A drawback of using market values to aggregate the quantities of goods and services
produced in an economy is that:
A. higher-priced items count more.
B. GDP increases when not all goods are produced in greater quantities.
C. market prices generally reflect the economic benefit consumers expect to receive
from an item.
D. not all economically valuable goods and services are bought and sold in markets.
If the demand curve facing the monopolist is P = 70 – 14Q, then the slope of its
marginal revenue curve is:
A. -28.
B. -14.
C. -7.
D. -35.
Which of the following contributed to the turn-around in the U.S. government budget
from a surplus in the early 2000s to record deficits by the end of the decade?
A. An increase in household saving.
B. An increase in business saving.
C. An increase in tax revenues because of a recession.
D. An increase in government spending on homeland security and wars.
Assume an economy produces only hamburgers and hotdogs and the base year is 2005.
_
Given the data in the table above, what is the value of real GDP in 2006?
A. $ 5,000
B. $ 7,000
C. $10,000
D. $10,500
Suppose the company that owns the vending machines on your campus has doubled the
price of a can of soda. They then notice that they are selling approximately 15% fewer
sodas. The price elasticity of demand for sodas from the campus vending machines,
therefore, is:
A. inelastic
B. unit elastic
C. elastic
D. infinite
When auctions, such as those used on eBay, are used to sell a product, then:
A. information about consumers’ true reservation prices is minimized.
B. information about consumers’ true reservation prices is revealed.
C. consumers have an incentive to bid above their true reservation prices.
D. consumers have an incentive to bid below their true reservation prices.
It is spring, and several graduates of State U are seeking employment. State U graduates
have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest
employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few
hard workers. While Acme does not require students to submit a transcript with their
applications, the hiring officer believes that high GPAs signal a willingness to work
hard. Gerry is a recent graduate if State U and is applying for a job with Acme. Gerry’s
GPA is 2.9. Should Gerry include a transcript with his job application?
A. No, because his GPA is worse than average.
B. No, because Acme did not request it.
C. Yes, because students with higher-than-average GPAs will always include a
transcript, so if Gerry doesn’t send a transcript, Acme will infer that Gerry’s GPA is even
lower than it is.
D. Yes, because if he doesn’t send a transcript, Acme will infer that Gerry is willing to
work harder than he actually wants to work.
If the price of textbooks increases by one percent and the quantity demanded falls by
one-half percent, then demand for textbooks is:
A. negative.
B. inelastic.
C. elastic.
D. unit elastic.
Which of the following statements about the provision of public goods is true?
A. The government should always provide public goods.
B. The optimal level of a public good occurs when all taxpayers receive some of the
good.
C. If the marginal benefit of a public good exceeds its marginal cost, more should be
provided.
D. The total benefit of a public good should equal its total cost.
The aggregate supply curve shows the relationship between the amount of output firms
want to produce and the ______.
A. nominal interest rate
B. real interest rate
C. unemployment rate
D. inflation rate
Anchored inflationary expectations are beneficial to an economy because they:
A. reduce the inside lag of macroeconomic policymaking.
B. rapidly shift the central bank’s monetary policy reaction function
C. shorten recessions caused by adverse inflation shocks.
D. eliminate any changes in short-run aggregate supply.
The main disadvantage of using money as a store of value is that:
A. other assets provide greater anonymity than cash.
B. barter is a more efficient way to conduct transactions than using money.
C. unlike other assets, money serves as a medium of exchange.
D. other assets pay relatively higher rates of interest than money.
Government policies that increase the long-term economic growth rate by a small
amount result in ______ in average living standards.
A. large increases
B. small increases
C. small decreases
D. no change
Peg’s Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011.
The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year,
Peg’s contribution to real GDP in 2011 was ______ and to nominal GDP in 2011 was
_____.
A. $80,000; $88,000
B. $80,000; $90,000
C. $80,000; $99,000
D. $90,000; $99,000
The most commonly used measure of an economy’s output is:
A. the rate of employment.
B. the rate of inflation.
C. gross domestic product.
D. the Dow Jones stock market index
Curly and Moe are considering living alone or being roommates and splitting the rent
for the next twelve months. If they live alone, they each rent a one bedroom, one bath
apartment for $500 per month, while if they are roommates, they can split a two
bedroom, one bath apartment for $800 per month. The one difficulty they have is that
Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe’s snoring at
$150 per month. Moe could obtain a snore-eliminating device for $50 per month. Curly
would be willing to pay _____ per month to eliminate Moe’s snoring.
