If a firm doubles its output in the long run and its unit costs of production decline, we
can conclude that:
A. technological progress has occurred.
B. economies of scale are being realized.
C. the firm is encountering diminishing returns.
D. diseconomies of scale are being encountered.
A prerequisite of specialization is:
A. a capitalistic economic system.
B. a medium of exchange or money system.
C. free enterprise.
D. competition.
The production possibilities table below shows the hypothetical relationship between
the production of capital goods and consumer goods in an economy.
Refer to the table above. What is the opportunity cost of producing the first three units
of capital goods?
A. 6 units of consumer goods
B. 7 units of consumer goods
C. 15 units of consumer goods
D. 22 units of consumer goods
In which of the following U.S. cities is one of the 12 Federal Reserve Banks located?
A. Miami
B. New Orleans
C. San Francisco
D. Denver
Which is a cause of growing income inequality in the United States in the last decade?
A. Competition in exporting to other countries among several major industries.
B. Industrial restructuring from services to goods production.
C. A widening wage gap between skilled and unskilled workers.
D. An increase in the progressivity of the federal tax system.
Menu costs will:
A. increase the amount of training of workers.
B. result in price wars between businesses.
C. increase the legal minimum wage.
D. make prices inflexible downward.
If there is allocative efficiency in a purely competitive market for a product, the
maximum price consumers are willing to pay is:
A. less than marginal benefit.
B. greater than marginal cost.
C. equal to the amount of efficiency or deadweight losses.
D. equal to the minimum price producers are willing to accept.
Which set of events would most likely increase aggregate demand?
A. An increase in incomes in foreign nations and a depreciation of the dollar.
B. An increase in incomes in foreign nations and an appreciation of the dollar.
C. A decrease in incomes in foreign nations and an appreciation of the dollar.
D. A decrease in incomes in foreign nations and a depreciation of the dollar.
Refer to the above diagram, in which Qf is the full-employment output. If the
economy’s current aggregate demand curve is AD3, it would be appropriate for the
government to:
A. reduce government expenditures and taxes by equal-size amounts.
B. reduce government expenditures or increase taxes.
C. increase government expenditures or reduce taxes.
D. reduce unemployment compensation benefits.
A positive income elasticity of demand coefficient indicates that:
A. a product is an inferior good.
B. a product is a normal good.
C. two products are substitute goods.
D. two products are complementary goods.
Which is best considered a demand factor in economic growth?
A. The quantity of human resources.
B. The quality of human resources.
C. The quantity of natural resources.
D. The full employment of resources.
Which is not a determinant of the price elasticity of demand for most products?
A. The slope of the demand curve for a product
B. The number of good substitutes available for the product
C. The proportion of most consumers’ budget spent on the product
D. The amount of time consumers have to adjust their purchases of a product to a
change in its price
Assume the government purposely incurs a budget deficit that is financed by
borrowing. As a result, interest rates rise and the amount of private investment spending
declines. This illustrates:
A. the equation-of-exchange effect.
B. the paradox of thrift.
C. the crowding-out effect.
D. the wealth effect.
Which of the following best describes what occurs when monetary authorities sell
government securities?
A. There is a decrease in the size of commercial banks’ excess reserves, the money
supply increases, and interest rates fall, thereby causing a decrease in investment
spending and real GDP.
B. There is a decrease in the size of commercial banks’ excess reserves, the money
supply decreases, and interest rates rise, thereby causing a decrease in investment
spending and real GDP.
C. There is a decrease in the size of commercial banks’ excess reserves, the money
supply decreases, and interest rates rise, thereby causing an increase in investment
spending and real GDP.
D. There is an increase in the size of commercial bank reserves, the money supply
increases, and interest rates fall, thereby causing an increase in investment spending and
real GDP.
When the federal government uses taxation and spending actions to stimulate the
economy, it is conducting:
A. fiscal policy.
B. incomes policy.
C. monetary policy.
D. employment policy.
Refer to the above graphs. Which statement is true?
