If coal and oil are substitute inputs in the production of electricity, an increase in the
price of oil
a. will increase the demand for coal.
b. will reduce the demand for coal.
c. will increase the supply of coal.
d. will reduce the supply of coal.
e. will not affect the demand for coal.
Which of the following examples illustrates a progressive income tax?
a. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes.
b. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes.
c. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes.
d. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.
Economic thinking indicates that efficient adaptation strategies to reduce harms from
future global warming will
a. focus on reducing overall carbon emissions.
b. emphasize changes like those imposed on prosperous nations by the Kyoto Treaty.
c. focus on reducing the effects of serious problems that we know to exist.
d. ensure that every precaution will be taken to reduce any possible risks for the future.
In the price-taker model, what impact does the individual firm have on the price of its
product?
a. The firm must accept the price determined in the market if it is going to sell its
product.
b. The firm may raise or lower its price to a small extent, but sales revenues will tend to
be the same regardless of price.
c. The firm may raise its price and, thereby, increase its revenues.
d. The firm may raise or lower its price to a considerable extent, but sales revenues will
tend to be the same regardless of price.
Which of the following is true?
a. The buyer of a firm’s stock is purchasing a fractional share in the firm’s future net
revenues.
b. When investors believe that a business decision by the management of a firm will
increase the firm’s future earnings, the price of the firm’s stock will tend to rise.
c. Changing stock prices provide the board of directors and managers of a firm with a
strong incentive to make good decisions and undertake productive projects.
d. All of the above are true.
The “implicit debt” accompanying the Social Security and Medicare programs is
a. substantially greater than the national debt.
b. approximately equal to the national debt.
c. about half the size of the national debt.
d. about one tenth the size of the national debt.
If waitresses and taxi drivers do not report all of their income to the government, GDP
will be understated. This is because the unreported income
a. involves the introduction of new goods.
b. is part of the underground economy.
c. is an example of nonmarket production.
d. represents an increase in leisure time.
Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in
the industry charges $9. Which of the following is true?
a. The firm will not be able to sell any output.
b. The firm will sell less output than its competitors.
c. The firm will make more profit than it could at the $10 price.
d. The firm will make less profit than it could at the $10 price.
Which of the following is the best example of “creative destruction”?
a. The imprudent use of a credit card by a family that already has a high level of debt.
b. The virtual elimination of the film camera by the digital camera.
c. The failure of a business because of poor management.
d. The failure of a business because of higher cost resulting from government
regulation.
During recent times, the United States has been running a trade deficit (our exports of
goods and services have been less than our imports of goods and services). Which of
the following is true regarding these trade deficits?
a. They were primarily caused by rapid economic growth in the United States
stimulating imports and also the attractiveness of the United States as a place to invest
causing a capital inflow.
b. These trade deficits put the United States in debt to foreign economies and thus
weaken future economic conditions in the United States.
c. These trade deficits are evidence that other countries practice unfair trade against the
United States because under fair trade exports equal imports to another country.
d. None of the above are true regarding the trade deficits of the United States.
Most studies indicate that during the last two decades, the wages of union members
have been approximately
a. 5 percent higher than the wages of similar nonunion workers.
b. 14 to 19 percent higher than the wages of similar nonunion workers.
c. 34 to 39 percent higher than the wages of similar nonunion workers.
d. 64 to 69 percent higher than the wages of similar nonunion workers.
If the federal government placed a 50 cent per pack excise tax on cigarette
manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up
by 40 cents, the
a. actual burden of this tax falls mostly on consumers.
b. actual burden of this tax falls mostly on manufacturers.
c. actual burden of the tax would be shared equally by producers and consumers.
d. tax would clearly be a progressive tax.
A recession abroad would
a. increase U.S. net exports and increase aggregate demand.
b. increase U.S. net exports and increase aggregate supply.
c. reduce U.S. net exports and reduce aggregate demand.
d. reduce U.S. net exports and increase aggregate demand.
Which of the following is true?
a. There is a fixed size of economic pie available for the government to allocate among
individuals.
b. In a market economy, the link between productivity and income provides individuals
with an incentive to provide resources that are highly valued by others.
c. Taxes and transfers do not affect the amount of income that is created.
d. How income is distributed exerts little impact on the total amount of income
generated.
Because of automatic stabilizers, government budget deficits are
a. positive during both expansions and contractions.
b. negative during both expansions and contractions.
c. zero if averaged out over the entire business cycle.
d. larger during expansions and smaller during contractions.
e. smaller during expansions and larger during contractions.
