The four factors of production are land, labor, capital, and government services.
Monetary policy is subject to less political pressure than fiscal policy.
Built-in stability refers to the fact that net tax revenues vary inversely with the level of
GDP.
The money multiplier and the income multiplier are two ways of referring to the same
concept.
Government should subsidize a product whose consumption results in spillover costs in
order to achieve the optimal level of output.
Excess reserves are the amount by which required reserves exceed actual reserves.
Net exports in the United States average about 1 to 2 percent of GDP.
It is generally agreed that a major advantage of the competitive price system is the
achievement of greater efficiency.
In a competitive market, every consumer willing to pay the market price can buy a
product and every producer willing to sell the product at that price can sell it.
Minimum wage laws have contributed to higher unemployment levels among teenagers
and minorities.
The key to assessing the direction of discretionary fiscal policy is to observe changes in
the cyclically adjusted deficit.
Over 95 percent of the total public debt is held by banks and private individuals.
The Federal Open Market Committee meets regularly to choose a desired Federal funds
rate and directs the Federal Reserve Bank of New York to undertake open-market
operations to achieve and maintain that rate.
Expansionary fiscal policy during a recession means cutting taxes, increasing
government spending, or taking both actions.
Without an acceptable domestic currency to serve as a medium of exchange, a nation
might try to substitute a more stable currency from another nation.
In the short run, fixed costs are irrelevant in determining a firm’s optimal level of
output.
The World Trade Organization advocates new protections for intellectual property such
as copyrights.
The unemployment rate is equal to the number of people who are unemployed divided
by the number of people in the labor force.
An inferior good has an income elasticity coefficient that is greater than zero but less
than one.
Transfer payments such as Social Security or unemployment compensation are counted
in the calculation of GDP.
The most effective and most-often-used tool of monetary policy is open-market
operations, where government securities are bought and sold.
The elasticity of demand for labor varies inversely with the elasticity of demand for the
product it is used to produce.
In the United States, all money is essentially the debt of government, commercial
banks, and thrift institutions.
Income is more equally distributed over a longer time period than a shorter time period.
Exports and imports as a percentage of GDP are greater in Germany than the United
States.
The poverty rate increased dramatically during the 1960s but has been reduced
significantly since then.
Command systems in the Soviet Union and Eastern Europe failed primarily because of
coordination and incentive problems.
A price floor in a competitive market will result in persistent shortages of a product.
The distribution of personal income in the United States is significantly more equal
after taxes and transfer payments are taken into account.
The price of a bond with no expiration date is $1000 and the fixed annual interest
payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer
of the bond is now 8.5 percent.
An annual rate of inflation of 7 percent will double the price level in about 15 years.
In the price range where demand is inelastic, a decrease in price will result in a decrease
in total revenue.
The ZZZ Corporation issued $25 million in new common stock in 2009. It used $18
million of the proceeds to replace obsolete equipment in its factory and $7 million to
repay bank loans. As a result, investment:
A. of $7 million has occurred.
B. of $25 million has occurred.
C. of $18 million has occurred.
D. has not occurred.
Refer to the above graph. Which factor will shift AS1 to AS2?
A. A rise in national income abroad.
B. An increase in government spending.
C. A reduction in business taxes.
D. A decline in consumer confidence.
Refer to the above diagram, which shows three demand curves for coffee. Which would
cause the change in the demand for coffee illustrated by the shift from D1 to D2?
A. A decrease in the price of tea
B. An increase in consumer incomes
C. An increase in the price of sugar
D. A technological improvement in the production of coffee
A decrease in business taxes will tend to:
A. increase aggregate demand but not change aggregate supply.
B. increase aggregate supply but not change aggregate demand.
C. increase aggregate demand and increase aggregate supply.
D. decrease aggregate supply and decrease aggregate demand.
A technological improvement that causes an increase in the marginal product of a
resource will:
A. decrease the demand for the resource.
B. increase the demand for the resource.
C. decrease the marginal revenue product.
D. increase the marginal resource cost.
A new member of Congress notes that “[p]ersonal income tax collections automatically
fall and transfers and subsidies automatically rise as national income declines.” This
observation best describes how the personal income tax, transfers, and subsidies:
A. serve as built-in stabilizers.
B. produce the standardized budget.
C. cause crowding out and reduce equilibrium GDP.
D. contribute to the recognition lag with fiscal policy.
The portion of the public debt held outside federal agencies and the Federal Reserve is:
A. substantially larger than the portion held by federal agencies and the Federal
Reserve.
B. smaller than the portion held by federal agencies and the Federal Reserve.
C. equally split between U.S. and foreign lenders.
D. all held by foreign lenders.
Inflationary pressure is a growing problem for the economy. Therefore, the Federal
Reserve decides to pursue a policy to reduce the inflationary pressure. Which policy
changes by the Fed would tend to offset each other in trying to achieve that objective?
A. Selling government securities and raising the discount rate.
B. Selling government securities and lowering the discount rate.
C. Buying government securities and lowering the discount rate.
D. Buying government securities and lowering the reserve ratio.
In 2007 the price of oil increased, which in turn caused the price of natural gas to rise.
This can best be explained by saying that oil and natural gas are:
A. complementary goods and the higher price for oil increased the demand for natural
gas.
