What impact did the soaring oil prices of 2007 and the first half of 2008 have on the
economy?
a. They increased SRAS, causing real output and employment to increase.
b. They reduced SRAS, causing real output and employment to increase.
c. They increased SRAS, causing real output and employment to decline.
d. They reduced SRAS, causing real output and employment to decline.
Profit can be defined as the
a. difference between the sales revenue of a business firm and the opportunity cost of
the resources required to produce the goods supplied by the firm.
b. difference between a company’s income and direct monetary costs of production.
c. difference between the price of a product and the consumer’s valuation of the good.
d. amount of total revenue earned by the firm minus its payments to stockholders.
If an economy is experiencing both full employment and price stability, within the
Keynesian model, a major tax reduction probably would cause
a. an increase in unemployment in the near future.
b. an increase in the general level of prices unless government expenditures are also
reduced.
c. an increase in the interest rate since individuals will reduce their savings in response
to the tax cut.
d. a decrease in consumption unless the expected budget deficit is financed by selling
bonds to foreigners.
The law of comparative advantage indicates that
a. specialization and exchange will permit trading partners to maximize their joint
output.
b. a nation can gain from trade only if it is not at an absolute disadvantage in producing
all goods.
c. a nation can gain from trade only when its trading partners are not low-wage
countries.
d. countries should export products for which they are high-opportunity cost producers.
Which of the following best explains why making air travel completely safe is not
efficient?
a. After some level of safety is reached, making airplanes even safer is not worth the
opportunity cost that would be incurred.
b. Because one can’t put a price on human life, airplane safety generally doesn’t matter
economically.
c. The benefit from additional airplane safety will generally rise as airplanes are made
safer, more than offsetting the opportunity cost involved.
d. The question is misleading–making airplanes safer is always efficient.
During 2008-2013, the Fed initiated several rounds of “quantitative easing.” Under this
policy, the Fed
a. increased its purchases of financial assets and thereby injected additional reserves
into the banking system.
b. increased its purchases of financial assets, which reduced the reserves available to the
banking system.
c. reduced its purchases of financial assets and thereby injected additional reserves into
the banking system.
d. reduced its purchases of financial assets and thereby reduced the quantity of reserves
available to the banking system.
In the context of aggregate supply, the long run is defined as the period during which
a. some prices are set by contracts and cannot be adjusted.
b. prices can change, but neither aggregate supply nor aggregate demand can shift.
c. individuals have sufficient time to modify their behavior in response to price
changes.
d. quantity changes cannot occur in response to changes in relative prices.
For a particular good, a 3 percent increase in price causes a 10 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. The relevant time horizon is short.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. There are many close substitutes for this good.
Economic theory suggests that the standard of living of American workers would rise if
a. the minimum wage were doubled.
b. automation were outlawed.
c. workers were forced to retire earlier.
d. technological improvements increased output per worker-hour.
Which of the following explains why firms in competitive price-searcher and
competitive price-taker markets will both have zero economic profits in the long run but
a monopoly will not?
a. There is always more than one firm in competitive price-searcher and competitive
price-taker markets.
b. Both competitive price-searcher and competitive price-taker markets are
characterized by firms producing identical goods, but a monopoly is not.
c. In both competitive price-searcher and competitive price-taker markets, the barriers
to entry are low; this is not true under a monopoly.
d. A monopoly firm has a downward-sloping demand curve; firms in the other types of
markets do not.
Fannie Mae and Freddie Mac’s dominance of the secondary mortgage market during
1995-2008 encouraged mortgage originators to
a. extend only 30-year, fixed-rate mortgages.
b. require higher down payments in order to obtain a home mortgage.
c. loosen lending standards as long as the mortgages were acceptable to Fannie Mae and
Freddie Mac.
d. scrutinize the credit-worthiness of borrowers more carefully.
What determines the creditworthiness of any organization, including the federal
government?
a. the size of its debt relative to its income base
b. the interest rate at which it can borrow money
c. the length of time it has existed
d. the length of time it is expected to operate
Occupations X and Y employ persons with the same productivity. Workers in the two
occupations work the same number of hours per day when on the job. Employment is
stable throughout the year in X, while Y is characterized by seasonal layoffs. How will
the hourly wage rate and annual earnings compare in the two occupations?
a. The hourly wage rate will be higher in X, but the annual earnings will be higher for
Y.
b. Both the hourly wage rate and annual earnings will be higher in X.
c. Both the hourly wage rate and annual earnings will be higher in Y.
d. The hourly wage rate will be higher in Y, but the annual earnings will likely be higher
for X.
Between 1986 and 2010, the top marginal personal income tax rate was 40 percent or
less compared to 70 percent or more prior to 1981. Compared to the earlier time period,
in recent years the share of personal income taxes paid by high income taxpayers
a. has been lower.
b. has been virtually unchanged.
c. has been higher.
d. increased in the late 1980s, but has been falling ever since.
When governments become more heavily involved in taxing one group in order to
provide benefits to other groups, which of the following will be encouraged?
a. rapid economic growth
b. rent-seeking activity
c. an improvement in the efficiency of government bureaucracies
d. competitive private markets
A tax levied on imported goods is called
a. an excise tax.
b. a quota.
c. a foreign profits tax.
d. a tariff.
Economic thinking suggests that a nation in which middlemen are considered to be
unproductive seekers of profit, and where their activities are heavily restricted by law,
will
a. gain by channeling people’s efforts away from unproductive middleman activity
toward physical output.
b. lose the potential gains from trade that would result from lower transaction costs
emanating from middleman activities.
c. find that it is richer because the added transaction costs normally imposed by
middlemen will be reduced.
d. gain because the value of total output will rise.
Use the figure below to answer the following question(s).
