The effect of opening trade between countries is
a. living standards rise in the country with efficient, high-pay workers.
b. both countries can exploit comparative advantage and increase productivity.
c. total world production increases as both countries specialize in specific goods.
d. All of the above are correct.
When people smoke cigarettes, their friends and family members may become sick.
This affects GDP by
a. reducing GDP by the amount of medical care needed.
b. reducing GDP by the cost of the cigarettes purchased.
c. increasing GDP by the cost of the medical care and the cost of the cigarettes
purchased.
d. decreasing GDP by the cost of the medical care and increasing GDP by the cost of
the cigarettes purchased.
An upward-sloping supply curve shows that
a. buyers are willing to pay more for a scarce product.
b. suppliers are willing to increase production of their goods if they can receive higher
prices for them.
c. buyers are unaffected by sellers’ costs of production.
d. the price of a product is not influenced by the price buyers are willing to pay.
e. at higher prices, an envy effect begins to affect the demand curve.
Which of the following workers would be most likely to work fewer hours as a result of
a wage increase?
a. farm worker
b. surgeon
c. lifeguard
d. bartender
Which of the following could be written into an insurance contract in order to reduce
the problem of moral hazard?
a. co-payments for repair services
b. deductibles for repair services
c. limitations on insurance coverage
d. All of the above are correct.
Entry barriers can lead to long-run economic profits.
a. True
b. False
Economies of scale is another term for
a. increasing returns to scale.
b. constant returns to scale.
c. increasing marginal physical productivity.
d. decreasing returns to scale.
Everything else equal, the AC curve will shift when
a. the price of the product rises.
b. technical change raises the MPP of one input.
c. output is increased.
d. increasing returns to scale are present.
If retail managers are ordering extra merchandise from their wholesale distributors, then
it is probably true that
a. total output is greater than total spending.
b. price levels are decreasing.
c. inventory levels are increasing.
d. inventory levels are decreasing.
Which of the following is a characteristic of perfect competition?
a. large barriers to entry
b. a small number of firms
c. firms selling unique goods
d. None of the above is correct.
When a country decreases the official value of its currency, for example, Russia
changes the value of the ruble from $.16 to $.04, it is said to have ____ its currency.
a. floated
b. revalued
c. devalued
d. depreciated
If disposable income increases by $400 billion and consumption increases by $300
billion, the MPC equals
a. 0.75
b. 0.60
c. 0.80
d. 0.68
Open market operations generally involve the purchase and sales of
a. government securities.
b. stocks and bonds.
c. coins and currency.
d. Federal Reserve notes.
Which of the following will tend to occur if price floors are imposed on a product?
a. persistent surpluses
b. problems of disposal of goods
c. disguised discounts developing to eliminate excess production
d. overinvestment in the industry
e. All of the above are correct.
What are the economic effects of a currency depreciation?
a. It will decrease aggregate demand and aggregate supply, so that output will certainly
fall, and prices may fall as well.
b. It will increase aggregate demand and aggregate supply, so that output will certainly
rise, and prices may rise as well.
c. It will increase aggregate demand and decrease aggregate supply, so that prices will
certainly rise and output may rise as well.
d. It will decrease aggregate demand and increase aggregate supply, so that prices will
certainly fall and output may fall as well.
The cost-revenue diagrams for a monopolist and a monopolistic competitor are similar
except that the demand curve for the monopolistic competitor is flatter.
a. True
b. False
If at optimum output of 1,000 units, the firm is incurring average variable cost per unit
of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total
profit is
a. $7,000.
b. $2,500.
c. $1,500.
d. $250.
Unequal incomes arise from
a. discrimination.
b. luck.
c. different schooling.
d. all of the above factors.
When it is cheaper for one firm to produce a number of different commodities together
than it is for a group of small firms to produce those commodities, ____ exist(s).
a. economies of scale
b. economies of scope
c. diminishing marginal returns
d. marginal-cost pricing
If a 10-year Treasury bond pays 3.1% and a 10-year corporate bond pays 7.4%, what is
the interest rate spread on this particular corporate bond?
a. 4.3%
b. 7.4%
c. 10.5%
d. 22.9%
The national income accounts include a value for the amount of capital stock “used up”
during the production of current output. This dollar amount is called
a. appreciation.
b. dollarization.
c. amortization.
d. depreciation.
There are frequently market solutions that the government can use to deal with
externalities.
a. True
b. False
A production indifference curve shows all combinations of input quantities capable of
producing a given quantity of output.
a. True
b. False
“Never put all your eggs in one basket.” This saying refers to the concept of
a. averaging.
b. market timing.
c. diversification.
d. leveraging.
The United States is a fairly good example of
a. a mixed economy.
b. a pure market system.
c. a government-dominated economy.
d. a manufacturing economy.
e. a transitioning economy.
Potential GDP is an estimate of the economy’s ability to produce goods and services if
the
a. labor force is fully employed.
b. price level is stable.
c. trade balance is zero.
d. federal budget is balanced.
The relationship between a change in consumer income and a resulting change in
demand for a good is
a. demand elasticity.
b. income elasticity of demand.
c. cross elasticity of income demand.
d. supply elasticity.
Aggregate demand and supply curves have been widely used to analyze the
performance of the macroeconomy. Figure 5-3 shows four diagrams that represent
different changes in the macroeconomy. Choose the diagram that best represents the
situations described in the following questions.
Figure 5-3
Which graph in Figure 5-3 best represents the aggregate demand-induced Great
Depression of the 1930s?
a. 1
b. 2
c. 3
d. 4
A rise in the price of an input can be expected to lead to a rise in its marginal physical
product.
a. True
b. False
What role does ideology play in the debate on stabilization?
a. A large role, because there are conservative and liberal economists.
b. A primary role, because there are no economic aspects to the debate at all.
c. A minor role, because economists are fairly uniform in their political views.
d. No role at all, because this is purely a technical question.
Which of the following is a correct conclusion regarding the successful implementation
of fiscal policy?
a. Successful fiscal policy would be easy to achieve if Congress would stay out of the
economy and permit natural market forces to restore full-employment equilibrium.
b. Successful fiscal policy is difficult to achieve because in the real world the
investment, net exports, and consumption schedules are constantly shifting.
c. Successful fiscal policy is much easier to achieve today because econometric models
make economic forecasting much easier.
d. As the income-expenditure model suggests, fiscal policy planners can move GDP to
any level they please by changing tax and spending levels.
Which of the following is a true measure of national output?
a. GDP at market price
b. Nominal GDP
c. GDP in current dollars
d. GDP in constant dollars
The marginal productivity theory is irrelevant to organizing production in a socialist
society.
a. True
b. False
Which of the following statements concerning equilibrium in the long run is not true?
a. Most firms earn economic profits in the long run.
b. The firm can vary its plant size in the long run.
c. Economic profits are eliminated as new firms enter the industry in the long run.
d. For firms in long-run equilibrium, P = MC = AC.
Higher efficiency in the economy can be reached if prices are held low by law.
a. True
b. False