When a conflict arises in a major oil-exporting area of the world, such as the Middle
East, the price of gasoline already in the storage tanks at local gas stations usually
increases. Which of the following best explains this occurrence?
a. Gas station owners anticipate consumers will buy more gasoline as gasoline prices
increase.
b. Gas station owners are attempting to repeal the laws of supply and demand.
c. Gas station owners anticipate higher replacement costs for their supply of gasoline
and, therefore, raise their prices in response to this higher expected cost.
d. A decline in consumer demand generally causes gas station owners to raise their
prices.
As methods of economic organization, the market and the public sector are similar in
which of the following ways?
a. Income and power are distributed equally in both sectors.
b. In both sectors, economic activity is undertaken only when it satisfies the criterion
for economic efficiency.
c. In both sectors, economic exchange is completely voluntary.
d. Someone must cover the cost associated with the provision of scarce goods in both
sectors.
Given freedom of movement for both goods and resources, if Florida producers
specialize in oranges and Georgia producers specialize in peaches, it would be
reasonable to conclude that
a. the opportunity cost of growing oranges is higher in Florida than in Georgia.
b. Georgia has a comparative advantage in producing oranges.
c. Florida has a comparative advantage in producing oranges.
d. total output will be expanded when Georgia allocates more resources to producing
oranges and Florida allocates more resources to producing peaches.
According to the law of supply, as the price of a good increases,
a. buyers will buy more of the good.
b. buyers will buy less of the good.
c. sellers will produce more of the good.
d. sellers will produce less of the good.
When Keynesian equilibrium is present,
a. aggregate demand for goods and services will equal the current rate of output.
b. business inventories will be increasing.
c. full employment must be present.
d. the actual rate of unemployment must equal the natural rate of unemployment.
Which of the following would be most likely to improve the standard of living of the
residents of a less-developed country?
a. the development of strong labor unions
b. a sharp increase in the legal minimum wage
c. an increase in expenditures on education and capital investment
d. rapid growth rate of the money supply
Which of the following will increase the excess reserves of commercial banks?
a. a reduction in the reserve requirement ratio
b. an increase in the discount rate
c. the sale of government bonds by the Fed to the public
d. the sale of government bonds by the Treasury to the public
The marginal tax rate is defined as
a. tax liability divided by taxable income.
b. tax liability multiplied by taxable income.
c. the change in tax liability divided by the change in taxable income.
d. the change in tax liability minus the change in taxable income.
In a market economy, what must an entrepreneur do in order to be successful?
a. purchase resources at lower prices than rivals
b. produce a good that can be sold for more than its production cost
c. obtain large subsidies from the government
d. hire workers at low wage rates
Economic theory suggests that college graduates receive higher wages than those with
only a high school education because
a. college graduates are more productive.
b. college graduates must be paid higher wages because their educational costs were
higher.
c. college graduates have formed stronger unions.
d. the supply of high school graduates is small relative to the demand for their labor.
Nations will be able to produce a larger joint output and realize mutual gains when each
specializes in the production of those items for which it is a low-opportunity cost
producer and trades for those things that it could produce only at a high cost. This
statement best describes the
a. free rider problem.
b. infant-industry argument.
c. law of comparative advantage.
d. equation of exchange.
If an increase in the price of peaches reduces the demand for cream, this indicates that
peaches and cream are
a. normal goods.
b. inferior goods.
c. complements.
d. substitutes.
Which of the following is true?
a. In recent decades, the volume of U.S. international trade has been declining as a
share of the economy.
b. Most of the textile products produced in the United States are exported abroad.
c. The volume of U.S. trade with Canada is larger than for any other country.
d. If one party to an international exchange gains, the other party must lose a similar
amount.
Keynesian analysis suggests that a planned budget surplus
a. will affect aggregate demand only if the money supply decreases by the size of the
surplus.
b. will stimulate both consumption and income.
c. will stimulate output and employment.
d. is proper during periods of inflation but may increase unemployment if timed
improperly.
Use the figure below to answer the following question(s).
Figure 4-10
Refer to Figure 4-10. The accompanying graph shows the market for a good before and
after an excise tax is imposed. The total tax revenue generated is indicated by
a. area A + area B + area D.
b. area A + area B + area C.
c. area A + area B.
d. area D only.
When the exchange rate is determined by market forces and an economy is
experiencing a net inflow of capital, the economy will tend to
a. run a budget deficit.
b. run a trade deficit.
c. experience an increase in the supply of money.
d. experience a reduction in the supply of money.
If labor-intensive textile products could be produced more cheaply in low-wage
countries than in the United States, the United States would gain if it
a. levied a tariff on the goods produced by the cheap foreign labor.
b. subsidized the domestic textile industry so it could compete in international markets.
c. used its resources to produce other items while importing textiles from foreigners.
d. levied a tax on the domestic textile products to penalize the industry for inefficiency.
