In an open economy, aggregate supply consists of domestic production plus imports.
a. True
b. False
For each of the following, how would they be included in the national income
accounts?
a. The University of California buys a new computer.
b. Charles buys a new MP3 player.
c. Marian buys a new mountain cabin.
d. Vikki buys an old mansion with hopes of restoring it.
e. Farmer Brown buys a used combine harvester.
Private ownership of rivers and lakes will halt all water pollution.
a. True
b. False
If the short-run Phillips curve is fairly horizontal, attempts to fight inflation will
generate considerable unemployment.
a. True
b. False
____ is a doctrine that holds that exports are good for a country, whereas imports are
harmful.
a. Supply-side economics
b. Mercantilism
c. Free trade
d. Monetarism
A demand curve shows the relationship between price and quantity demanded only so
long as all other things are held constant.
a. True
b. False
The relationship between consumer spending and disposable income is called the
a. conjunction function.
b. consumption function.
c. aggregate demand function.
d. marginal spending function.
Which of the following would be classified as an externality?
a. Smoke from a chimney causes discolored and peeling paint on other houses in the
neighborhood.
b. Noise from an unmuffled car wakes a sleeping person.
c. A neighbor cleans up a yard and repaints a house.
d. All of the above are externalities.
Economics examines the options open to households, business firms, governments, and
entire societies by the limited resources at their command.
a. True
b. False
One possible solution to improve performance of regulated firms is which of the
following?
a. Allow the firm to set its own rate of return.
b. Allow higher rates of return to cover higher cost of better performance.
c. Allow a higher rate of return for better performance.
d. Set lower prices when efficiency improves.
The total market value of capital assets in the United States is about $30 trillion dollars.
a. True
b. False
The demand curve for a monopolistic competitor is likely to be steeper than that of a
monopolist.
a. True
b. False
The United States is known worldwide as being a low tariff nation.
a. True
b. False
Edgar Browning and William Johnson, in a paper published in the Journal of Political
Economy (1984), presented evidence that a one-dollar transfer to the bottom 40 percent
of income distribution costs the top 60 percent nine dollars. If correct, this finding
proves
a. the tax system is generating significant excess burdens.
b. these transfers are not worth the cost.
c. loopholes have to be closed.
d. the burden of the tax system is too great.
A normal production possibilities frontier has a
a. positive slope, and is steeper near the horizontal axis than near the vertical axis.
b. negative slope, and is steeper near the horizontal axis than near the vertical axis.
c. positive slope, and is steeper near the vertical axis than near the horizontal axis.
d. negative slope, and is steeper near the vertical axis than near the horizontal axis.
e. zero slope, and it does not touch the horizontal axis.
All points on an indifference curve represent combinations of two goods that are
equally desirable to the consumer.
a. True
b. False
Americans generally pay
a. a lower percentage of their incomes in taxes than citizens of other industrialized
countries.
b. a lower percentage of their incomes in taxes than citizens of other industrialized
countries, with the exceptions of Sweden and the Netherlands.
c. about the same percentage of their incomes in taxes as citizens of other industrialized
countries.
d. a higher percentage of their incomes in taxes than citizens of other industrialized
countries.
Figure 3-2
In Figure 3-2, a point such as E
a. is not obtainable.
b. is an efficient use of resources.
c. represents an inefficient allocation of resources.
d. indicates that the society is a capitalist society.
A firm is generating detrimental externalities when
a. MSC is less than MPC.
b. MSC is the same as MPC.
c. MSC is greater than MPC.
d. MPC includes some incidental costs.
The wage premium in the United States for college graduates over high school
graduates has remained constant from 1978 to 2000.
a. True
b. False
Total physical product is maximized if marginal physical product is zero.
a. True
b. False
If the U.S. government decided to pay off the national debt by creating money, what
would be the most likely effect?
a. a substantial reduction in real GDP
b. a deflationary collapse
c. rapid inflation
d. an increase in the trade surplus
Governmental rules that significantly promoted entrepreneurship first became
prominent during the
a. Great Recession.
b. Age of Enlightenment.
c. Great Depression.
d. Industrial Revolution.
