In order to increase the money supply, the banking system must have
a. required reserves.
b. the authority to buy corporate stocks.
c. the authority to print U.S. currency.
d. excess reserves.
e. the authority to engage in interstate banking.
Use the figure to answer the following question(s).
Figure 10-5
Given the cost and demand conditions depicted in Figure 10-5 for the competitive
price-searcher firm, what is the price that the firm should charge if it wants to maximize
its profit?
a. 20
b. 30
c. 40
d. 50
Which of the following about fiscal policy is true?
a. Modern forecasting methods make it relatively easy to time fiscal policy changes in a
manner that will help stabilize the economy.
b. Legislative action is necessary if automatic stabilizers are going to smooth the ups
and downs of the business cycle.
c. Proper timing of changes in discretionary fiscal policy is both crucially important and
difficult to achieve.
d. Both the crowding-out and new classical theories indicate that expansionary fiscal
policy will exert a powerful impact on aggregate demand.
During a war, governments will sometimes draft people, most of whom are presently
employed, into the army. An economist, computing the real cost of the war, would be
sure to include which of the following items?
a. the value of the civilian goods no longer produced by the new soldiers
b. the cost of feeding and clothing the new soldiers
c. the dollar cost of the payroll
d. the higher prices of civilian goods due to wartime shortages
e. the cost of transporting the soldiers to combat
Why do water supply problems exist in many parts of the world?
a. Efforts to build large-scale reservoirs in arid countries have stalled due to the
enormous expense involved in completing these projects.
b. Water markets are missing or incomplete.
c. Global warming has increased the evaporation rate of water by over 10%.
d. The water supply is unfit for public consumption in many areas due to pollution.
In 2012, federal expenditures on income transfers, health care, national defense, and
interest on the national debt accounted for
a. less than 20 percent of federal spending.
b. about 40 percent of federal spending.
c. approximately 50 percent of federal spending.
d. more than 85 percent of federal spending.
If the U.S. continually runs a bilateral trade deficit with Japan, then
a. Japan’s trade policies must be unfair to the United States.
b. the United States is worse off as the result of its trade with Japan.
c. Japan is the low-cost supplier of goods that we import intensively.
d. both a and b are true.
One advantage of a money system compared to a barter system is that
a. barter never works.
b. money creates the need for banks.
c. money is more efficient.
d. everyone has money.
Ashley was being treated unfairly by her boss, so she stormed off the job and two days
later found another position. For two days, Ashley experienced
a. cyclical unemployment.
b. structural unemployment.
c. seasonal unemployment.
d. frictional unemployment.
e. being out of the labor force.
Market prices generally promote social cooperation because they
a. clarify the options available to people and encourage individuals to help others in
exchange for income.
b. encourage government officials to levy taxes to provide people with the necessities of
life.
c. eliminate scarcity by allowing prices to rise.
d. reward only altruistic actions, whereby, people seek to help others without the
expectation of personal gain.
The expression, “There’s no such thing as a free lunch,” implies that
a. everyone has to pay for his own lunch.
b. the person consuming a good must always pay for it.
c. opportunity costs are incurred when resources are used to produce goods and
services.
d. no one has time for a good lunch anymore.
Measured as a share of the economy, government expenditures on ____ have declined
during the last four decades.
a. health care
b. national defense
c. transfer payments
d. Social Security benefits
Economic theory indicates that the amount consumed of a natural resource depends on
a. the price of the resource.
b. consumer income.
c. the price of substitute resources.
d. all of the above.
Compared to the outcome when the firms are price takers, competitive price-searcher
markets will result in
a. a wider variety of products and higher prices.
b. less product variety and higher prices.
c. a wider variety of products and lower prices.
d. less product variety and lower prices.
When economists say an individual displays economizing behavior, they simply mean
that she is
a. making a lot of money.
b. buying only those products that are cheap and of low quality.
c. learning how to run a business more effectively.
d. seeking the lowest cost method to accomplish her objectives.
Competitive price-taker firms respond to changing market conditions by varying their
a. price
b. output
c. market share
d. information
e. advertising campaigns
For an oil-importing country such as the United States, the immediate effect of a supply
shock caused by an increase in the price of imported oil would tend to be
a. an increase in real output and a decrease in the general level of prices.
b. a decrease in real output and an increase in the general level of prices.
c. a decrease in both the general level of prices and real output.
d. an increase in both the general level of prices and real output.
