Which of the following will likely accompany an expansionary money policy?
A. A higher prime interest rate.
B. A lower Federal funds rate.
C. A higher discount rate.
D. Higher income tax rates.
Assume that a government is considering a new social program and may choose to
include in this program any number of four progressively larger projects. The marginal
cost and the marginal benefit of each of the four projects is provided in the table.
Refer to the above table and information. What are the total costs and total benefits of
doing projects A, B, and C?
A.Total cost is $5 billion and total benefit is $7 billion.
B.Total cost is $4 billion and total benefit is $7 billion.
C.Total cost is $9 billion and total benefit is $12 billion.
D.Total cost is $16 billion and total benefit is $20 billion.
Near an ocean beach, a high-rise building is being constructed that will block the scenic
view of the ocean by the residents of a low-rise building. The Coase theorem suggests
that this type of dispute between the owners of high-rise and low-rise buildings would
best be resolved by:
A.the owners themselves.
B.city government officials.
C.a zoning ordinance restricting high-rise buildings.
D.a government fine for the builder of the high-rise.
Based on the graph above, the firm is earning:
A. zero normal profits.
B. zero economic profits.
C. zero accounting profits.
D. We can say nothing about this firm’s profit or loss situation.
The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one
ton of steel. In France, the domestic opportunity cost of producing 100 barrels of
chemicals is two tons of steel. In this case:
A. France has a comparative advantage in the production of chemicals.
B. Germany has a comparative advantage in the production of chemicals.
C. mutual gains from trade can be obtained if Germany imports chemicals from France
and France imports steel from Germany.
D. mutual gains from trade can be obtained if Germany exports steel to France and
France exports chemicals to Germany.
The demand for a resource will increase if the:
A. price of the resource increases.
B. quantity of the resource decreases.
C. price of the output the firm is producing increases.
D. price of the output the firm is producing decreases.
Answer the next question based on the following balance sheet for the First National
Bank. Assume the reserve ratio is 15 percent.
Refer to the above data. If a check for $14,000 is drawn and cleared against this bank,
its reserves and checkable deposits will be, respectively:
A. $50,000 and $120,000.
B. $50,000 and $106,000.
C. $36,000 and $120,000.
D. $36,000 and $106,000.
If the wage rate in a purely competitive labor market decreases, it will cause the:
A. labor supply curve for the industry to shift rightward.
B. labor supply curve for a single competitive firm to shift leftward.
C. marginal resource cost for a single competitive firm in the industry to decrease.
D. marginal resource cost for a single competitive firm in the industry to increase.
A business buys $5000 worth of resources to produce a good. The business makes 100
units of the good and each of them sells for $65. The value added by the business to
these products is:
A. $5000.
B. $6500.
C. $1500.
D. $1000.
The following list contains items that are related to aggregate demand and/or aggregate
supply.
Refer to the above list. A change in which factor is most likely to change both aggregate
demand and aggregate supply?
A. 3
B. 5
C. 7
D. 9
If the cyclically adjusted budget shows a deficit of about $100 billion and the actual
budget shows a deficit of about $150 billion over a several-year period, it can be
concluded that there is a:
A. cyclical deficit.
B. contractionary fiscal policy.
C. proportional tax system.
D. progressive tax system.
Monopolistic competition is characterized by firms:
A. producing differentiated products.
B. making economic profits in the long run.
C. producing at optimal productive efficiency.
D. producing where price equals marginal cost.
The role of an assumption in an economic theory is to:
A. add realism.
B. prove the theory.
C. increase the scope of application.
D. simplify the theory.
In the above market, economists would call a government-set minimum price of $50 a:
A. price ceiling.
B. price floor.
C. equilibrium price.
D. fair price.
In 2007, the top 1 percent of all taxpayers in the United States paid what percent of the
federal income tax?
A. 21.2 percent
B. 33.7 percent
C. 39.5 percent
D. 60.7 percent
Refer to the above data. The marginal cost of producing the sixth unit of output is:
A. $24.
B. $12.
C. $16.
D. $8.
The marginal cost of the sixth unit of output is $8 (i.e., 69 – 61).
