In a market economy, differences in incomes will
a. reflect the relative scarcity of resources.
b. provide individuals with an incentive to supply resources that are valued by others.
c. determine the income distribution among market participants.
d. do all of the above.
Use the table below to answer the following question(s).
Table 7-5
Refer to Table 7-5. Gross national product equals
a. $1,860.
b. $1,910.
c. $1,380.
d. $4,170.
When household debt as a share of income is abnormally high,
a. rapid growth of consumption is likely to lead the recovery.
b. the growth prospects of the economy will be excellent because high household debt
is the key to a strong economy.
c. the growth of consumption is likely to remain sluggish even as the economy begins
to recover.
d. consumers will be in a strong position to deal with irregular expenses.
New classical economists stress that an increase in government expenditures financed
by borrowing rather than taxes will
a. exert a strong expansionary impact on aggregate demand and real output.
b. affect the timing of taxes but not their magnitude.
c. lead to higher interest rates.
d. undermine confidence and reduce the level of private saving.
A profit-maximizing price searcher will expand output to the point where
a. total revenue equals total cost.
b. marginal revenue equals marginal cost.
c. price equals average total cost.
d. price equals marginal cost.
People who spend more time and effort investigating the advantages and disadvantages
of different automobile models when they go to purchase one than they do investigating
the strengths and weaknesses of presidential candidates are saying, in effect, that
a. a good car is more important to their well-being than a good president.
b. they expect to use the information on the merits of alternative cars to greater
personal advantage than they could information on the merits of alternative presidential
candidates.
c. they are irrational, because the choice of a president is obviously far more important
than the choice of a car.
d. they do not think it matters who is elected president.
A nation has a merchandise trade deficit when
a. it has a surplus in its balance of payments.
b. it has a deficit in its balance of payments.
c. the value of its imports of goods is greater than the value of its exports of goods.
d. its current account is in surplus and its capital account is in deficit.
Suppose that the minimum wage was increased to $10 per hour. Which of the following
would be most likely to result from the minimum wage increase?
a. an increase in the employment of low-skill workers previously employed at wage
rates of less than $10 per hour
b. an increase in the number of jobs providing low-skill workers with on-the-job
training
c. a reduction in the number of teenagers unemployed
d. an increase in the demand for high-skill workers providing services that are a good
substitute for those whose wages were pushed up by the higher minimum wage
A profit-seeking decision maker who decides which business projects to undertake and
how they should be undertaken is called
a. a key man.
b. an entrepreneur.
c. a progressor.
d. a stakeholder.
A market situation where a small number of sellers compose the entire industry is called
a. monopolistic competition.
b. monopsony.
c. monopoly.
d. oligopoly.
Residential mortgages historically carried a capital requirement of 4 percent. Why did
these mortgages, bundled as part of the mortgage-backed securities issued by
investment banks, turn out to be far more risky than historically indicated?
a. Rating agencies miscalculated the historical risk of traditional fixed-rate residential
mortgages.
b. Investment banks leveraged these mortgage-backed securities more than was
allowable under SEC rules.
c. Lower mortgage lending standards increased the likelihood that defaults would occur.
d. Investment banks held too much capital relative to these mortgage-backed securities.
Recent legislation provides parents with a substantial reduction in their personal income
tax liability for each child that they have. The economic way of thinking indicates that
legislation of this type will
a. make it more costly for parents to provide for their children.
b. reduce the value of children to their parents and, therefore, lead to a reduction in the
birth rate.
c. reduce the after-tax cost of raising children and, therefore, increase the birth rate.
d. exert no impact on either the cost of raising children or the birth rate since having
children is a not an economic activity.
The law of demand refers to the
a. decrease in price that can be expected as more units of a product are demanded.
b. increase in price that results from an increase in demand for a good of limited supply.
c. inverse relationship between the price of a good and the quantity demanded.
d. increase in the quantity of a good available when its price increases.
If the exchange rate value of the dollar depreciates relative to other currencies, we
would expect
a. U.S. exports to decrease.
b. U.S. exports to increase.
c. U.S. imports to increase.
d. aggregate demand in the United States to decrease.
Use the figure below to answer the following question(s).
Figure 4-9
Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b. If a
$.40 excise tax was imposed,
a. the supply of gasoline would shift to S2.
b. the price of gasoline to consumers would increase from $1.20 per gallon to $1.40 per
gallon.
c. the net price received by producers of gasoline would decline from $1.20 per gallon
to $1.00 per gallon.
d. all of the above would occur.
If an employer could really hire women who were willing and able to do the same work
as men for 20 percent less, profit-seeking employers would have
a. a strong incentive to hire more women, which would shrink this differential.
b. little incentive to hire women, since hiring men would still be more profitable.
c. a strong incentive to hire fewer women, and this would reduce the wage gap between
men and women.
d. a strong incentive to hire fewer women, which would expand the wage gap between
men and women to an even higher level.
From the standpoint of economic efficiency, markets tend to provide
a. less of a public good than would be efficient.
b. more of a public good than would be efficient.
c. exactly the amount of a public good that is efficient.
d. none of the above.
According to economic theory, which of the following would most likely cause the
demand curve for hamburgers to decrease?
a. a drop in the price of hot dogs
b. an increase in the price of hamburgers
c. a drop in the price of hamburgers
d. a technological advance that reduces the cost of making frozen hamburger patties.
