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Which of the following provides the foundation of the case for free trade?
a. The law of diminishing marginal utility
b. The anti-dumping argument
c. The industrial diversity argument
d. The theory of comparative advantage
Using the aggregate expenditure-output model, assume the aggregate expenditures (AE)
line is below the 45-degree line at full-employment GDP. This vertical distance is called
a(n):
a. inflationary gap.
b. recessionary gap.
c. negative GDP gap.
d. marginal propensity to consume gap.
Cyclical unemployment:
a. causes unemployment statistics to be understated.
b. causes unemployment statistics to be overstated.
c. occurs because of recessions.
d. occurs because of technological innovations in production.
e. only occurs with a zero inflation rate.
Gross private domestic investment does not include:
a. spending for new houses.
b. spending to build up inventories.
c. unintentional inventory investment.
d. spending on employee salaries.
e. spending for office supplies.
Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve
requirements of the Fed. Its required reserve ratio is:
a. $20,000.
b. 20 percent.
c. 0.2 percent.
d. 1 percent.
Which of the following pairs is the best example of substitutes?
a. Coffee and cream.
b. Honey and biscuits.
c. Tortillas and salsa.
d. Hiking boots and athletic shoes.
The most appropriate countercyclical policy, or stabilization policy, in times of
unemployment, according to classical economists, is for the government to:
a. increase the minimum wage.
b. impose wage and price controls.
c. stimulate aggregate demand.
d. cut taxes.
e. do nothing.
Exhibit 12-1 Income for two persons NameIncome
Elaine $100,000
Daniel $ 40,000 In Exhibit 12-1, if the income tax system is progressive, then:
a. Elaine and Daniel will face the same tax rate and will have tax bills the same size.
b. Elaine and Daniel will face the same tax rate but have tax bills that are different
sizes.
c. Elaine will face a higher tax rate and will have a larger tax bill than Daniel.
d. Elaine will face a lower tax rate and will have a smaller tax bill than Daniel.
e. Elaine will face a lower tax rate but will have a larger tax bill than Daniel.
Scarcity is a problem:
a. measured by the amount of goods available.
b. of the poor, but not the rich.
c. because human wants are unlimited while resources are limited.
d. only in industrialized economies.
Using the expenditure approach, GDP equals:
a. C + I + G + (X - M).
b. C + I + G + (X + M).
c. C + I - G + (X - M).
d. C + I + G - (X - M).
GDP:
a. is the dollar value of all the final goods and services produced within the borders of a
nation.
b. includes intermediate and final goods and services.
c. minus an allowance for depreciation of fixed capital equals GNP.
d. is a less-than-perfect measure of social well-being because it does not include exports
and imports.
e. all of these.
Resources that flow through the circular flow model include all of the following except:
a. land.
b. labor.
c. capital.
d. final goods.
Exhibit 1A-3 Straight line
In Exhibit 1A-3, the slope for straight line AB
is:
a. 3.
b. 1.
c. -1.
d. -5.
Which of the following correctly describes the external benefit resulting from an
individual's purchase of a winter flu shot?
a. The flu shot is cheaper than the cost of treatment when you get the flu.
b. The income of doctors increases when you get the flu shot.
c. The flu shot reduces the likelihood others will catch the flu.
d. The flu shot reduces the likelihood you will miss work as the result of sickness;
therefore, you will earn more income.
The Laffer curve shows as tax rates rise, tax revenue:
a. rises.
b. first rises, then falls, and then rises again.
c. falls.
d. first rises, and then falls.
e. remains at a constant level.
Most economists believe that there are positive externalities in education. One can
conclude that a free market would fail to give the socially optimal outcome because the
equilibrium:
a. price and quantity would be too high.
b. price would be too low and quantity would be too high.
c. price and quantity would be too low.
d. price would be too high and quantity would be too low.
e. price and quantity would be just right.
Which of the following would not cause a shift in the supply curve for a good?
a. An increase in demand for that good.
b. An increase in the cost of labor used to produce that good.
c. A change in the cost of raw materials used to produce that good.
d. A decrease in the cost of machinery used to produce that good.
