In the short run, a firm has fixed costs but never any variable costs.
a. True
b. False
If the production of a good generates a detrimental externality, then at that level of
production of the good under perfect competition,
a. MSC > P.
b. MPC > MSC.
c. P > MU.
d. MPC > P.
Which of the following is an explanation for why some poor countries suffer from
lower productivity growth?
a. Too much saving has lead to the accumulation of capital in poor countries.
b. The adoption of technology too quickly hurts the labor force in poor countries.
c. Primary education is universal in poor countries.
d. Poor countries have lower capital stocks.
There is strong evidence that entrepreneurs are characteristically:
a. driven by greed
b. overoptimistic
c. not good business people
d. satisfied with the status quo
What is the crucial difference between inflation generated on the demand side versus
inflation generated on the supply side?
a. Demand-side inflation is short-lived, while supply-side inflation lasts for a long time.
b. Demand-side inflation leads to budget surpluses, while supply-side inflation
contributes to budget deficits.
c. Supply-side inflation is subject to control of policy makers, while demand-side
inflation is beyond their reach.
d. Demand-side inflation is normally accompanied by rising real GDP, while
supply-side inflation may be accompanied by falling real GDP.
If the economy automatically tends toward full employment, then government
stabilization policy
a. must be constantly in force.
b. will be necessary only in recessions.
c. will be necessary only in inflationary periods.
d. will not be necessary.
An increase in Social Security payments to retired persons has what effect on
equilibrium income?
a. GDP will fall.
b. GDP will rise.
c. GDP will remain the same.
d. GDP will fall by less than the increase in payments.
Firms often seek to borrow money to expand their capital stock, and the price they pay
for the money is the interest rate. What happens to supply of money if the interest rate
increases?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain-economic theory has no answer to this question.
A change in a fixed tax will cause the consumption schedule to
a. become steeper.
b. become flatter.
c. shift in a parallel manner.
d. remain fixed as the economy moves along the schedule.
A decrease in the price of VCRs will increase demand for video cassettes.
a. True
b. False
A mixed economy is one that combines public and private ownership of property.
a. True
b. False
If the MPC of an economy is .90 and the economy has a horizontal aggregate supply
curve, then an increase in investment spending of $50 million will increase total income
by
a. $50 million.
b. more than $50 million but less than $500 million.
c. $500 million.
d. more than $500 million.
Figure 20-7
In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X − IM)
for an open economy. Which of the following would cause a movement from A to B?
a. an increase in interest rates
b. an appreciation of the dollar
c. a depreciation of the dollar
d. an increase in the U.S. price level
In the case of a beneficial externality
a. marginal private cost is below marginal social cost.
b. marginal social cost is above marginal private cost.
c. marginal social cost and marginal private cost are equal.
d. the free market price is below the socially efficient price.
The historical data on velocity shows that velocity for
a. M1 has fallen since 1929 and has become more stable since 1981.
b. M1 has risen since 1949 and has become more volatile since 1981.
c. both M1 and M2 have increased since 1949 but have become more stable since 1979.
d. both M1 and M2 have declined since 1949.
The use of abstraction in economics is analogous to the use of a road map providing
directions to a location.
a. True
b. False
Because the United States is highly integrated with the international capital market,
international capital flows tend to
a. counteract the negative effect on aggregate demand of lower interest rates.
b. counteract the positive effect on aggregate demand of higher interest rates.
c. strengthen the negative effects on aggregate demand of higher interest rates.
d. strengthen the negative effects on aggregate demand of lower interest rates.
After being introduced in 1999, the euro
a. increased in value through 2008.
b. decreased in value through 2008.
c. increased in value through 2000 but then decreased in value through 2008.
d. decreased in value through 2000 but then increased in value through 2008.
The price of an exhaustible resource sold in a perfectly competitive market in which
technology and consumer preferences do not change over time will tend to
a. stay constant over time.
b. always equal the price of the closest substitute for that resource.
c. fall over time.
d. rise over time.
Transfer payments are income that is
a. earned but not received.
b. received but not spent.
c. spent but not earned.
d. received but not earned.
Why does quantity demanded decrease when price increases?
a. People choose to reduce consumption of the item.
b. People “drop out” of the market for the item.
c. People find substitutes for the item.
d. All of the above are correct.
When you compare the effects of government spending on aggregate demand with the
effects of taxes on aggregate demand, the effects of government spending are
a. smaller.
b. larger.
c. the same.
d. impossible to predict.
The term “capital formation” actually implies adding new equipment to a nation’s
factories.
a. True
b. False
If production of a good creates beneficial externalities, a perfectly competitive market
will produce
a. less output than would maximize profit.
b. more output than would maximize profit.
c. less output than is socially efficient.
d. more output than is socially efficient.
When the price of a commodity rises, we can expect
a. marginal utility of the last unit purchased will rise.
b. marginal utility of the last unit purchased will fall.
c. marginal utility of the last unit purchased will be unaffected.
d. purchases to rise because of the increased marginal utility.
Jack buys a computer from Sam, knowing fully well that the technology used in it is
obsolete. In this case, the trade is
a. beneficial to both parties.
b. beneficial only to Sam.
c. beneficial only to Jack.
d. not beneficial to either of them.
A corporation with “plowback”
a. deliberately earns negative profit on some activities in order to get better tax
treatment.
b. buys back shares of its stock from shareholders.
c. retains some of its earnings for investment.
d. issues unsecured stock.
Which of the following is closest to the economist’s definition of perfect competition?
a. the airline industry
b. the soft drink industry
c. the fishing industry
d. cellular telephone service
If the labor force grows faster than the number employed, the
a. unemployment rate will fall.
b. unemployment rate will rise.
c. labor force rate will rise.
d. employment rate will rise.
A tax on cigarettes can be expected to reduce teen smoking more than it reduces adult
smoking.
a. True
b. False
If marginal revenue product is less than price of the input, the firm should use more of
the input.
a. True
b. False
Marginal physical product measures the increase in total output that results from a
one-unit increase in an input.
a. True
b. False
When a government influences the exchange rate of its currency, it is said to be
practicing “dirty floating.”
a. True
b. False