Most of the public debt is owed to citizens and domestic institutions. This is one reason
that the public debt:
A. crowds out private investment.
B. does not impose a burden on future generations.
C. has a procyclical economic effect on the economy.
D. can result in the bankruptcy of the federal government.
The members of the Federal Reserve Board:
A. serve seven-year terms.
B. are appointed by the American Economic Association.
C. are elected by votes of the 12 presidents of the Federal Reserve Banks.
D. serve 14-year terms.
If each taxpayer paid the same lump-sum amount regardless of income level, the tax
system would be:
A. disproportionate.
B. progressive.
C. proportional.
D. regressive.
Refer to the above graph. At output level H, the area:
A. 0CGH represents the firm’s variable cost of production.
B. ACGE represents the firm’s economic profit.
C. 0AEH represents the firm’s economic profit.
D. 0CGH represents the firm’s fixed costs of production.
A consumer holds money to meet spending needs. This would be an example of the:
A. use of money as a measure of value.
B. use of money as legal tender.
C. transactions demand for money.
D. asset demand for money.
Nation A pays lower wages to workers than nation B. Nation A also uses fewer capital
goods per worker than nation B. This suggests that gains from trade are likely to result
if:
A. nation A produces products that are more capital-intensive and exports them to
nation B in return for products from nation B that are more labor-intensive.
B. nation A produces products that are more labor-intensive and exports them to nation
B in return for products from nation B that are more capital-intensive.
C. nation B produces products that are more labor-intensive and exports them to nation
A in return for products from nation A that are more capital-intensive.
D. nations A and B each produces capital-intensive and labor-intensive goods and trades
them with each other.
Refer to the above diagram. The phases of the business cycle from points A to D are,
respectively:
A. peak, recession, expansion, trough.
B. trough, recovery, expansion, peak.
C. expansion, recession, trough, peak.
D. peak, recession, trough, expansion.
Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million
in government securities from the public, then the money supply will immediately:
A. increase by $80 million, and the maximum money-lending potential of the
commercial banking system will increase by $80 million.
B. increase by $80 million, but the maximum money-lending potential of the
commercial banking system will decrease by $80 million.
C. increase by $80 million, and the maximum money-lending potential of the
commercial banking system will increase by $400 million.
D. decrease because the securities are an asset to the commercial banks and a liability to
the Federal Reserve.
A positive effect of advertising for society is that it:
A. increases market share for the dominant firm in the industry.
B. provides useful information to reduce search cost for consumers.
C. raises barriers to entry into the industry and protects existing firms.
D. creates price leadership and gives firms guidance in dealing with rivals.
When modeling consumer choice, the price ratio of the two products is the:
A. equilibrium exchange rate.
B. slope of the budget line.
C. point of tangency for equilibrium.
D. demand for the two products.
If unemployment is above the natural rate of unemployment, then potential GDP is:
A. equal to the GDP gap.
B. equal to actual GDP.
C. less than actual GDP.
D. greater than actual GDP.
In a circular flow model consisting of the household sector, the business sector, product
markets, and resource markets:
A. households are sellers of products.
B. businesses are sellers of products.
C. households are buyers of productive resources.
D. resource markets are sellers of products.
The Federal funds rate is the interest rate that _______ charge(s) _______.
A. banks; other banks
B. the Fed; commercial banks
C. banks; their best corporate customers
D. banks; on federal student loans
Refer to the above graph. What will shift D1 to D2?
A. An increase in productivity.
B. A decrease in product demand.
C. An increase in the price of complementary input.
D. A decrease in the price of a substitute input (if the substitution effect is greater than
the output effect).
As the firm in the above diagram expands from plant size #1 to plant size #3, it
experiences:
A. diminishing returns.
B. economies of scale.
C. diseconomies of scale.
D. constant costs.
All of the following would affect the position of a country’s production possibilities
curve, except:
A. the quantity of labor.
B. the level of unemployment.
C. the amount of the capital stock.
D. technological progress.
Assume that in a monopolistically competitive industry, firms are earning economic
profit. This situation will:
A. reduce the excess capacity in the industry as firms expand production.
B. attract other firms to enter the industry since the barriers to entry are low.
C. cause firms to standardize their product to limit the degree of competition.
D. make the industry allocatively efficient as each firm seeks to maintain its profits.
Refer to the above graph. Which factor will shift AD1 to AD3?
A. An increase in real wages.
B. An increase in productivity.
C. An increase in real interest rates.
D. A decrease in consumer wealth.