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Use the figure below to answer the following question(s).
Figure 4-9
Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a
$.40 excise tax is illustrated. Which of the following states the actual burden of the tax?
a. $.20 for buyers and $.20 for sellers
b. $.30 for buyers and $.10 for sellers
c. The entire $.40 falls on sellers.
d. The entire $.40 falls on buyers.
Which of the following statements regarding black markets is true?
a. The reliability of products sold in black markets is generally higher than the
reliability of products sold in legal markets.
b. The prices of goods in black markets are generally lower than the prices of similar
products in legal markets.
c. The laws of supply and demand do not affect the prices of goods exchanged in black
markets.
d. The rate of violence is higher in black markets than in legal markets.
Which of the following is the best example of an investment in human capital?
a. an increase in the number of hours worked per week by a worker in an unskilled
laboring job
b. the purchase of company stock by a worker
c. a summer internship at a law firm for someone going to law school
d. payments into a retirement pension plan by a skilled laborer
The benefit of a subsidy will go primarily to buyers when the
a. demand for the product is highly inelastic and supply is relatively elastic.
b. demand for the product is highly elastic and the supply is relatively inelastic.
c. subsidy is legally (statutorily) granted to the seller of the product.
d. subsidy is legally (statutorily) granted to the buyer of the product.
If the money rate of interest is 9 percent and the real rate of interest 6 percent, the
inflationary premium is
a. 3 percent.
b. 6 percent.
c. 9 percent.
d. 12 percent.
The aggregate demand curve indicates the relationship between
a. the real wage rate and the quality of resources demanded by producers of goods and
services.
b. the interest rate and the amount of loanable funds demanded by borrowers.
c. the natural rate of unemployment and the demand for goods and services when the
economy is in long-run equilibrium.
d. the general price level and the aggregate quantity of goods and services demanded.
Which of the following is true under unregulated monopoly?
a. Monopoly results in more output than under pure competition.
b. Monopoly results in a more efficient allocation of resources than competition.
c. Monopoly expands the choices available to consumers.
d. Monopoly results in lower output and higher prices than competition.
If the political leaders of a country want to promote economic growth, which of the
following policy alternatives would be most effective?
a. imposition of price controls on agricultural products in an effort to keep food cheap
b. a public-sector investment program financed by highly progressive taxation
c. low taxes, a monetary policy consistent with long-run price stability, and the
abolition of price controls and trade restrictions
d. expansionary monetary policy designed to keep interest rates low
Which of the following is true?
a. Most stockholders own stock because they want to participate in the daily decision
making of the firms that they own.
b. The shareholders of a large well-established firm can be reasonably sure that they
will earn a real rate of return of about 7 percent in the future.
c. The potential losses of shareholders are limited to the amount of their investment.
d. Ownership of a corporate bond provides the bondholder with an ownership right to a
fraction of the firm's future profits.
One way to invest in human capital is by
a. increasing your education.
b. avoiding on-the-job training programs.
c. doing nothing; it is impossible to improve your human capital. Human capital is
solely determined by the abilities that you are born with.
d. investing in physical capital.
A firm that is a price taker can
a. substantially change the market price of its product by changing its level of
production.
b. sell all of its output at the market price.
c. sell some of its output at a price higher than the market price.
d. decide what price to charge for its product.
In a market economy, persons undertaking an investment project must
a. obtain approval from political authorities before the project can be undertaken.
b. either personally supply the required funds or convince other investors and financiers
to do so.
c. finance the project entirely with equity capital.
d. arrange for bank financing before the project can be undertaken.
An increase in the nominal interest rate would
a. encourage people to hold smaller money balances.
b. encourage people to hold larger money balances.
c. force the Fed to reduce the money supply.
d. cause the real interest rate to decline.
A reserve requirement of 5 percent implies a potential money deposit multiplier of
a. 5.
b. 10.
c. 20.
d. 25.
Which of the following is true?
a. Marginal tax rates that take a large share of income will enhance the incentive of
individuals to invest and engage in productive activities.
b. High tax rates will tend to drive investment funds and highly productive citizens to
other countries where tax rates are lower.
c. As marginal tax rates increase, individuals get to keep a larger share of their earnings.
d. Countries can gain by imposing higher tariffs and other barriers that will restrain
international trade.
If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up
buying a quarter from a passerby for $1,
a. the stranded motorist must not understand that four quarters are worth $1.
b. economic theory is unable to explain this transaction.
c. both parties have gained from this exchange.
d. the passerby was made better off and the motorist worse off.
According to the modern view, the impact of expansionary monetary policy will
a. be the same in the long run as in the short run.
b. be the same regardless of whether the effects of the policy are anticipated or
unanticipated.
c. initially be an increase in real output if the policy is unanticipated, but in the long
run, the primary result will be a higher price level (inflation).
d. initially be an increase in prices if the policy is unanticipated, but in the long run, the
primary result will be larger real output.
A production possibilities curve indicates that when resources are being used efficiently,
a. you can only produce more of one good only if you lower its price.
b. you can only produce more of one good only if you produce more of another good.
c. you can only produce more of one good only if you produce less of another good.
d. it is impossible to expand the total output of goods over time.