Which of the following would lead to a rapid growth of the money supply in the future?
a. the use of large excess reserves by banks to extend additional loans
b. a reduction in government expenditures to reduce the size of the federal deficit
c. an increase in government expenditures financed by taxes
d. an increase in the interest rate the Fed pays banks holding excess reserves
Terrance loses his job and immediately begins looking for another. Other things the
same, the unemployment rate
a. increases, and the labor-force participation rate decreases.
b. increases, and the labor-force participation rate is unaffected.
c. is unaffected, and the labor-force participation rate increases.
d. decreases, and the labor-force participation rate is unaffected.
An increase in the consumption of a good resulting from a reduction in price that makes
the good cheaper in relation to other goods is called the
a. substitution effect.
b. income effect.
c. real balance effect.
d. inelasticity effect.
Which of the following would increase the incentive of consumers to economize and of
producers to provide medical services at economical prices?
a. substitution of catastrophic health insurance plans for low deductible, low
co-payment plans
b. more reliance on medical savings accounts rather than insurance
c. equalization of tax treatment between out-of-pocket medical expenses and
employer-provided health insurance
d. all of the above
If the price of cotton increases
a. consumers will buy more cotton clothes.
b. consumers will increase their purchases of clothing made of other materials.
c. clothing producers will stop making cotton clothes.
d. clothing producers will not be able to adjust their output.
A vertical long-run aggregate supply curve indicates that
a. an increase in the price level will not expand an economy’s output capacity in the
long run.
b. outputs greater than the long-run supply constraint cannot be achieved.
c. an increase in the price level will permit the economy to achieve a higher level of
output.
d. an increase in the price level will promote technological change and more rapid
economic growth.
Use the figure below to answer the following question(s).
Figure 6-1
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits
among voters for a government project. A tariff on imported steel to protect jobs in the
domestic steel industry that raises the cost of many products for consumers would be
considered which type of project?
a. type A
b. type B
c. type C
d. type D
Gross domestic product is
a. the market value of all goods and services exchanged within a country during a time
period.
b. the market value of all domestic assets, regardless of whether they are owned by
citizens or foreigners.
c. the compensation received during a period for labor services plus interest, rents, and
corporate profits.
d. the market value of final goods and services produced within a country during a time
period.
“After every fall election, the weather starts to turn cold, therefore elections cause cold
weather.” This statement
a. confuses positive and normative analysis.
b. commits the fallacy of composition.
c. fails to recognize that association is not causation.
d. confuses macroeconomics with microeconomics.
Your boss gives you an increase in the number of dollars you earn per hour. This
increase in pay makes
a. your nominal wage increase. If your nominal wage rose by a greater percentage than
the price level, then your real wage also increased.
b. your nominal wage increase. If your nominal wage rose by a greater percentage than
the price level, then your real wage decreased.
c. your real wage increase. If your real wage rose by a greater percentage than the price
level, then your nominal wage also increased.
d. your real wage decrease. If your real wage rose by a greater percentage than the price
level, then your nominal wage decreased.
When the marginal product of labor diminishes,
a. average fixed cost rises.
b. average variable cost is constant.
c. marginal cost rises.
d. average total cost must rise.
e. total cost rises at a diminishing rate.
Union membership as a percent of the nonagricultural labor force ____ in 1970 to
approximately ____ in 2012.
a. fell from approximately 30 percent; 11 percent
b. rose from approximately 15 percent; 22 percent
c. fell from more than 40 percent; 10 percent
d. rose from approximately 8 percent; 40 percent
An increase in the general level of prices in the goods and services market that is
accompanied by a short-run expansion in output is most likely caused by
a. an unanticipated decrease in aggregate demand.
b. an unanticipated increase in aggregate demand.
c. a favorable supply shock that shifts SRAS to the right.
d. an unfavorable supply shock that shifts SRAS to the left.
Inflation isn’t costly just because prices are going up. After all, inflation means salaries
and wages are going up as well. If higher prices are not the problem, discuss two
important aspects of inflation that are costly.
Sam lives in a town with a population of 3,000. He says, “This town really needs a
pizza restaurant. People want pizza and would be willing to pay a lot for it, but no one
will open a pizza place because they couldn’t make any money.” Evaluate Sam’s
statement.
What is the “crowding-out” effect? How does the crowding-out effect influence the
potency of fiscal policy?
What is the Economic Freedom of the World index designed to measure? What will
determine whether the rating of a country will be high or low on this index?
The AB Manufacturing Company has hired an economist to evaluate its financial
situation. She explains to the board of directors that the company is making zero
economic profit. Should the company go out of business?
Homeowners can deduct interest payments on their mortgages from their federal
income tax. If this deduction were removed, how would the housing market be
affected?
Is education a public good? Focus on whether it meets the two criteria for being a
public good.
Because the United States purchases more cars, stereos, and other goods from Japan
than Japan purchases from the United States, it is often said that the United States has a
“trade deficit” with Japan. Does this mean that the U.S. balance of payments is running
a deficit? How would you more accurately characterize the effect that trade with Japan
has on the balance of payments?
A popular video program used to teach economics to primary school children defines
opportunity cost as “what you give up to get something.” In light of your understanding
of opportunity cost, how would you modify this definition?
Suppose you are planning to open a lemonade stand. List separately all the explicit and
implicit costs that might be involved.
Why would a radio station give money to listeners? Does this violate the economic way
of thinking?
Does the Federal Reserve operate like an ordinary commercial bank? What is the Fed’s
job?
Is calling a voter rationally ignorant the same as calling her irrational? Explain.
How have the size and functions of government in the United States changed during the
last century?