
reduction in demand, output, and total savings.
b. A strong, healthy economy can be achieved if most households are heavily in debt.
c. A high savings rate will provide the funds for investment, which is a driving force of
long-term economic growth.
d. A reduction in savings and an increase in consumption will expand output and
employment.
As a result of a tariff on imports,
a. imports will fall, exports will fall, and total output will decline.
b. imports will fall, exports will rise, and total output will decline.
c. imports will rise, exports will fall, and total output will expand.
d. imports will rise, exports will rise, and total output will expand.
In a market that is contestable, but has only a few sellers, the
a. threat of new entrants will prevent prices from rising above the competitive level.
b. producers will be able to charge prices that are high enough to produce long-run
economic profits.
c. producers will not face new competition because the barriers to entry are high.
d. market will never be expected to come close to the competitive result.
In computing GDP, market prices are used to value final goods and services because
a. market prices reflect the values of goods and services to the buyer.
b. market prices do not change much over time, so it is easy to make comparisons
between years.
c. if market prices are out of line with how people value goods, the government sets
price ceilings and price floors.
d. None of the above is correct; market prices are not used in computing GDP.
Public choice analysis
a. assumes individuals in the public sector seek to serve the public interest rather than
their own personal interests.
b. is the study of the decision making of individual actors (such as voters, politicians,
and bureaucrats) in the public sector.
c. suggests that individual voters have a greater incentive to become informed when
making choices among political candidates than when making choices about the
products they consume.
d. finds that the individuals managing government agencies generally have a much
stronger incentive to be efficient than do individuals managing private businesses.
Currently, about ____ of U.S. households own stock, either directly or through an
equity mutual fund.
a. 10 percent
b. 20 percent
c. 50 percent
d. 80 percent
Explain how the following will affect the relative values of the dollar and the English
pound.
a. Income growth is higher in the United States than in England.
b. Inflation is higher in England than in the United States.
c. Real interest rates are higher in the United States than in England.
In 2010, high-income families (the top 20 percent) in the United States earned
approximately ____ percent of the total before-tax income.
a. 34
b. 48
c. 62
d. 79
A point outside the production possibilities curve represents a combination of goods
that is
a. inefficient.
b. efficient.
c. unattainable.
d. attainable.
Which of the following would most likely cause an increase in aggregate demand?
a. an increase in the corporate income tax
b. an increase in interest rates
c. an increase in the budget deficit
d. an increase in personal income tax rates
In order to prosper, entrepreneurs must
a. undertake projects that create wealth and increase the value of resources.
b. find ways to prevent technological change.
c. have their own wealth with which to finance projects that they want to undertake.
d. undertake projects that use resources that are more valuable than is the output they
produce.
Which of the following explains why pork-barrel spending is often approved, even
when the spending is inefficient?
a. Each representative has little incentive to oppose pork-barrel spending since the tax
savings would accrue to taxpayers throughout the nation.
b. General opposition to pork-barrel spending by a legislator would make it more
difficult for the legislator to arrange for pork-barrel projects that provide concentrated
benefits for his district.
c. Logrolling increases the likelihood that pork-barrel projects will be approved.
d. All of the above are correct.
Since 1970, union membership, as a percent of the labor force,
a. has remained virtually unchanged.
b. has increased, as more government workers have decided to unionize.
c. has decreased.
d. has gone through wild swings both up and down.