Compared to low-income families, a larger proportion of high-income families
a. is headed by a person with a college degree.
b. has both a husband and a wife who work full time.
c. is headed by a person between the ages of 35 and 64.
d. is all of the above.
A sound legal system that protects individuals and their property,
a. cannot be expected until markets are already working well.
b. is vital to the smooth operation of markets.
c. is normally found in most economies of the world.
d. is helpful for the rich, but harmful to the economic well-being of others.
If both borrowers and lenders anticipate the rate of inflation correctly, then
a. borrowers will lose real income.
b. lenders will lose real income.
c. both borrowers and lenders will lose real income.
d. neither borrowers nor lenders will lose real income.
In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925
billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy
a. reduced the reserves available to banks, leading to a larger money supply.
b. reduced the reserves available to banks, causing the money supply to decline.
c. increased the reserves available to banks, leading to a larger money supply.
d. increased the reserves available to banks, causing the money supply to decline.
Use the figure to answer the following question(s).
Figure 11-2
The cost and demand conditions for a monopolist are depicted in Figure 11-2. If the
monopolist is maximizing profit, it will charge a price of
a. $30 and produce an output of 4,000.
b. $40 and produce an output of 4,000.
c. $40 and produce an output of 2,000.
d. more than $40.
Demand will be more inelastic when
a. the time the consumer has to adjust to price changes is short.
b. the price of the good is high.
c. the number of good substitutes is large.
d. the consumption of the good is not very essential.
Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9
gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons
of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of
gasoline is
a. zero.
b. 50 cents.
c. $1.
d. $1.50.
When competition is present and private ownership rights are clearly defined and
securely enforced by the legal system, business firms will have a strong incentive to
a. innovate and develop better products and lower cost production methods.
b. spend time attempting to plunder (take) the resources of others.
c. engage in wasteful activities that increase the cost of producing goods and services.
d. use resources during the current period rather than conserving them for the future.
Figure 10-12
Refer to Figure 10-12. Which of the panels depicts a firm in a competitive
price-searcher market earning positive economic profits?
a. Panel a
b. Panel b
c. Panel c
d. Panel d
In response to the severe recession of 2008-2009, the Fed
a. expanded the monetary base and pushed short-term interest rates sharply higher.
b. reduced the size of the monetary base and pushed short-term interest rates sharply
higher.
c. more than doubled the size of the monetary base and pushed short-term interest rates
to near zero.
d. more than doubled the size of the monetary base and pushed short-term interest rates
to a historic high.
The secondary mortgage market is the market
a. designated specifically for prime and other low risk mortgages.
b. designated specifically for sub-prime and other high risk mortgages.
c. where mortgages originated by a lender are sold to another financial institution.
d. where home purchasers borrow funds from mortgage originators.
If real GDP is increasing more rapidly than population,
a. population must be declining.
b. the country will have to export more than it imports.
c. the general level of prices must be increasing.
d. per capita real GDP will be increasing.
A decrease in the expected future price of a good will cause the current demand for the
good to
a. decrease, which is a shift to the left of the demand curve.
b. decrease, which is a shift to the right of the demand curve.
c. increase, which is a shift to the left of the demand curve.
d. increase, which is a shift to the right of the demand curve.
In its conduct of open market operations, the Fed now buys and sells
a. only U.S. government securities.
b. only mortgage-backed securities issued by large investment banks.
c. a wide range of assets including the stock shares of large banks, domestic automobile
manufacturers, and high-technology business firms.
d. a wide range of assets including corporate bonds and mortgage-backed securities.
If Country A has an absolute advantage over Country B in the production of every
commodity,
a. mutual gains from trade between Country A and Country B would be impossible.
b. Country B would be able to gain from trade but not country A.
c. the joint output of the two countries could not be increased through specialization and
exchange.
d. mutual gains from trade would still be possible.
The term “deadweight loss” or “excess burden” is used to describe the
a. expenditures on exercise and weight-reducing programs by individuals who are
overweight.
b. loss from the elimination of mutually beneficial exchanges that results from the
imposition of a tax in a market.
c. difference between the value consumers place on a good and the price they have to
pay for it.
d. reduction in consumer welfare that occurs when the firms in a market make a profit.
Sizeable budget deficits can be expected in the years ahead because
a. the retirement of the baby boom generation will soon begin to push expenditures on
both Social Security and Medicare upward.
b. the political incentive structure encourages politicians to spend more revenue than
they are willing to tax.
c. both a and b are true.
d. both a and b are false. Budget surpluses can be expected in the years ahead.