As a firm expands output, in the short run marginal costs will
a. always decline as output expands.
b. increase at first but eventually level off and decline.
c. eventually increase as the firm experiences diminishing returns to the fixed factors of
production.
d. initially increase at a decreasing rate but eventually increase at an increasing rate.
Which of the following will most likely occur during the expansionary phase of a
business cycle?
a. Real GDP rises, and unemployment falls.
b. Real GDP declines, and inflation rises.
c. Interest rates rise, and the number of business failures rise.
d. Inflation rises, and employment falls.
Within the AD/AS model, which one of the following adjustments will cause the
economy to return to its long-run capacity when output is temporarily greater than the
economy’s long-run potential?
a. Lower wage rates and resource prices reduce short-run aggregate supply.
b. Lower interest rates increase aggregate demand and, thereby, stimulate output.
c. Higher wage rates and resource prices reduce short-run aggregate supply.
d. A decrease in prices reduces aggregate demand.
Suppose the annual rate of inflation has been 3 percent during each of the last three
years and that borrowers and lenders have come to expect this rate of inflation. If the
inflation rate unexpectedly rises,
a. borrowers gain at the expense of lenders.
b. lenders will gain at the expense of borrowers.
c. the real interest rate will exceed the nominal interest rate.
d. there is no reason to expect that the inflation will help borrowers relative to lenders.
The value (purchasing power) of each unit of money
a. is largely independent of the money supply.
b. tends to increase as the money supply expands.
c. increases as the general level of prices rise.
d. is inversely related to the general level of prices.
Figure 17-8
Refer to Figure 17-8. If this country allows free trade in wagons,
a. consumers will gain and producers will lose.
b. consumers will lose and producers will gain.
c. both consumers and producers will gain.
d. both consumers and producers will lose.
The primary benefit of a monetary system of exchange compared to a barter system is
the increased
a. ability to record transactions.
b. time necessary to find trading partners.
c. time devoted to shopping.
d. efficiency in arranging transactions.
Figure 14-7
In Figure 14-7, short-run equilibrium occurs
a. at point a.
b. at point b.
c. at point c, where the actual price level exceeds the expected price level.
d. at point c, where the actual price level is less than the expected price level.
Government decisions tend to be biased toward actions that have
a. current benefits that are easily observable and future costs that are difficult to
identify.
b. current benefits and future costs that are both difficult to identify.
c. future costs that are easily observable.
d. clear benefits to the poor at no costs to the wealthy.
Forests in the United States, starting from the time the colonists arrived,
a. have always expanded.
b. have only shrunk in size.
c. have changed little.
d. shrank as they were logged and cleared for farms, then rebounded, especially in the
twentieth century.
The foreign holdings of U.S. dollars
a. reduce the living standards of Americans.
b. are not included in the M1 money supply.
c. account for approximately half of all U.S. currency issued by the Fed.
d. are hard to explain since the dollar is not legal tender outside the United States.
Which of the following most clearly distinguishes government from a private business?
a. production of goods and services-private businesses produce things; governments do
not
b. the power to tax
c. the hiring of law enforcement employees to protect property rights
d. selfishness-the owners and managers of private businesses are selfish; government
officials are not
Use the figure to answer the following question(s).
Figure 9-6
When the market price in Figure 9-6 is $20, the firm’s maximum profit will be
approximately
a. zero.
b. $3.
c. $60.
d. $400.
The labor force participation rate of women in the United States has been
a. increasing for several decades.
b. decreasing for the past several decades after increasing dramatically in the early
1900s.
c. approximately constant during the last three decades.
d. decreasing since the early 1900s.
One advantage of team production over contracting out is that
a. the cost of negotiating and enforcing contracts is generally lower with team
production than with contracting out.
b. the principal agent problem is eliminated by team production but cannot be addressed
in contracting out.
c. costs are always lower with team production because of the elimination of
transactions costs.
d. efficiency is always greater with team production.
A nation can gain from international trade when
a. its relative production costs are the same as those of other countries.
b. it exports goods for which it is a low-opportunity cost producer while importing
goods that it could produce only at a high opportunity cost.
c. it imports goods for which it is a low-opportunity cost producer and exports goods
for which it is a high opportunity cost producer.
d. it has a trade deficit.