An expansionary monetary policy is most likely to produce an inflationary effect with
little impact on output when the economy
a. is near full employment and the short-run aggregate supply curve is flat.
b. is near full employment and the short-run aggregate supply curve is steep.
c. has substantial unemployment and the short-run aggregate supply curve is steep.
d. has substantial unemployment and the short-run aggregate supply curve is flat.
Large or persistent inflation is almost always caused by
a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.
d. higher-than-normal levels of productivity.
A major fruit juice manufacturer failed in its attempt to engage in price discrimination
between students and all other consumers. What is the most likely explanation for this
failure?
a. There was nothing to prevent the students from reselling the fruit juice to other
consumers.
b. The two groups of consumers have different demand elasticities for fruit juice.
c. The cost of producing the product is relatively high.
d. Market demand for fruit juice is inelastic.
According to the Economic Freedom of the World measure, the United States was
a. the freest economy in the world during 1980-2000.
b. the third freest economy in the world, behind only Hong Kong and Singapore during
1980-2000.
c. less free than Australia and Canada throughout the 1980-2000 era.
d. less free than the large economies of Western Europe throughout the 1980-2000 era.
If a competitive price-taker firm is currently producing a level of output at which
marginal cost exceeds marginal revenue, then
a. average revenue exceeds marginal cost.
b. the firm is earning a positive profit.
c. a one-unit decrease in output would increase the firm’s profit.
d. All of the above are correct.
A production possibilities curve graphically represents the maximum quantities of two
products produced when all resources in the economy are being used efficiently. If an
economy operates at a point inside its production possibilities curve,
a. it lacks the resources necessary to produce at full employment.
b. it is utilizing some resources inefficiently.
c. it does not confront the problem of scarce goods relative to unlimited wants.
d. it does not exist in the real world since it is impossible for an economy to operate
inside its production possibilities curve.
When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator
rather than the consumer price index because
a. the GDP deflator is calculated for a narrow market basket of goods, approximating
those items included in our measure of consumption expenditures.
b. the GDP deflator calculates changes in the prices of items that more closely
approximate those included in GDP.
c. the GDP deflator is always less than the consumer price index, and therefore, it is a
more stable index.
d. the GDP deflator is the sum of the consumer price index and the wholesale price
index.
If the interest rate is 8 percent, the present value of $750 to be received two years from
now is
a. $750.
b. $886.10.
c. $643.
d. $738.14.
The demand for money varies
a. directly with both the price level and the level of real GDP.
b. inversely with both the price level and the level of real GDP.
c. inversely with the price level and directly with the level of real GDP.
d. directly with the price level and inversely with the level of real GDP.
e. inversely with the level of nominal GDP.
A 2.9 percent payroll tax (1.45 percent levied on both the employee and the employer)
imposed on current workers is used to finance the
a. Medicaid program that provides healthcare for the poor.
b. hospitalization costs of Medicare beneficiaries.
c. cost of physician services supplied to the elderly.
d. healthcare costs of both the elderly and the poor.
Which of the following is true?
a. The incentives to engage in rent-seeking activities increase with the ease with which
the political process can provide personal gain at the expense of others.
b. The amount of resources devoted toward rent seeking generally has no impact on the
economic prosperity of a nation.
c. Income transfers directed toward the poor constitute about half of all income
transfers in the United States.
d. All of the above are correct.
Which of the following will reduce the risk accompanying equity (stock) investments?
a. the purchase of shares of a mutual fund that holds the stocks of many diverse
corporations
b. the purchasing and holding of equities over a lengthy period of time
c. the purchase of shares in firms doing business in a wider variety of industries and
markets
d. all of the above
Under a system of flexible exchange rates, an increase in demand for a nation’s
currency in the foreign exchange market will
a. cause the nation’s currency to appreciate.
b. make it more expensive for the nation to import goods.
c. cause the nation’s balance on current account to shift toward a surplus.
d. make it less expensive for foreigners to buy the nation’s goods.
Which of the following could be an institutional barrier to employment?
a. licensing requirements
b. labor unions
c. minimum wages
d. all of the above
Which of the following reduced aggregate demand and thereby contributed to the crisis
of 2008?
a. a rise in the value of the U.S. dollar
b. falling housing and stock prices
c. an increase in the real rate of interest
d. optimism about future economic conditions
A substantial revision of the income tax code that made business and personal tax
returns much easier to complete would tend to cause which of the following changes in
the labor market for accountants?
a. an increase in the demand for accountants
b. an increase in the employment of accountants
c. a decrease in the wage rate of accountants
d. an increase in the number of students choosing to major in accounting
A tax for which the average tax rate remains constant at all levels of income is defined
as a
a. regressive tax.
b. proportional tax.
c. neutral tax.
d. progressive tax.
