Shel and Fran are neighbors. They work at the same firm and hold the same title. Shel
finds that when Fran’s consumption rises, Shel feels worse off. Fran feels the same way
towards Shel’s consumption.
Refer to the information given above. Fran has bought a new Jaguar (a luxury car) and
shortly thereafter Shel bought a new Mercedes (also a luxury car). Shel and Fran seem
to be:
A. making independent rational consumption decisions.
B. unaware of the other’s actions.
C. involved in a positional arms race.
D. imposing external benefits on each other.
Total taxes minus transfer payments minus government interest payments is called:
A. a budget surplus.
B. net taxes.
C. a budget deficit.
D. national saving.
Refer to the table above. The profit maximizing quantity and price for this monopolist
are:
A. 1 unit and $10.
B. 2 units and $9.
C. 3 units and $8.
D. 4 units and $7.
Refer to the table above. The average cost of 4 units of this activity is:
A. $20
B. $25
C. $30
D. $40
The slope of the consumption function:
A. is vertical.
B. is horizontal.
C. equals 1.
D. equals the mpc.
The three functions of money are:
A. spending for consumption, investment, and government purchases.
B. measuring balance of payments, exchange rates, and interest rates.
C. implementing monetary policy, fiscal policy, and structural policy.
D. serving as a medium of exchange, unit of account, and store of value.
Suppose manufacturers introduce a new model car to replace a car currently included in
the CPI basket. The price of the new car is 10 percent higher than the discontinued
model, but the new car also includes additional safety features. In this situation the CPI
will tend to ______ inflation as a result of ______ bias.
A. overstate; substitution
B. understate; quality adjustment
C. accurately measure; substitution
D. overstate; quality adjustment
Summing the product of a gamble’s outcome and the probability of its occurrence for all
possible outcomes is
A. a fair gamble.
B. the variance of the gamble.
C. a useless calculation.
D. the expected value of the gamble.
Alison decides to play the lottery. She has a 5% probability of winning $100 and a 95%
probability of winning zero. The expected value of her decision to play is
A. $100.
B. $5.
C. $10.
D. $50.
Compared to a fixed percentage reduction regulation, a tax on pollution encourages
A. all firms to reduce pollution by the same percent.
B. all firms to use the same technology to reduce pollution.
C. firms that can most cheaply reduce pollution to make sizable reductions.
D. economic inefficiency.
Public saving is:
A. increased when the government budget deficit rises.
B. identical to the government budget surplus.
C. less important to national saving than private saving.
D. more important to national saving than private saving.
Taylor’s marginal utility from watching movies and marginal utility from eating out
each month in utils are represented in the following table. Taylor spends exactly $100
every month on these two forms of entertainment, and the price per movie is $10 and
price per dinner is $20.
Taylor’s optimal combination of movies and eating out is
A. 3 movies and 3 dinners.
B. 4 movies and 3 dinners.
C. 3 movies and 4 dinners.
D. 2 movies and 4 dinners.
Radio and broadcast television are examples of
A. collective goods.
B. private goods.
C. pure public goods provided by the government.
D. pure public goods provided by private firms.
Growing technological sophistication of consumer goods tends to
A. shift the marginal cost of information curve to the right.
B. shift the marginal benefit of information curve to the right.
C. shift the marginal benefit of information curve to the left.
D. shift both the marginal benefit and the marginal cost of information to the right.
If demand for the product you make were to suddenly decline you would expect the
equilibrium price of the product to fall,
A. causing an increase in the VMP of each worker.
B. causing a decrease in the VMP of each worker.
C. but no change in the VMP of each worker because product prices don’t affect worker
productivity.
D. causing the marginal productivity of each worker to fall.
Who from among the following would be counted as unemployed?
A. A person with a part-time job who wants and is looking for a full-time job.
B. All of these people would be counted as unemployed.
C. A person who is willing to work and has looked for a job in the last week.
D. A person who is willing to work but has not looked for a job in two months.
In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion.
Macroland has a(n) ______ gap equal to ______ percent of potential GDP.
A. expansionary; 8
B. expansionary; 4
C. recessionary; -8
D. recessionary; -4
The following table provides data for an economy in a certain year.
Given the data in the table, compute the value of GDP.
A. 2,400
B. 2,500
C. 2,600
D. 2,700
A circle of low expected inflation leads to ____ increases in wages and costs and to
____ actual inflation.
A. large; high
B. large; low
C. small; low
D. small; high
The “true” costs of inflation are:
A. higher relative prices.
B. lower relative prices.
C. reduced economic growth and efficiency.
D. a higher overall price level.
The demand curve for a perfectly competitive firm is __________ while the demand
curve for a monopolist is __________.
A. perfectly elastic; downward-sloping
B. vertical; downward-sloping
C. perfectly elastic; perfectly inelastic
D. perfectly inelastic; perfectly elastic
All of the following are characteristics of independent central banks EXCEPT:
A. long terms for central bankers.
B. no obligation to finance the national deficit.
C. budgetary independence.
D. ability of executive branch to overrule central bank actions.
Refer to the figure above. Suppose that only demand has suddenly shifted to the left. To
restore equilibrium, this market will have an immediate:
A. excess demand, which will cause prices to rise to a new equilibrium.
B. excess supply, which will cause prices to rise to a new equilibrium.
C. excess demand, which will cause prices to fall to a new equilibrium.
D. excess supply, which will cause prices to fall to a new equilibrium.
The reason people in Professor Rawls’ thought experiment would choose a uniform
distribution of income is
A. concern for the welfare of their fellows.
B. they fear ending up in a disadvantaged position.
C. people are risk seeking.
D. it is the easiest distribution to implement.
Peg’s Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011.
The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year,
Peg’s contribution to real GDP in 2011 was ______ and to nominal GDP in 2011 was
_____.
A. $80,000; $88,000
B. $80,000; $90,000
C. $80,000; $99,000
D. $90,000; $99,000
An economy produces 1,000,000 computers valued at $2,000 each. Households
purchase 200,000 computers, of which 100,000 are imported. Businesses purchase
300,000 domestically produced computers, the government purchases 300,000
domestically produced computers, and 100,000 domestically produced computers are
sold abroad. The unsold computers at the end of the year are held in inventory by the
computer manufacturers. What is the value of GDP?
A. $0.9 billion
B. $1.0 billion
C. $1.8 billion
D. $2.0 billion
In Econland autonomous consumption equals 700, the marginal propensity to consume
equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government
purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure
equals:
A. 990.
B. 940.
C. 900.
D. 890.
Suppose that there are three power-generating plants, all of which generate emissions.
The table summarizes the cost of emission reduction for each firm given five different
levels of pollution:
Suppose the government requires the three firms to reduce pollution to 2 tons of smoke
per day, for a total of 6 tons. This will result in a total cost of __________.
A. $59
B. $42
C. $230
D. $135
Price ceilings above the equilibrium price result in:
A. market prices above the equilibrium price.
B. a market unable to reach Pareto Efficiency.
C. a market that is able to reach Pareto Efficiency.
D. wealth redistribution to benefit the poor.
If the nominal exchange rate is expressed as the number of units of domestic currency
per unit of foreign currency, and that rate increases, then the domestic currency has:
A. appreciated.
B. depreciated.
C. become overvalued.
D. become undervalued.
A perfectly competitive firm’s output price is $5 and the firm is producing 37 units with
a marginal cost of $3. The firm should:
A. lower its price.
B. decrease production.
C. increase production.
D. raise its price.