The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially
offset during a recession.
The government receives all of the benefits associated with the production of a public
good.
The concave, or bowed-out, shape of the production possibilities curve illustrates the
law of increasing opportunity costs.
Command systems in the Soviet Union and Eastern Europe failed primarily because of
a lack of resources.
The discount rate is the interest rate at which commercial banks lend to their best
corporate customers.
In a two-country model, equilibrium world prices and equilibrium quantities of exports
and imports occur where one nation’s export supply curve intersects the other nation’s
import demand curve.
If the rate of inflation is 7 percent per year, then the price level will double in 14 years.
The Federal Open Market Committee (FOMC) is made up of the presidents of the
Federal Reserve Banks, the secretary of the Treasury, and the chair of the President’s
Council of Economic Advisers.
Immobile resources contribute to wage differentials.
The expectations of speculators in the United States that the exchange rate for the euro
will fall in the future will increase the supply of euros in the foreign exchange market
and decrease the exchange rate for the euro.
In monopsony situations, a minimum wage might increase wage and employment
levels.
The Federal funds rate is the interest rate that banks charge other banks for overnight
loans of excess reserves at Federal Reserve Banks.
Official unemployment statistics overstate unemployment because discouraged workers
who are not actively seeking work are counted as unemployed.
Specialization is less than complete among nations because opportunity costs normally
rise as more of a particular good is produced.
A small time deposit is one that is less than $100,000.
One reason the luxury tax on yachts imposed by the U.S. Congress in 1991 failed to
produce much tax revenue was that the demand for yachts was elastic.
Critics of economic growth say that it will deplete economic resources.
Commercial bank reserves are an asset to commercial banks but a liability to the
Federal Reserve Bank holding them.
Goods that are subject to excludability provide examples of private goods.
A vertically integrated firm is a group of plants each operating at different stages of
production.
The M1 money supply is composed of currency, checkable deposits, and time deposits.
Those who favor inequality in the distribution of income contend that it will lead to
stronger incentives to work, save, and invest, and thus to a greater national income and
output.
The data on the distribution of personal income by households in the United States
indicates that there is considerable income equality.
The major advantages of monetary policy include its flexibility, speed, and political
acceptability.
A rightward shift of the aggregate demand curve will increase real domestic output and
the price level.
As price decreases along a downsloping linear demand curve, price elasticity of demand
decreases.
A monopsonist faces an MRC schedule that lies above the supply of labor schedule.
A good with a price elasticity of demand equal to .75 is described as price-inelastic.
A decrease in nominal GDP, other things remaining the same, will decrease both the
total demand for money and the equilibrium rate of interest in the economy.
Increased labor productivity has been less important than increased labor inputs in the
growth of the U.S. economy since 1929.
If two goods are complements:
A. they are consumed independently.
B. an increase in the price of one will increase the demand for the other.
C. a decrease in the price of one will increase the demand for the other.
D. they are necessarily inferior goods.
Suppose that a monopolist calculates that at present output and sales, marginal cost is
$1.00 and marginal revenue is $2.00. He could maximize profits by:
A. decreasing price and increasing output.
B. increasing price and decreasing output.
C. decreasing price and leaving output unchanged.
D. decreasing output and leaving prices unchanged.
If the price of a good increases, then in the market for labor that is used to make this
product:
A. employment will decrease.
B. the labor supply will increase.
C. the marginal product (MP) of labor will increase.
D. the marginal revenue product (MRP) of labor will increase.
Refer to the figures above. Suppose the graphs represent the demand for use of a local
golf course for which there is no significant competition (it has a local monopoly). P
denotes the price of a round of golf and Q is the quantity of rounds sold each day. If the
left graph represents the demand during weekdays and the right graph the weekend
demand, then over the course of a full seven-day week this price-discriminating,
profit-maximizing golf course should sell a total of:
A. 300 rounds.
B. 740 rounds.
C. 900 rounds.
D. 1200 rounds.
The long-run effect of tariffs is:
A. an increase in domestic employment.
B. an increase in export businesses.
C. a reallocation of domestic workers from export industries to protected domestic
industries.
D. a reallocation of consumer spending to imported products over domestically
produced products.
Refer to the above graph. If the interest rate is 4 percent, the supply of money would be:
A. $100 billion.
B. $150 billion.
C. $200 billion.
D. $250 billion.
If labor costs are 60 percent of production costs, then a 15 percent increase in wage
rates would increase production costs by:
A. 60 percent.
B. 45 percent.
C. 15 percent.
D. 9 percent.
One explanation for the existence of an increasing-cost industry is:
A. increasing marginal returns to labor occur.
B. firms produce beyond the point of minimum long-run average total costs.
C. perfectly elastic long-run supply schedules are observed in the industry.
D. as the industry expands, input prices are bid up for some factor of production.
The economy experiences an increase in the price level and a decrease in real domestic
output. Which is a likely explanation?
A. Productivity has increased.
B. Input prices have increased.
C. Excess capacity has decreased.
D. Government regulations have been reduced.
Supporters of the minimum wage contend that:
A. it reduces the profits of firms in the industry.
B. it reduces employment in the industry.
C. it helps workers receive a “living wage.”
D. it increases labor turnover.
If actual reserves in the banking system are $40,000, excess reserves are $10,000, and
checkable deposits are $240,000, then the legal reserve requirement is:
A. 10 percent.
B. 12.5 percent.
C. 20 percent.
D. 5 percent.
Which would be considered an investment according to economists?