Figure 9-2
Which of the following is true for the economy depicted in Figure 9-2?
a. Potential output exceeds y1.
b. When output y1 is achieved, the actual rate of unemployment will exceed the natural
rate of unemployment.
c. When output y1 is achieved, the actual rate of unemployment will be less than the
natural rate of unemployment.
d. When output y1 is achieved, the actual rate of unemployment will equal the
economy’s natural rate of unemployment.
The United States is the world’s leading grain-producing nation. Exporting U.S. grain
causes the
a. domestic consumption of grain to rise because of the added foreign demand.
b. price of grain in the domestic market to fall because foreigners are now taking some
of the domestic demand.
c. price of grain to domestic consumers to rise because of the added foreign demand.
d. standard of living of foreigners to fall because they lose purchasing power.
Nominal gross domestic product for the United States was $7,661.6 billion in 1996 and
$8,110.9 billion in 1997. The GDP deflator was 109.5 in 1996 and 111.6 in 1997.
a. What was the 1997 real GDP expressed in 1996 prices?
b. What were the 1996 and 1997 GDPs expressed in base-year prices?
c. What was the percent change in the nominal GDP between 1996 and 1997?
d. What was the percent change in real GDP between 1996 and 1997?
e. What was inflation between 1996 and 1997?
Which of the following about unemployment is true?
a. Frictional unemployment implies a lack of available jobs.
b. During a recession, cyclical unemployment will be low.
c. When an economy is at full employment, actual unemployment will be less than the
natural rate of unemployment.
d. When actual GDP equals potential GDP, the actual unemployment rate will equal the
economy’s natural rate of unemployment.
During the past several decades, foreign aid to sub-Saharan Africa
a. has been smaller than the aid to other regions, but the reduction in the extreme
poverty rate has been larger in Africa than in other areas of the world.
b. has been larger than the aid to other regions, but the reduction in the extreme poverty
rate has been smaller in Africa than in other areas of the world.
c. has declined and as a result the poverty rate in sub-Saharan Africa has risen sharply.
d. has risen and, as a result, the poverty rate in sub-Saharan Africa has declined
substantially.
Figure 17-10
Refer to Figure 17-10. Producer surplus with the tariff is
a. G.
b. C + G.
c. A + C + G.
d. A + B + C + G.
Use the figure to answer the following question(s).
Figure 9-11
If the current market price for the firm depicted in Figure 9-11 is A, given the firm’s cost
conditions, which output should it produce?
a. OM
b. OL
c. OK
d. OI
Which of the following would suggest that monetary policy is restrictive?
a. falling commodity prices
b. depreciation of the foreign exchange value of the dollar
c. a rising M1 money supply
d. an increase in the rate of inflation
Suppose the United States reduced the tariff on digital camera, allowing
foreign-produced cameras to more freely enter the U.S. market. Which of the following
would most likely occur?
a. The price of cameras to U.S. consumers would increase, and the demand for U.S.
export products would rise.
b. The price of cameras to U.S. consumers would fall, and the demand for U.S. export
products would fall.
c. The price of cameras to U.S. consumers would increase, and the demand for U.S.
export products would fall.
d. The price of cameras to U.S. consumers would fall, and the demand for U.S. export
products would rise.
The number of cattle slaughtered every year for meat far exceeds the number of
elephants slaughtered every year for their ivory. Despite this, cows can be found
everywhere while elephants are on the verge of extinction in some countries. Which of
the following best explains this difference?
a. Cows can be privately owned while in many countries elephants can not.
b. The demand for ivory far exceeds the demand for beef.
c. Animals slaughtered for their meat are generally better conserved by humans than
animals slaughtered for nonfood uses.
d. People tend to protest more every year to prevent cow extinction than they do for
elephant extinction.
Output in the goods and services market will be sustained into the future
a. if aggregate demand and short-run aggregate supply are in balance.
b. only when the prior choices of decision makers were based on a correct anticipation
of prices.
c. only when prices are rising.
d. only when wage rates are declining.
Social Security, officially known as Old Age and Survivors Insurance (OASI),
a. collects funds from current workers and invests them in order to provide these
workers with a stream of income during the retirement phase of life.
b. is based on the same principles as private insurance programs.
c. is an intergenerational income transfer program.
d. is a voluntary savings program run by the government.
Suppose a German-produced car becomes very popular in the United States. This would
tend to
a. affect the U.S. balance of payments but not the balance of trade.
b. reduce any existing balance of trade deficit in the United States.
c. increase a balance of trade surplus in the United States.
d. increase a balance of trade deficit in the United States.
Which of the following events would decrease producer surplus?
a. Sellers’ costs stay the same and the price of the good increases.
b. Sellers’ costs increase and the price of the good stays the same.
c. Sellers’ costs decrease and the price of the good increases.
d. All of the above are correct.
If a product is manufactured under conditions of constant cost, an increase in the
demand for the product will increase
a. both equilibrium quantity and equilibrium price in the long run.
b. equilibrium price, but equilibrium quantity will be unchanged in the long run.
c. equilibrium quantity, but equilibrium price will be unchanged in the long run.
d. equilibrium quantity but reduce equilibrium price in the long run.
Which of the following is true?
a. People who invest in the stock market are virtually certain to make money.
b. Investors in the stock market can reduce their risk if they hold shares of specific
stocks for only short periods of time.
c. The risk of stock market investments can be reduced through the holding of a diverse
portfolio of unrelated stocks over long periods of time.
d. In the long run, corporate bonds can be expected to yield a higher real rate of return
than ownership of stocks.
The economic way of thinking stresses that
a. greed is the primary motivation for human action.
b. as the benefits of an option increase, people will be more likely to choose that option.
c. an objective value can be attached to physical goods.
d. as the cost of an option decreases, people will be less likely to choose that option.