Which one of the following would count as investment in the national income
accounts?
a. purchase of a new airplane by an airline
b. purchase of a U.S. government bond
c. purchase of 100 shares of Wal-Mart stock
d. purchase of an existing house
William likes Dr. Pepper and pork sandwiches. When the price of pork sandwiches
rises, the substitution effect causes Dr. Pepper to be relatively
a. more expensive, so William buys more Dr. Pepper.
b. more expensive, so William buys less Dr. Pepper.
c. less expensive, so William buys more Dr. Pepper.
d. less expensive, so William buys less Dr. Pepper.
The variables in the index of leading indicators are included in the index because
a. they are good indicators of the current rate of inflation.
b. they generally lag behind turns in the business cycle.
c. of their tendency to lead (or predict) turns in the business cycle.
d. they are good indicators of the current state of the economy.
Figure 17-6
The domestic country is China.
Refer to Figure 17-6. With no international trade,
a. the equilibrium price is $12 and the equilibrium quantity is 300.
b. the equilibrium price is $16 and the equilibrium quantity is 200.
c. the equilibrium price is $16 and the equilibrium quantity is 300.
d. the equilibrium price is $16 and the equilibrium quantity is 450.
The variables in the index of leading indicators are included in the index because
a. they turn down prior to a deflation and turn up prior to an inflation.
b. they generally lag behind turns in the business cycle.
c. they turn down prior to a recession and turn up before the beginning of a business
expansion.
d. they provide a comprehensive measure of the current state of the economy.
Which of the following are leakages from the circular flow of income?
a. Savings, taxes, and imports
b. Investment, government purchases, and exports
c. Investment, taxes and bonds
d. Imports, wages and taxes
Which of the following does the law of demand specifically imply?
a. If the product price increases, quantity demanded will decrease.
b. If consumer income increases, quantity demanded will increase.
c. If the product price increases, quantity demanded will increase.
d. If consumer income increases, quantity demanded will decrease.
e. If supply increases, demand will increase.
Given your knowledge of the incentives created by private ownership, which of the
following would you expect to be false?
a. People will take better care of their own personal automobile than they will a rental
car.
b. People will take better care of a home they own than they will of a home they rent.
c. Property owned privately will tend to be better conserved and kept than public
property or property owned in common.
d. People will be more likely to throw trash out onto their own lawn than they will be to
throw it out onto the side of an interstate highway.
Figure 17-1
In Figure 17-1, in the absence of trade, the domestic price of shoes would bePn. If the
United States moved from a no-trade situation to free trade, which of the following
would happen?
a. The domestic price of shoes would rise, and domestic consumption would fall.
b. Both the domestic price of shoes and domestic consumption would rise.
c. Both the domestic price of shoes and domestic consumption would fall.
d. The domestic price of shoes would fall, and domestic consumption would rise.
Competitive price-taker markets are characterized by
a. firms that all produce the same product.
b. a small number of firms in the market.
c. firms that are large relative to the size of the market.
d. widespread use of advertising as a competitive weapon.
In 2012, the combined expenditures of federal, state, and local governments in the
United States were approximately 38 percent of gross domestic product (GDP).
Approximately what percentage of GDP were government expenditures in 1930?
a. 9 percent
b. 19 percent
c. 29 percent
d. 39 percent
Figure 11-16
Refer to Figure 11-16. The allocative inefficiency caused by a profit-maximizing
monopoly amounts to
a. $150.
b. $200.
c. $250.
d. $300.
A $25 government subsidy paid directly to buyers of jeans will result in
a. a downward shift in the demand curve for jeans by $25.
b. an upward shift in the demand curve for jeans by $25.
c. a downward shift in the supply curve for jeans by $25.
d. an upward shift in the supply curve for jeans by $25.
Which of the following best illustrates the difference between GDP and GNP?
a. GDP measures the goods consumed by the citizens of a country, while GNP measures
output exported to other countries.
b. GDP measures the output produced by the citizens within a country, while GNP
measures output produced by noncitizens within a country.
c. GDP measures the output produced by the citizens of a country, while GNP measures
output produced within the borders of a country.
d. GDP measures the output produced within the borders of a country, while GNP
measures output produced by the citizens of a country.
The labor force participation rate is defined as the number of
a. unemployed individuals plus employed individuals divided by the number of
individuals in the working-age population.
b. employed individuals divided by the number of individuals in the working-age
population.
c. unemployed individuals plus employed individuals divided by the number of
employed individuals.
d. employed individuals divided by the number of individuals employed plus the
number of unemployed individuals.
Nations will attract investment and its citizens will engage in productive activities when
the institutions and policies of that country
a. discourage market exchange.
b. protect people and their property and enforce contracts even-handedly.
c. abolish private property rights.
d. all of the above.
Use the figure to answer the following question(s).
Figure 9-8
The average total cost (ATC) and marginal costs (MC) of a firm producing in a
price-taker industry are depicted in Figure 9-8. If the current market price of the firm's
product is $3, what output should this firm produce per day?
a. 10
b. 15
c. 20
d. 25