A. Public transfer payments
B. The construction of a new plant by Ford
C. The purchase of newly issued shares of stock in Dell
D. The sale of a retail department store building by Sears to JCPenney
A firm’s labor input, total output of labor, and product price schedules are given below.
Labor is the only variable input.
Refer to the above table and information. What is the marginal revenue product of the
fifth worker?
A. $6.
B. $7.
C. $8.
D. $9.
The marginal revenue product is the change in revenue earned due to the hiring of one
more input. In this case, the fifth worker adds 4 units of output (i.e., 23 – 19) and $9 of
revenue because revenue rises from $152 to $161.
With a downsloping demand curve and an upsloping supply curve for a product, an
increase in consumer income will:
A. increase equilibrium price and quantity if the product is a normal good.
B. decrease equilibrium price and quantity if the product is a normal good.
C. have no effect on equilibrium price and quantity.
D. reduce the quantity demanded but not shift the demand curve.
U.S. currency has value primarily because it:
A. is legal tender, is generally acceptable in exchange for goods or services, and is
backed by the gold and silver of the federal government.
B. is generally acceptable in exchange for goods or services, is backed by the gold and
silver of the federal government, and facilitates trade.
C. is relatively scarce, is legal tender, and is generally acceptable in exchange for goods
and services.
D. facilitates trade, is legal tender, and permits the use of credit cards and near-monies.
Refer to the above supply and demand graph for a public good. Which line segment
indicates the amount by which the marginal benefit of this public good is greater than
the marginal cost?
A.de
B.da
C.ef
D.ab
Based on 2009 data on the distribution of personal income:
A. 7 percent of all households receive $100,000 and above.
B. 17 percent of all households receive $100,000 and above.
C. 20 percent of all households receive $100,000 and above.
D. 26 percent of all households receive $100,000 and above.
Refer to the above graphs. Which pairs of budget constraints represent only a decrease
in the price of good A, but no change in income?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
The equality-efficiency trade-off suggests that:
A. welfare programs stimulate incentives to work.
B. inefficiencies result when income is transferred from rich to poor.
C. noncash transfers are superior to cash transfers.
D. economic growth is the best means of reducing poverty.
Indy has a price elasticity of demand for beer of 1.00. Suppose the price of each beer is
increased by 10 percent. What will happen to the total amount Indy spends on beer?
A. It will not change.
B. It will decrease 10 percent.
C. It will increase 10 percent.
D. It is impossible to tell.
Refer to the above diagram. A binding government price support program to aid farmers
is best illustrated by:
A. quantity E.
B. price C.
C. price A.
D. price B.
Which is not considered to be an economic resource?
A. Land (or other natural resources)
B. Money
C. Labor
D. Tools and machinery
Other things being equal, the elasticity of demand for labor will be greater the:
A. smaller the proportion of total costs accountable for by labor costs.
B. smaller the elasticity of demand for the product it produces.
C. larger the number of close substitute resources available.
D. more rapid the decline in its marginal productivity.
Paper money in the United States comes in the form of:
A. U.S. Treasury bills.
B. U.S. Treasury bonds.
C. federal legal tender.
D. Federal Reserve Notes.
Which would provide the most accurate description of events when monetary
authorities increase the size of commercial banks’ excess reserves?
A. A fall in interest rates decreases the money supply, causing an increase in investment
spending, output, and employment.
B. A rise in interest rates increases the money supply, causing a decrease in investment
spending, output, and employment.
C. The money supply is decreased, which increases the interest rate and causes
investment spending, output, and employment to decrease.
D. The money supply is increased, which decreases the interest rate and causes
investment spending, output, and employment to increase.
Which monetary policy would most likely increase aggregate demand?
A. Increasing reserve requirements at commercial banks and thrift institutions.
B. Increasing margin requirements on stock purchases.
C. Purchasing government securities in the open market.
D. Increasing the discount rate.
Another term for capitalism is the:
A. command system.
B. socialist economy.
C. market system.
D. system of inputs and outputs.
The principal-agent problem in corporations arises from:
A. the fact that the principal objective of most corporations is to make profits and not to
contribute to charity.
B. a conflict of interest between corporate executives who manage the firm and
stockholders who own the firm.
C. the view that workers are agents who are not considered to be the principal asset of
the corporations for which they work.
D. a perspective that corporations are agents that represent the principal source of
power for government and the national economy.
A Macy’s or JCPenney store is an example of:
A. a conglomerate.
B. a vertically integrated firm.
C. a multiplant firm.
D. an industry.
What to produce in a market economy is ultimately determined by the:
A. output decisions of business firms.
B. income plans of households.
C. spending decisions of households.
D. workers’ technical skills.
The short-run aggregate supply curve shows the:
A. inverse relationship between the price level and real GDP purchased.
B. inverse relationship between the price level and real GDP produced.
C. direct relationship between the price level and real GDP produced.
D. direct relationship between the price level and real GDP purchased.
If an effective price ceiling is placed on hamburgers, then:
A. the quantity demanded will exceed the quantity supplied.
B. a black market for hamburgers may evolve.
C. consumers may want government to ration hamburgers.
D. All of these are likely outcomes.
The percentage of total before-tax income received by the highest 20 percent of
households in 2009 was about:
A. 21 percent.
B. 50 percent.
C. 61 percent.
D. 82 percent.