Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss
As shown in Exhibit 3A-2, if the market price
falls from P2 to P3, then:
a. total surplus increases.
b. deadweight loss decreases.
c. overproduction increases.
d. underproduction decreases.
Assume the Fed decreases the money supply and the demand for money curve is fixed.
In response, people will:
a. sell bonds, thus driving up the interest rate.
b. buy bonds, thus driving down the interest rate.
c. buy bonds, thus driving up the interest rate.
d. sell bonds, thus driving down the interest rate.
Suppose Jones sells a good for $100 at a yard sale. If the producer surplus from the sale
is $75, Jones’s cost of the good must have been:
a. $100.
b. $175.
c. $25.
d. equal to the deadweight loss.
The law of demand states that, ceteris paribus, price and quantity demanded are:
a. directly related.
b. inversely related.
c. uniformly related.
d. horizontally related.
When GDP is measured as the total payments made to households that furnish the
resources used to produce the final goods and services, it is known as:
a. the income approach.
b. the expenditure approach.
c. the depreciation approach.
d. the aggregate demand approach.
e. net national product.
The equation for the spending multiplier is:
a. 1 / (1 – MPC).
b. 1 – MPC.
c. 1 – (MPC – MPS).
d. MPC/MPS.
e. none of these.
Which of the following pairs is the most likely to exhibit a direct relationship?
a. The price of gasoline and the amount of gasoline that people purchase.
b. Cholesterol levels and the likelihood of developing heart disease.
c. Outdoor temperature and heating oil sales.
d. Annual income and weekly pawn shop visits.
Which of the following is an example of a negative externality?
a. Planting flowers in your front yard.
b. Talking loudly when others are trying to study economics.
c. People donating money to charity.
d. The price of bread increases.
e. Accidentally pushing someone as you try to cross the street.
A dramatic and sustained increase in oil prices would most likely:
a. increase demand-pull inflation.
b. decrease demand-pull inflation.
c. increase cost-push inflation.
d. decrease cost-push inflation.
Which of the following is the best example of an activity that would be undertaken by
an entrepreneur?
a. Buying and selling of stocks and bonds.
b. Starting a new business.
c. Working on an assembly line.
d. Running for political office.
An efficient economy:
a. uses available resources fully.
b. uses the best division of labor.
c. produces an output combination at some point along the production possibility curve.
d. all of these.
The main purpose of the Fed is to:
a. serve as the bankers’ bank for member banks.
b. regulate interest rates.
c. print Federal Reserve Notes.
d. regulate financial institutions.
e. maintain the proper functioning of our money system.
In reference to Exhibit 3-5, assume the price of Tucker’s Cola is $1.00 per gallon. If the
price were to rise to $3.00 per gallon, and all other factors, such as taxes, etc. remained
constant, the result would be a(n):
a. decrease in supply.
b. increase in supply.
c. decrease in quantity supplied.
d. increase in quantity supplied.
People learn to hold a specific quantity of money for the groceries, theater tickets,
gasoline, clothes, film, and other items they habitually purchase. This behavior is
representative of the:
a. precautionary demand.
b. speculative demand.
c. transactions demand.
d. volatility demand.
e. liquidity demand.
Currency consists of:
a. coins and Eurodollars.
b. paper money and checks.
c. coins and paper money.
d. paper money and Eurodollars.
e. coins and checks.
When the required reserve ratio is changed,
a. the money multiplier is changed but the amount of excess reserves in the banking
system is unchanged.
b. the money multiplier is unchanged but the amount of excess reserves in the banking
system is changed.
c. the size of the money multiplier and the amount of excess reserves change in the
opposite direction from the required reserve ratio.
d. the size of the money multiplier and the amount of excess reserves change in the
same direction as the required reserve ratio.
e. neither the money multiplier nor the amount of excess reserves change.
The speculative demand for money shows the relationship between money demand and:
a. income levels.
b. interest rates.
c. prices
d. investment.
e. consumption.
All final goods and services that make up GDP can be expressed in the form:
a. GDP = C + I – G + (X + M).
b. GDP = C + I + G + (X + M).
c. GDP = C + I + G + (X – M).
d. GDP = C + I + (X – M).
e. GDP = C + I + G.
The increase in unemployment associated with a recession is called:
a. structural unemployment.
b. frictional unemployment.
c. discouraged unemployment.
d. cyclical unemployment.
e. temporary unemployment.