Suppose U.S.-produced wheat costs $5 per bushel and the exchange rate is 100 yen =
$1. If the exchange rate changes to 90 yen = $1, the
a. wheat would now cost more dollars.
b. wheat would now cost the Japanese citizen less yen.
c. wheat would now cost less dollars.
d. wheat would now cost the Japanese citizen more yen.
e. yen has depreciated in value.
A politician may be considered an entrepreneur in the sense that
a. he is always open to bribery.
b. identical personal characteristics are necessary for success in politics and in business.
c. the successful politician discovers and offers voters political goods when voter
demand is strong for him.
d. like the businessman, the politician selfishly attempts to gain at the expense of his
customers.
If Europe and Japan experience rapid growth in their incomes, other things constant,
this will cause
a. a decrease in the exports of the United States.
b. an increase in the exports of the United States.
c. a decrease in the national income of the United States.
d. a decrease in aggregate demand in the United States.
The normal rate of return on equity capital is also known as
a. the explicit cost of capital.
b. the marginal cost of capital.
c. economic profit.
d. the opportunity cost of capital.
Use the table below to answer the following question. The table outlines the production
possibilities of Slavia and Italia for food and clothing.
The law of comparative advantage suggests that
a. neither country could gain from trade, even if the costs of transporting the products
were zero.
b. Italia could not gain from trade because it has an absolute advantage in producing
both goods.
c. both countries could gain if Italia traded food for clothing produced in Slavia.
d. both countries could gain if Slavia traded food for clothing produced in Italia.
Which of the following is the most fundamental function of government?
a. protection of individuals and their property
b. imposing progressive taxes to fund income-transfer programs
c. regulating prices and wages
d. provision of postal services and garbage collection
Figure 4-22
Refer to Figure 4-22. From this tax the government will collect a total of
a. $125.00.
b. $175.00.
c. $200.00.
d. $250.00.
When output is greater than the economy’s long-run capacity, which of the following is
most likely to occur?
a. a reduction in the general level of prices
b. an abnormally high rate of unemployment
c. increases in real interest rates and real resource prices
d. a reduction in imports
How would the Bureau of Labor Statistics classify a college graduate who is not
currently working but recently turned down an offer for employment at $10 an hour in
order to keep looking for a better job?
a. not in the labor force
b. employed
c. unemployed
d. on temporary absence from school
The proponents of adaptive expectations believe that
a. there will be a substantial time lag before people anticipate the effects of a shift to a
more expansionary macro-policy.
b. macro-policies that stimulate demand and place upward pressure on the general level
of prices will temporarily increase output and employment.
c. discretionary changes in macro-policy can be made in a manner that will reduce the
economic ups and downs of a market economy.
d. all of the above are true.
When property rights are well defined and markets are competitive, the
a. market equilibrium violates the conditions for economic efficiency.
b. market equilibrium is consistent with economic efficiency.
c. conditions necessary for economic efficiency no longer apply.
d. quantity supplied will rarely equal the quantity demanded.
Use the figure to answer the following question(s).
Figure 9-11
Which of the following indicates the firm’s profit (or loss) at the profit-maximizing
output in Figure 9-11?
a. profit BCFG
b. profit OCDM
c. zero economic profit
d. loss AEFC
Criteria for rationing goods and resources must be established because of
a. the law of comparative advantage.
b. the use of capitalism as a form of economic organization.
c. the inability of politicians to develop efficient forms of economic organization.
d. scarcity imposed by nature.
A good for which it is impossible or at least very costly to exclude nonpaying customers
from receiving the good and for which many individuals can share in the consumption
of the same unit of the good is called a
a. public good.
b. joint good.
c. excludable good.
d. national good.
Figure 4-14
Figure 4-14 depicts the milk market. The horizontal line, P, represents a price ceiling
imposed by the government. Which of the following is true?
a. In equilibrium, the quantity demanded is 800 gallons.
b. At the ceiling price, there is a surplus.
c. The quantity demanded at the price ceiling will equal the quantity supplied.
d. The equilibrium price would be $1 per unit without the price ceiling.
e. The quantity sold will be 500 gallons.
In competitive price-taker markets, firms
a. can sell all of their output at the market price.
b. produce differentiated products.
c. can influence the market price by altering their output level.
d. are large relative to the total market.
The demand for a factor of production will be more inelastic
a. when the cost of the factor is small relative to the total cost of the product.
b. the more elastic the demand for the final product.
c. the easier it is to substitute other resources for the factor.
d. the more elastic the supply of products produced with the resource.
When the Fed unexpectedly increases the money supply,
a. real interest rates will tend to decline.
b. the exchange rate value of the dollar will tend to appreciate.
c. aggregate demand will tend to increase.
d. all of the above are correct.
e. both a and c are correct.