Which of the following most accurately states the economic significance of exchange?
a. Physical goods have value because they exist; exchange can neither increase nor
decrease their value.
b. Production of physical goods creates value; exchange merely redistributes this value.
c. Exchange creates value by moving goods from parties who value them less to parties
who value them more.
d. Exchange reduces value since it consumes resources without adding to the physical
supply of goods.
If pizza used to be produced in a competitive price-taker market, and now the pizza
market has become a monopoly, we can expect
a. less pizza to be sold at a higher price.
b. more pizza to be sold at a higher price.
c. less pizza to be sold at a lower price.
d. more pizza to be sold at a lower price.
e. the same amount of pizza to be sold at the same price.
The amount of additional earnings that must be paid explicitly in taxes or implicitly in
the form of a reduction in income supplements is known as the
a. marginal income tax rate.
b. implicit marginal tax rate.
c. explicit benefit-reduction rate.
d. supplemental income tax rate.
If the economy is operating at an output level beyond its full-employment capacity,
which of the following would most likely direct the economy back to long-run
equilibrium?
a. improvements in technology
b. a decrease in the real rate of interest
c. an increase in resource prices
d. a decrease in resource prices
Economists who stress the store of value function of money generally
a. argue that M1 is the best measure of the money supply.
b. prefer the M2 measure of the money supply to the M1 measure.
c. argue that M1 is too broad a definition of the money supply.
d. prefer the M1 measure of the money supply to the M2 measure.
Which of the following provides the best explanation of why low-income countries
generally remain poor?
a. Their institutional arrangements and policies often discourage productive activity and
reduce the potential gains from specialization and exchange.
b. They are oppressed by developed nations that benefit from the cheap goods available
from countries with low wage rates.
c. They are poorly endowed with natural resources, which are essential for long-term
rapid growth.
d. When the average income level is low, workers have little incentive to earn higher
incomes.
The demand for a resource depends largely on the
a. demand for the products that it produces.
b. price of the resource.
c. supply of the resource.
d. cost of producing the resource.
(I) Historically, countries with colonial settlers who planned on staying for long periods
of time set up sound economic institutions.
(II) Countries with harsh environments not suitable for permanent settlements resulted
in colonial settlers adopting weaker and less productive economic institutions before
leaving.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
An unanticipated shift to a more expansionary monetary policy that permanently
increases the rate of inflation from 2 to 6 percent will
a. reduce unemployment in the short run, but unemployment will return to the natural
rate in the long run.
b. reduce unemployment in the short run, but unemployment will exceed the natural
rate in the long run.
c. increase unemployment in the short run, but unemployment will return to the natural
rate in the long run.
d. exert an unpredictable impact on unemployment in the short run, but unemployment
will return to the natural rate in the long run.
What concept implies that a firm’s marginal revenue product curve for labor will slope
downward in the short run?
a. diminishing marginal returns
b. the law of supply
c. the law of decreasing cost
d. the price equalization principle
Breaking a monopoly firm into several rival firms will be unlikely to improve economic
efficiency when economies of scale are important because
a. several smaller firms will have higher per-unit costs than a single larger firm.
b. a single firm will have higher per-unit costs than several smaller firms.
c. it is harder to regulate many smaller firms than it is one large firm.
d. consumers will find it harder to choose among the products of many alternative
sellers.
Which of the following provides the most reasonable explanation for why agricultural
interests lobby for higher farm subsidies and price supports?
a. Without the farm subsidies, food shortages would result.
b. Subsidies promote the efficient use of agricultural resources.
c. Agricultural interests seek a redistribution of income favoring themselves.
d. The price support programs reduce food costs, which helps the poor.
When the Federal Reserve sells government bonds to the public, it directly
a. increases the M1 money supply and increases the reserves of the commercial banking
system.
b. increases the M1 money supply, while reducing the reserves of the commercial
banking system.
c. reduces the M1 money supply, while increasing the reserves of the commercial
banking system.
d. reduces the M1 money supply and decreases the reserves of the commercial banking
system.
You put money into an account. One year later you see that you have 6 percent more
dollars and that your money will buy 2 percent more goods.
a. The nominal interest rate was 8 percent and the inflation rate was 6 percent.
b. The nominal interest rate was 6 percent and the inflation rate was 4 percent.
c. The nominal interest rate was 4 percent and the inflation rate was 2 percent.
d. None of the above is correct.
Which of the following does not contribute to GDP?
a. You lose $50 playing cards with friends.
b. You pay a doctor $200 to treat an arm that you broke in an accident.
c. You pay $300 for this month’s rent on your apartment.
d. Your economics textbook is revised, and you buy the new edition.