Two economists from Ohio University estimated that the demand curve for kerosene in
Indonesia was such that a 10 percent increase in the price reduced the quantity
demanded by 2.2 percent and that a 10 percent increase in the price of electricity
increased the demand for kerosene by 1.6 percent. This indicates that (i) the demand for
kerosene is price inelastic and (ii) kerosene and electricity are substitutes. Which of
these two statements is correct?
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
The short run for the industry is defined as a period
a. too brief for new firms to enter the industry.
b. too brief for old firms to leave the industry.
c. in which the number of firms in the industry is fixed.
d. All of the above are correct.
The Federal Reserve Board of Governors
a. serve at the pleasure of the president similar to other cabinet positions.
b. report directly to Congress and are controlled by Congress.
c. consists of 12 members, one from each district bank.
d. is structurally independent of the executive and legislative branches of the federal
government.
Economists feel that taxing nominal capital gains imposes costs on the economy due to
a. increased consumption.
b. reduced consumption.
c. increased investment.
d. reduced investment.
The two ways to define poverty are which of the following?
a. relatively and absolutely
b. absolutely and definitely
c. definitely and conceptually
d. definitely and receptively
Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third
cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is
equal to
a. $.50, the value of her last cup of coffee.
b. $1.00, the value of her first cup of coffee.
c. marginal utility.
d. $2.25.
e. $1.50.
A landlord will supply her land for rental only if in equilibrium
a. she receives economic rent on the land.
b. she is paid at least the opportunity cost of using the land herself.
c. her land is marginal.
d. her rate of return on her investment in the land is zero.
Capitalism is an economic system in which the production process is controlled
primarily by private firms operating in markets.
a. True
b. False
An example of a policy to combat poverty is
a. TANF.
b. food stamps.
c. Social Security.
d. All of the above are correct.
A 2% wage increase for teachers or police officers is:
a. usually offset by higher output per worker.
b. leads to increases in municipal budgets.
c. indicates that teachers and police have became more selfish.
d. leads to more personalized service.
International capital flows tend to reduce the impact of monetary policy.
a. True
b. False
Economists who focus their analyses on the effects of a change in the money supply
and velocity are called
a. realists.
b. Keynesians.
c. supply-siders.
d. monetarists.
The U.S. economy rarely grows.
a. True
b. False
At a given level of wheat output, one more unit of labor would produce 10 extra
bushels, and one more unit of seed would produce 30 extra bushels. A unit of labor
costs $6, and a unit of seed costs $12. The farmer should
a. produce less wheat.
b. buy only seed.
c. buy more seed and less labor.
d. buy less seed and more labor.
The slope of a demand curve is almost always
a. positive, because when people buy more of a good the cost of producing it will rise.
b. positive, because the more money a person has, the more of a particular good will be
bought.
c. negative, because when people buy more of a good the cost of producing it will fall.
d. negative, because with everything else equal, the same people will buy more of a
good when its price is lower.
e. positive, because as the price rises, people want to sell more of the good.
A large factory pours its toxic wastewater into a nearby river, and as a result, the
residents of a downstream community experience high rates of illness and birth defects.
The economic problem illustrated by this example is
a. marginal thinking.
b. comparative advantage.
c. repealing the laws of supply and demand.
d. externalities.
e. productivity growth.
In 2010 and 2011, many observers were worried that the
a. budget would not be balanced and fiscal stimulus would be withdrawn too soon.
b. budget would not be balanced and monetary stimulus would be withdrawn too soon.
c. budget would be balanced and fiscal stimulus would be withdrawn too soon.
d. budget would be balanced and monetary stimulus would be withdrawn too soon.
Under a gold standard,
a. with a balance of payments deficit, interest rates would fall and attract foreign
capital.
b. a deficit in the balance of payments increased a nation’s money supply automatically.
c. all currencies were defined in terms of gold.
d. when a nation had a deficit in its balance of payments, more gold was flowing in than
was flowing out.
e. All of the above are correct.
Derivatives are securities that derive their values from the values of underlying
investments.
a. True
b. False
A small business owner who is earning a positive economic profit, no matter how small,
is doing better than if she sold her business and went to work for another firm.
a. True
b. False
An oligopoly is a market
a. with few buyers.
b. with one buyer.
c. dominated by a few sellers.
d. under the control of a few politically powerful individuals.
The quantity of reserves demanded decreases as the federal funds rate rises because
a. people want more liquid assets as the federal funds rate rises.
b. the price of bonds rise as the federal funds rate rises.
c. the opportunity cost of holding excess reserves increases as the federal funds rate
rises.
d. people want more money to invest as the federal funds rate rises.
If the amount that consumers wish to save at the full employment level of income is
greater than the amount that businesses plan to invest, then
a. there will be an inflationary gap.
b. there will be a recessionary gap.
c. total demand will exceed potential GDP.
d. the economy will move to a higher level of output.
The factor accounting for most of the earnings difference between equally educated and
experienced men and women is that women
a. receive less pay for equal work.
b. are segregated into low-paying occupations.
c. receive comparable pay only when they do work of comparable value to the
employer.
d. are prohibited by law from doing certain kinds of work.
Utility is the pleasure, satisfaction, or enjoyment derived from consumption.
a. True
b. False
In the United States, the average level of educational attainment is approximately a
a. primary education.
b. secondary education.
c. higher education.
d. graduate-level education.
“Protection” is designed to help
a. firms whose relative inefficiency does not permit successful competition with
imports.
b. workers who have very high productivity, and cannot survive against low-paid
foreign workers.
c. government that needs revenue from tariffs and quotas to cover government
spending.
d. firms that are highly efficient, and cannot survive against low-price foreign imports.
Which of the following is an example of a direct tax?
a. sales tax
b. property tax
c. gasoline tax
d. income tax
In a mixed economy, there is some public influence over the workings of free markets.
a. True
b. False
“Crowding-out” refers to the process by which
a. high consumption leads to low saving and investment.
b. the Fed prevents “runs” on banks.
c. Fed sales of bonds reduce the ability of corporations to buy bonds.
d. increased government spending raises interest rates, thus lowering investment
spending.