1) Entrepreneurship refers to a new college graduate who is looking for a job with a
large company.
2) Technological advances have occurred throughout the history of agriculture,
resulting in higher productivity but lower incomes to farmers.
3) The two most important investor preferences are a desire for high rates of return and
a dislike of inflation.
4) Because of arbitrage, any given financial asset will be expected to return to the
Security Market Line.
5) Farmers, though a small proportion of the population, can impose a large total cost to
taxpayers in the form of agricultural subsidies because the average cost imposed on
each individual taxpayer is small and not given much attention by a large number of
taxpayers.
6) If the representative firm in a monopolistically competitive industry has an optimal
output where P < ATC, the industry will expand in the long run.
7) Hardwired heuristics make it easy to change behavior by simply presenting people
with better information.
8) Economists use different models of the economy because the economy behaves
differently depending on how much time has passed after a demand shock.
9) A firm sells a product in a purely competitive market. The marginal cost of the
product at the current output is $4.00 and the market price is $4.50. What should the
firm do?
A.Shut down if the minimum possible average variable cost is below $4.50
B.Decrease output if the minimum possible average variable cost is below $4.50
C.Increase output if the minimum possible average variable cost is below $4.50
D.Decrease output if the minimum possible average variable cost is above $4.50
10) If the United States government were to impose a quota on wristwatches imported
from Switzerland, then the:
A.Price of wristwatches in the United States would decrease and total quantity
consumed (domestic and imported) will increase
B.Prices of wristwatches in Switzerland would rise and that’s how Switzerland would
be hurt by the quota
C.Price of wristwatches in the United States would remain the same, but the quantity
will fall as imports fall
D.Total quantity of wristwatches (domestic and imported) purchased would decline as
prices rise
11)
Refer to the graph above representing the purely competitive market for a product.
When the market is at equilibrium, the deadweight loss would be:
A.Area a
B.Area b
C.Area d
D.Zero
12) An exclusive legal right as sole producer for 20 years granted to an inventor of a
product is called a:
A.Copyright
B.Franchise
C.Patent
D.License
13) The percentage of total before-tax household income received by the lowest 20% of
households in 2011 was about ____ percent, while the top 20% received about ___
percent.
A.1; 30
B.3; 50
C.8; 60
D.12; 40
14)
Refer to the graph above. If the government wants to collect tax revenues equal to R2,
then the tax rate should be set at:
A.T2 or T3
B.T2 only
C.T4 only
D.T2 or T4
15) Use the labor demand data on the left and the labor supply data on the right in
answering the following question:
Refer to the given data. The firm is hiring labor:
A.at a wage rate that exceeds labor’s MRP.
B.under purely competitive conditions.
C.in an imperfectly competitive market.
D.as a monopsonist.
16) The size of the labor force depends on the size of the working-age population and
the:
A.Participation rate
B.Employment rate
C.Unemployment rate
D.Inflation rate
17)
Refer to the figure above. A shift from AD2 shifts to AD1 would be consistent with what
economic event in U.S. history?
A.World War II in the 1940s
B.Cost-push inflation in the mid-1970s
C.Demand-pull inflation in the late 1960s
D.Great Recession of 2007-2009
18) Which of the following is not a reason why government may play a key role in the
early stage of economic development in developing nations?
A.The infrastructure provided by government
B.The abundance of entrepreneurs who need to be regulated
C.The need to encourage saving and investment in the economy
D.The provision of law and order so that commerce can flourish
19) A 4 percent reduction in the price of a product has zero effect on the dollar amount
of consumer expenditure on the product. The price elasticity of demand is:
A.Zero
B.Greater than zero
C.Greater than zero but less than 1
D.Equal to 1
20) A budget line is a graph that shows the various combinations of two products that a:
A.Consumer can buy with a given amount of money income
B.Business firm can produce with a given budget
C.Household can produce with a given amount of resources
D.Nation can trade with another nation
21) What happens in a decreasing-cost industry when some firms leave and the
industry’s output contracts?
A.The average cost will increase
B.The average cost will decrease
C.The total cost will decrease
D.The product price will decrease
22) If the price of labor falls relative to the price of capital, and as a result the quantity
of capital employed decreases, then it can be concluded that:
A.The substitution effect is greater than the output effect
B.The output effect is greater than the substitution effect
C.The income effect is greater than the output effect
D.Labor cannot be easily substituted for capital
23) Which of the following is a normative economic statement?
A.The Federal budget deficit rose by 120 billion dollars
B.The unemployment rate is expected to fall next month
C.A trade surplus of 200 billion dollars should be our policy goal
D.The federal funds rate was reduced by half a percentage point
24) The total amount of debt owed by the Federal government is represented by the
total value of the outstanding:
A.U.S. government securities
B.Federal Reserve notes
C.Bank loans and deposits
D.Stocks and bonds
25) What has been the effect of the outmigration of people from farming and the
consolidation of smaller farms into larger ones on net farm income per farm household?
A.It is now far greater than nonfarm income
B.It is now significantly less than nonfarm income
C.It has decreased relative to nonfarm incomes
D.It has increased relative to nonfarm incomes
26) If an asset has a risk-return combination that is above the Security Market Line
(SML), then arbitrage will make that asset’s:
A.Beta increase
B.Beta decrease
C.Average expected return increase
D.Average expected return decrease
27) Comment on the problem with this statement: “Of course, there are diminishing
marginal returns from adding more workers to a fixed quantity of plant and equipment
because additional workers are not as good as initial workers.”
28) Use a supply and demand diagram to show how migration affects wages in a
high-wage country and a low-wage country.
29) Use the following table to answer the next three questions.
30) What two factors affect the legal-institutional environment? Discuss the effect of
changes in the legal-institutional environment on aggregate supply.
31) Use economic analysis to explain why tenants in New York City who are covered
by rent-controlled laws do not want to move.
32) How does profit ration entrepreneurship?
33) Suppose the First National Bank has the following simplified balance sheet. The
reserve ratio is 20%.
Assume that households and businesses deposit $5000 in this bank and that this
currency is added to the bank’s reserves.
In column (1) show the bank’s balance sheet after this occurs. Is there a change in the
money supply?
In column (2) show what would happen if the bank now loans all of its excess reserves
to a depositor. Is there a change in the money supply?
34) Use the graph below to explain the relationship between investment and the
multiplier. Increases in investment are in $20 billion shifts. The slope of the aggregate
expenditure curve is 0.75.
35) Why did the lowering of real interest rates during the Great Recession not boost
investment spending?