B. substitute goods and the higher price for oil increased the demand for natural gas.
C. complementary goods and the higher price for oil decreased the supply of natural
gas.
D. substitute goods and the higher price for oil decreased the supply of natural gas.
If there is allocative efficiency in a purely competitive market for a product, the
minimum price producers are willing to accept is:
A. less than marginal benefit.
B. greater than marginal cost.
C. equal to the amount of efficiency or deadweight losses.
D. equal to the maximum price consumers are willing to pay.
Refer to the above graph. The monopolist’s profits:
A. will be equal to the area P1P3AE.
B. will be equal to the area P2P3B.
C. will be equal to the area P1P3AC.
D. cannot be determined from the information given.
The crowding-out effect of borrowing to finance the public debt:
A. decreases current spending for private investment.
B. increases the privately owned stock of real capital.
C. decreases the economic burden on future generations.
D. increases incentives to work and save.
Gordon James is a person who sells narcotics “on the street.” This type of illegal
activity:
A. would be considered double counting in calculating GDP.
B. is estimated and included in GDP figures.
C. is excluded from GDP figures.
D. causes GDP to be overstated.
The recurrent ups and downs in the level of economic activity extending over several
years are a description of a:
A. recession.
B. business trough.
C. business cycle.
D. noncyclical fluctuation.
Which would most likely increase aggregate supply?
A. An increase in the prices of imported products.
B. An increase in productivity.
C. A decrease in business subsidies.
D. A decrease in net exports.
When the Federal Reserve acts to tighten money and credit in the economy, then the
aggregate:
A. demand curve will shift to the right.
B. demand curve will shift to the left.
C. supply curve will shift to the left.
D. demand curve will stay the same but there will be a movement along the existing
demand curve.
At the full-employment unemployment rate there is only:
A. cyclical and frictional unemployment.
B. frictional and structural unemployment.
C. demand-deficient unemployment.
D. “discouraged workers” unemployment.
Cash held by a bank is sometimes called:
A. token money.
B. legal tender.
C. vault cash.
D. fractional reserves.
Social insurance is distinguished from public assistance, or welfare, by the fact that:
A. all social insurance benefits are paid in cash while all public assistance benefits are
paid in kind (food, housing, medical care).
B. an individual acquires a right to social insurance benefits by meeting objective
eligibility criteria while public assistance benefits are determined according to
individual need.
C. the total amount paid in benefits is much larger in the public assistance programs
than in the social insurance programs.
D. payroll taxes are used to finance public assistance programs while general revenues
are used to finance social insurance programs.
The long-run aggregate supply curve is:
A. vertical.
B. horizontal.
C. upsloping.
D. downsloping.
In the following question you are asked to determine, other things equal, the effects of a
given change in a determinant of demand or supply for product X upon (1) the demand
(D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium
quantity (Q) of X.
A reduction in the number of firms producing X will:
A. increase D, increase P, and increase Q.
B. increase S, decrease P, and increase Q.
C. decrease S, increase P, and decrease Q.
D. decrease S, decrease P, and increase Q.
Suppose a monopolist produces output where total revenue is maximized. At that
output, the price elasticity of demand for the monopolist’s output is:
A. greater than or equal to one.
B. less than one.
C. equal to one.
D. impossible to determine without data.
Which is a barrier to entry in an industry?
A. Economies of scale
B. Allocative efficiency
C. Profit maximization
D. Economic profits
The U.S. primary steel industry is best described as a:
A. cartel.
B. monopoly.
C. differentiated oligopoly.
D. homogeneous oligopoly.
Refer to the above diagram. At output level Q:
A. marginal product is falling.
B. marginal product is rising.
C. marginal product is negative.
D. one cannot determine whether marginal product is falling or rising.
The following economy produces two products.
Given the production possibilities schedule above, a combination of three tanks and 350
autos:
A. illustrates the trade-off between tanks and autos.
B. is attainable but involves the unemployment or inefficient use of some of society’s
resources.
C. cannot be produced by society, given its current level of resources and production
technology.
D. is not attainable because this combination is not listed in the schedule.
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is
60, and the price of each input is $30. If productivity increased such that 3000 units are
now produced with the quantity of inputs still equal to 60, then per-unit production
costs would:
A. decrease and aggregate supply would decrease.
B. decrease and aggregate supply would increase.
C. increase and aggregate supply would decrease.
D. remain unchanged and aggregate supply would remain unchanged.
Refer to the above table. Suppose the transactions demand for money is $300 billion
and the money supply is $700 billion. A decrease in the money supply to $600 billion
would cause the interest rate to:
A. rise to 7 percent.
B. rise to 6 percent.
C. fall to 4 percent.
D. fall to 6 percent.
Which situation would most likely cause a nation’s production possibilities curve to
shift inward?
A. The construction of more capital goods
B. An increase in foreign trade
C. An increase in the number of skilled immigrant workers
D. The destruction from bombing and warfare in a losing military conflict
Which is characteristic of monopsony?
A. The type of labor employed is relatively mobile.
B. The supply curve for labor lies above the marginal resource cost curve.
C. The wage rate it must pay workers varies directly with the number of workers it
employs.
D. The firm’s employment is a small portion of the total employment of that type of
labor.