Pollution charges will be efficient if
a. the charge is just equal to the cost borne by others from the pollution.
b. the charge is greater than the cost borne by others from the pollution.
c. the charge is less than the cost borne by others from the pollution.
d. none of the above.
Within the framework of the AD/AS model, if a long-run equilibrium is present in the
goods and services market,
a. decision makers will have accurately forecast the current price level when they
arrived at resource price and loanable funds agreements.
b. the profit rates of the firms will generally exceed the competitive level.
c. the actual rate of unemployment will fall below the natural rate of unemployment.
d. the current rate of output will be sustainable in the future.
e. both a and d are correct.
Money is
a. valuable because it is backed by gold.
b. whatever is generally accepted in exchange for goods and services.
c. anything that is a liability of a commercial bank
d. an object to be consumed.
The new classical model implies that a shift to a more expansionary fiscal policy (the
substitution of debt financing for taxes) will
a. stimulate aggregate demand and employment.
b. retard aggregate demand and employment.
c. increase the real rate of interest.
d. exert little or no impact on the real interest rate, aggregate demand, and employment.
Figure 3-12
In Figure 3-12, suppose D1 and S1 indicate initial conditions in the market for ice
cream. Which of the following changes would tend to shift this market from D1 toD2?
a. an increase in the price of milk, an ingredient used to produce ice cream
b. an increase in the price of frozen yogurt, a substitute for ice cream
c. a decrease in the price of sugar, an ingredient used to produce ice cream
d. a decrease in consumer income
Which of the following will most likely occur as the result of an unanticipated increase
in aggregate demand?
a. an increase in output and a move to a higher price level
b. an increase in prices and a long-run increase in output
c. an increase in long-run aggregate supply (LRAS shifts to the right)
d. a decrease in the natural rate of unemployment
Use the figure below to answer the following question(s).
Figure 4-11
Refer to Figure 4-11. On the Laffer curve shown, which of the following is true?
a. Tax revenue would increase if marginal tax rates were lowered from point C.
b. Tax revenue would decrease if marginal tax rates were lowered from point A.
c. Tax revenues are maximized at a tax rate corresponding to point B.
d. All of the above are true.
Which of the following is true?
a. Employers who discriminate against women will have lower costs than rival firms
that hire employees strictly on the basis of merit (productivity).
b. If employers can hire equally productive female employees at a lower wage than
males, the profit motive gives them a strong incentive to do so.
c. The female/male earnings ratio is higher for persons who are married than for those
who remain single.
d. Both a and c are true.
When expansionary monetary policy pushes interest rates to artificially low levels,
a. the demand for and prices of interest-sensitive goods, like housing, will increase.
b. people will delay their purchases of interest-sensitive goods, like housing, into the
future.
c. the demand for interest-sensitive goods, like housing, will increase, but their prices
will decline.
d. the demand for and prices of interest-sensitive goods, like housing, will decline.
Checking account deposits are counted as part of the M1 money supply because
a. they earn interest income for the depositor.
b. they are widely used as a means of making payment.
c. banks hold currency equal to the value of their outstanding checking account
deposits.
d. they are ultimately the obligations of the Treasury.
If expected inflation is constant, then when the nominal interest rate increases, the real
interest rate
a. increases by more than the change in the nominal interest rate.
b. increases by the change in the nominal interest rate.
c. decreases by the change in the nominal interest rate.
d. decreases by more than the change in the nominal interest rate.
Use the figure to answer the following question(s).
Figure 11-7
If the output in the industry is produced by a monopolist, at what price will the good
sell and what quantity will be produced in Figure 11-7?
a. price, $7; quantity produced, 100
b. price, $10; quantity produced, 170
c. price, $14; quantity produced, 100
d. price, $7; quantity produced, 200
A firm’s demand curve for labor shifts when the
a. price of its output changes.
b. wage rate changes.
c. number of available workers changes.
d. All of the above are correct.
Which of the following is true?
a. Due to anti-employment discrimination legislation that was passed in the early 1960s,
there was a large increase in the earnings of women relative to men in the 1960s and
1970s.
b. The female/male earnings ratio for full-time workers has been virtually constant
since 1980.
c. The number of women preparing for careers as professionals has increased
substantially since the 1980s.
d. In recent years only about 40 percent of those completing college degrees were
women.
If marginal revenue exceeds marginal cost, a profit-maximizing monopolist will
a. raise price and decrease output.
b. lower price and increase output.
c. reduce both output and price.
d. hold output constant and raise price.
According to the modern view of the Phillips curve, expansionary macroeconomic
policy that leads to inflation will reduce unemployment
a. only if people underestimate the inflationary side effects of the policy.
b. only if people overestimate the inflationary side effects of the policy.
c. if people accurately anticipate the inflationary side effects of the policy.
d. only if monetary policy provides the macroeconomic stimulus.
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 meat for the rancher is
a. 4 hours of labor.
b. 5 hours of labor.
c. 4/5 pounds of potatoes.
d. 5/4 pounds of potatoes.