The formula for the multiplier can be written as change in
a. Y/change in I.
b. I/change in Y.
c. Y/change in C.
d. Y/change in GDP.
Inflation targeting requires monetary policy makers to rely heavily on the Phillips
curve.
a. True
b. False
A recessionary gap exists when
a. real GDP exceeds nominal GDP.
b. nominal GDP exceeds real GDP.
c. real GDP exceeds potential GDP.
d. potential GDP exceeds real GDP.
The external costs of cigarettes are related to the health problem smoking produces for
both smokers and nonsmokers. One estimate places these costs at 29 cents per pack.
Presently, sales and excise taxes on cigarettes average about 37 cents per pack. These
estimates suggest that (i) cigarette consumption is below the optimal or efficient
quantity; (ii) cigarette taxes should be reduced.
a. i and ii
b. i but not ii
c. ii but not i
d. neither i nor ii
Booms and recessions are transmitted to other countries.
a. True
b. False
The substitution effect makes workers want to work less when the wage increases.
a. True
b. False
If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is
$2, then economic efficiency would require
a. increased production of flower pots.
b. increased production of coffee cups.
c. the price of coffee cups to exceed the price of flower pots.
d. the price of flower pots to exceed the price of coffee cups.
Exhibit 4-1
The following are the equations for the supply and demand curves in the market for
weezils:
Demand: Qd = 20 − 2P
Supply: Qs = 5 + 3P
where Qd is the quantity demanded, Qs is the quantity supplied, and P is the price per
weezil in dollars.
Refer to Exhibit 4-1. If consumers decide that they want 20 percent fewer weezils at
every price, the equation for the new demand curve for weezils will be
a. Qd = 20 − 1.6P.
b. Qd = 0.2(20 − 2P).
c. Qd = 0.8(20 − 2P).
d. Qd = 80(20 − 2P).
Does the Fed have good control over the money supply?
a. Yes, open market operations generate exact changes in bank lending.
b. Yes, reserve requirements create new loans.
c. No, because of difficulties estimating the reserve ratio.
d. No, because of difficulties estimating the size of the excess reserves and cash
holdings by the public.
A system that requires banks to keep 100 percent reserves
a. would reduce the Fed’s ability to control the money supply.
b. would undermine the effectiveness of reserve requirement changes.
c. would increase the Fed’s ability to control the money supply.
d. could be implemented with little change in bank policy.
The central bank in the United States is known as the Federal Reserve System.
a. True
b. False
Direct controls are considered inefficient because all firms are forced to pay the same
costs.
a. True
b. False
Many cities have summer pops series in which the local orchestra performs light
classical music in a public park. These performances are free in some areas. Apply the
concept of a public good to pops performances and explain whether an admission
charge is efficient.
The supply of public goods must be left to government and nonprofit institutions. Why?
What is convergence hypothesis? Why should we expect convergence in the long run?
What are the arguments for and against federal government grants to states?
Explain what protections and rules are in place for entrepreneurs, which encourages
them to innovate.
What is the shape of a perfectly elastic demand curve? Explain its significance for a
seller.
Distinguish between the economist’s definition of profit and the accountant’s definition.
Which is superior for decision making?
Illustrate the cost curves and average revenue (demand) curve for the perfectly
competitive firm in long-run equilibrium.
What is the difference between the accountant’s concept of profit and the economist’s
view of profit?
How is a production indifference map helpful?
Arrange the following goods from least to most elastic, explaining your ordering:
gasoline, Exxon gas, Exxon gas at a particular gas station.
What is a budget line? What does its slope indicate?
Differentiate between an induced increase in consumption and an autonomous increase
in consumption. How are they represented on a graph?
What is the controversy surrounding property taxes as a source for school funding?
What happens to the price of the product and total revenue for a perfectly competitive
firm if it doubles the amount of output it supplies in the market?
After Hurricane Andrew hit Florida and Louisiana, consumers expressed outrage at the
high prices being charged for chainsaws, generators, and bottled water. If governments
followed the consumers’ demands and imposed price ceilings in these markets, what is
the likely result?