Assume, for Canada, that the domestic price of steel without international trade is
higher than the world price of steel. This suggests that with trade,
a. Canada has a comparative advantage in the production of steel over other countries
and Canada will import steel.
b. Canada has a comparative advantage in the production of steel over other countries
and Canada will export steel.
c. other countries have a comparative advantage over Canada in the production of steel
and Canada will import steel.
d. other countries have a comparative advantage over Canada in the production of steel
and Canada will export steel.
Suppose that monetary policy becomes more expansionary, and as a result, the future
rate of inflation is higher. Will this be good for the stock market?
a. Yes; the inflation will lead to higher wages, and this will be good for both the
economy and the stock market.
b. No; the inflation will lead to higher nominal interest rates, and this will reduce the
present value of the future net earnings derived from stocks.
c. Yes; the inflation rate will reduce the long-run rate of unemployment, and this will be
good for the stock market.
d. No; the expansionary monetary policy will lead to lower real interest rates, and this is
generally bad for both the economy and the stock market.
When housing prices fell during 2007, the mortgage default rate
a. declined as well.
b. responded in a similar manner as during other recent recessions.
c. increased substantially.
d. changed very little.
Answer the following questions:
a. What is the difference between gross domestic product and gross national product?
b. Give an example of a transaction that would be counted in GDP but not in GNP.
c. Give an example of a transaction that would be counted in GNP but not GDP.
If the interest rate were 10 percent, how much would people be willing to pay for a
stock that was certain to yield a $2 per share stream of net earnings continuously in the
future?
a. $2
b. $10
c. $20
d. $100
From a public choice viewpoint, the persistent budget deficits of recent decades are
a. surprising, because politicians have a strong incentive to balance the government’s
budget.
b. an expected result, because the political incentive structure makes it attractive for
politicians to levy taxes rather than spend on current programs.
c. surprising, because politicians have a strong incentive to run budget surpluses and
thereby indicate that their actions have generated a profit.
d. an expected result, because the political incentive structure makes it attractive for
politicians to spend on current programs rather than levy taxes.
Which of the following is true?
a. economic freedom is present if a country is a political democracy.
b. economic freedom ratings indicate the consistency of a nation’s institutions and
policies with personal choice, freedom of exchange, and protection of private property.
c. economies that are highly free tend to grow less rapidly than those with less
economic freedom.
d. all of the above are correct.
Automated production methods are only attractive when they
a. are undertaken in heavily unionized sectors of the economy.
b. reduce per-unit costs.
c. replace workers.
d. decrease labor productivity.
Since 1980, changes in the nature of both the M1 and M2 money supply have
a. increased their reliability as indicators of monetary policy.
b. decreased their reliability as indicators of monetary policy.
c. had no effect on their reliability as indicators of monetary policy.
d. decreased their reliability as indicators of fiscal policy.
When individuals and businesses are permitted to trade freely over a larger market area,
a. wages will decline to the level of the poorest country in the region.
b. the monopoly power of business firms will increase.
c. they will be able to produce a larger output and consume a more diverse bundle of
goods.
d. businesses will be able to earn higher profits, but the income levels of individuals
will decline.
Maurice loses his job and decides to sit on the beach rather than looking for work the
next few months. Other things the same, the unemployment rate
a. increases, and the labor-force participation rate is unaffected.
b. increases, and the labor-force participation rate decreases.
c. decreases, and the labor-force participation rate increases.
d. decreases, and the labor-force participation rate decreases.
If a country’s currency appreciates, which of the following will most likely happen?
a. Net exports will fall and aggregate demand will increase.
b. Net exports will rise and aggregate demand will increase.
c. Net exports will fall and aggregate demand will decrease.
d. Net exports will rise and aggregate demand will decrease.
The linkage between high productivity and high earnings is vitally important because
a. it provides individuals with a strong incentive to develop skills and engage in
activities that others value highly.
b. high productivity (a large output per hour worked) is the key to high living standards.
c. it brings the self-interest of individuals into harmony with economic progress.
d. all of the above are true.
Crime currently affects the measurement of GDP such that
a. expenditures on police protection and detention centers contribute to GDP.
b. the loss to victims due to crime is subtracted from GDP.
c. crime is completely ignored because it does not express the economic well-being
indicated by GDP.
d. expenditures on police protection and detention centers are subtracted from GDP.
If Camila’s income rises by 20 percent, and, as a result, she purchases 40 percent more
dresses, her income elasticity for dresses is
a. 0.5.
b. 1.0.
c. 2.0.
d. Not enough information is given to answer this question.
A sub-prime loan is a loan extended to borrowers
a. at a subsidized interest rate below the prime rate normally offered to the most
creditworthy borrowers.
b. with blemished credit or limited documentation of their income, employment history,
and other indicators of credit worthiness.
c. seeking a 30-year, fixed rate mortgage.
d. who have a FICO score above 660.