The principle that individuals and firms pick the activity level where the incremental
benefit of that activity equals the incremental cost of that activity is known as the
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.
Compared to the long run aggregate supply curve, the short-run aggregate supply curve
is relatively:
A) less elastic.
B) more vertical.
C) steeper.
D) flatter.
Suppose the demand for hamburgers increases. In the short run, firms that produce
hamburgers will experience a rise in prices, which will induce them to
A) decrease production and decrease the number of workers.
B) increase production and increase the number of workers.
C) decrease production and increase the number of workers.
D) increase production and decrease the number of workers.
Fiscal policy refers to:
A) the techniques used by a business firm to reduce its tax liability.
B) the behavior of the nation’s central bank, the Federal Reserve, regarding the nation’s
money supply.
C) the spending and taxing policies used by the government to influence the economy.
D) the government’s ability to regulate a firm’s behavior in the financial markets.
In the circular flow diagram, firms ________ goods and services and households
________ inputs.
A) demand; supply
B) demand; demand
C) supply; demand
D) supply; supply
As the stock of capital grows, there will typically be ________ depreciation.
A) less
B) more
C) the same amount of
D) no
Assume that the required reserve ratio is 25%. If the Fed buys $5 million worth of
government bonds from the public, the maximum change in the money supply is:
A) $125 million.
B) 1.25 million.
C) less than 5 million.
D) more than 5 million.
Actions by business today that have costs today and provide benefits in the future are:
A) investments.
B) savings.
C) revenues.
D) none of the above.
Assuming that the economy is in the long run equilibrium at full employment, an
expansionary monetary policy ________ the price level and ________ output.
A) decreases; increases
B) increases; doesn’t change
C) increases; increases
D) doesn’t change; doesn’t change
If the Fed wished to decrease GDP, it could
A) increase the reserve requirement or conduct an open market sale.
B) increase the reserve requirement or conduct an open market purchase.
C) decrease the reserve requirement or conduct an open market sale.
D) decrease the reserve requirement or conduct an open market purchase.
In the long run, decreases in the growth rate of the money supply will ________
nominal rates of interest and ________ real rates of interest.
A) decrease; increase
B) decrease; decrease
C) increase; increase
D) decrease; not affect
Bob has been working for a mortgage company for the last 14 years. When Bob first
worked in the company, the company was paying him $12 per hour. This year, he makes
$24 per hour. What is the average growth rate of his wage over the past 14 years?
A) 7 percent per year
B) 10 percent per year
C) 5 percent per year
D) 20 percent per year
The relationship between tax rates and tax revenues is shown on the
A) IRS curve.
B) Laffer curve.
C) production possibilities frontier.
D) Discretionary Spending curve.
If a technological advance makes it possible to produce computers at a lower cost
A) the demand for computers increases.
B) the demand for computers decreases.
C) the supply of computers increases.
D) the supply of computers decreases.
Table 3.3 Consider two individuals, Bob and Jerry, who
produce guitars and banjos. Bob and Jerry’s weekly productivity are shown in Table 3.3.
Which of the following is true?
A) Bob has a comparative advantage in producing guitars but not banjos.
B) Bob has a comparative advantage in producing banjos but not guitars.
C) Bob has a comparative advantage in producing both goods.
D) Bob does not have a comparative advantage in producing either good.
When consumers are willing to buy more than producers are willing to sell:
A) there is excess supply of the product in the market.
B) there is excess demand for the product in the market.
C) the market is in equilibrium.
D) the demand curve will shift until the quantity supplied equals the quantity
demanded.