A. The firm will increase production.
B. The firm is experiencing economic losses.
C. The firm is breaking even.
D. The firm is making economic profit.
In the following question you are asked to determine, other things equal, the effects of a
given change in a determinant of demand or supply for product X upon (1) the demand
(D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium
quantity (Q) of X.
An improvement in the technology used to produce X will:
A. decrease S, increase P, and decrease Q.
B. decrease S, increase P, and increase Q.
C. increase S, decrease P, and increase Q.
D. decrease D, decrease P, and decrease Q.
Which is an example of a change in product demand that decreases labor demand?
A. An increase in the price of paper increases the cost of making books, thus decreasing
the demand for bookbinders.
B. The widespread availability of self-serve gas pumps reduces the demand for workers
pumping gas.
C. An increase in the price of steel increases the cost of producing cars and trucks, thus
decreasing the demand for automobile workers.
D. A decline in productivity in retailing decreases the demand for retail sales workers.
If government set a maximum price of $45 in the above market:
A. a shortage of 21 units would arise.
B. a surplus of 21 units would arise.
C. a surplus of 40 units would arise.
D. it would not change the free market outcome.
Assuming that the Federal Reserve Banks buy $50 million in government securities
from commercial banks and the reserve ratio is 25 percent, then the effect will be to:
A. increase the actual supply of money by $50 million.
B. decrease the actual supply of money by $50 million.
C. decrease the potential money supply by $250 million.
D. increase the potential money supply by $250 million.
The supply curve shows the relationship between:
A. price and quantity supplied.
B. production costs and the amount demanded.
C. total business revenues and quantity supplied.
D. physical inputs of resources and the resulting units of output.
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
A. increase aggregate demand and aggregate supply.
B. decrease aggregate demand and aggregate supply.
C. decrease aggregate demand and increase aggregate supply.
D. increase aggregate demand and decrease aggregate supply.
What is one of the major shortcomings of using tariffs or quotas to “save American
jobs”?
A. Trade barriers protect the development of new technology, but the new technology
eliminates jobs.
B. Import restrictions alter the composition of domestic employment, but they have
minimal effect on the amount of domestic employment.
C. The volume of trade with other nations is limited to a few industries, so trade
restrictions would not increase national employment.
D. Major American firms have produced many products in other countries, and would
not hire more domestic labor when trade barriers are imposed.
Refer to the above data. The marginal product of the fourth worker:
A. is 5.
B. is 7.
C. is 71/2.
D. cannot be calculated from the information given.
When money serves as a means for determining the relative worth of goods, services,
and resources, it is functioning as a:
A. unit of account.
B. store of value.
C. medium of exchange.
D. standard of deferred payment.
A firm sells a product in a purely competitive market. The marginal cost of the product
at the current output is $4.00 and the market price is $4.50. What should the firm do?
A. Shut down if the minimum possible average variable cost is $3.00.
B. Decrease output if the minimum possible average variable cost is $3.00.
C. Increase output if the minimum possible average variable cost is $3.75.
D. Decrease output if the minimum possible average variable cost is $3.75.
An increase in the quantity demanded means that:
A. given supply, the price of the product can be expected to decline.
B. price has declined and consumers therefore want to purchase more of the product.
C. the demand curve has shifted to the right.
D. the demand curve has shifted to the left.
The retail trade for clothing would be an example of which market model?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
In year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit
was $125 billion. In year 2, the actual budget deficit was $125 billion and the cyclically
adjusted deficit was $100 billion. GDP was $1000 billion in year 1 and $1005 billion in
year 2. It can be concluded that fiscal policy from year 1 to year 2 was:
A. proportional.
B. progressive.
C. contractionary.
D. expansionary.
Using the data in the above table, what percentage should be reported in blank A of
column 2?
A. 5
B. 6
C. 12
D. 17