A. exactly $50
B. no more than $100
C. up to $150
D. nothing
Refer to the figure below.
If Row Resorts offers reduced rates, then Column Cruises would receive the highest
payoff if it:
A. kept its rates high.
B. offered reduced its rates.
C. entered into a cartel with Row Resorts and agreed to jointly reduce rates.
D. chose either strategy because it will have the same payoff in either case.
Suppose the economy is currently operating at potential output; an expansionary gap
may be caused by each of the following except:
A. a positive demand shock.
B. a negative inflation shock.
C. a decrease in taxes.
D. an increase in the money supply.
A decrease in the nominal exchange rate, e, defined as the number of units of the
foreign currency that one unit of the domestic currency will buy, indicates that the
domestic currency has ______ relative to the foreign currency.
A. appreciated
B. depreciated
C. become overvalued
D. become undervalued
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for
food and drinks rather than spending an equal amount of money to go to a movie. Her
opportunity cost of going to the beach is:
A. the $12 she spent on the umbrella, food and drinks.
B. only $0 because she would have spent $12 to go to the movie.
C. the value she places on seeing the movie.
D. the value she places on seeing the movie plus the $12 she spent on the umbrella,
food and drinks.
Even if a tax imposed in a market generates a loss in surplus for the participants in that
market, the tax could still increase economic efficiency if:
A. voters approve of the tax.
B. the government needs to generate tax revenue.
C. the public expenditures financed by the tax lead to a big enough increase economic
surplus.
D. the tax revenue is used to fund spending by local governments.
Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony
reasons that if he wants to buy something with a price of $50, then it is a good offer, but
if he wants to buy something with a price of $500, then it is not a good offer. This is an
example of:
A. inconsistent reasoning; saving $20 is saving $20.
B. the proper application of the Cost-Benefit Principle.
C. rational choice because saving 40% is better than saving 4%.
D. inconsistent reasoning because prices are sunk costs.
Suppose the price of gold is $300 per ounce in the United States and 2,400 pesos per
ounce in Mexico. If purchasing power parity holds then, if the price of oil is $25 per
barrel in the United States, the price of oil is ______ pesos per barrel in Mexico.
A. 3.125
B. 96
C. 200
D. 250
The average benefit of n units of an activity is the:
A. total benefit of n units divided by n.
B. n divided by the total benefit of n units.
C. n times the total benefit of n units.
D. extra benefit from carrying out one additional unit of the activity.
Jamie’s marginal utility from muffins and from doughnuts (in utils) is shown below.
Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of
each muffin is $2 and the price of each doughnut is $1.
If Jamie consumes 3 muffins a day, then what is her marginal utility per dollar spent on
the third muffin?
A. 10
B. 20
C. 30
D. 40
An increase in consumers’ demand for espresso will lead to an increase in ______,
while an increase in the number of firms producing espresso will lead to a(n) ______.
A. quantity supplied; decrease in supply
B. supply; increase in quantity supplied
C. quantity supplied; increase in supply
D. supply; decrease in supply
Better information about consumers’ reservation prices generally leads to:
A. a reduction in consumer surplus.
B. acquisition of goods by consumers who are willing to pay the highest price.
C. equitable distribution of goods among low income consumers.
D. acquisition of goods by consumers with the greatest need.
Contractionary policies are government stabilization policies intended to decrease:
A. population.
B. unemployment.
C. average labor productivity.
D. planned spending.
If the demand for electricity is inelastic, then if the local utility wants to increase its
total revenue, it should _______ its price.
A. lower
B. raise
C. not change
D. frequently change
Refer to the figure below.
If a price ceiling were imposed at point G, the loss in total economic surplus would be
represented by the area ______.
A. FEC
B. DAC
C. GJEF
D. JAE + DGF
When using the AD–AS model to understand business cycles, the question, “what are the
fundamental causes of business cycles?” can be thought of as the question:
A. “what factors move the economy away from long-run equilibrium?”
B. “what factors move aggregate demand and aggregate supply in different directions?”
C. “what factors increase or decrease potential GDP?”
D. “what factors increase or decrease the expected rate of inflation?”
To derive the market demand curve for a private good, one sums the ______. For a
public good, one sums the ______.
A. individual quantities at various prices; individual quantities at various prices
B. individual prices at various quantities; individual quantities at various prices
C. individual quantities at various prices; individual prices at various quantities
D. individual prices at various quantities; individual prices at various quantities