The extra costs incurred to avoid holding cash when there is inflation are called the:
A. average costs of inflation.
B. consumer price index costs.
C. external costs.
D. shoe leather costs.
Suppose farmers in a given market can either grow soy beans or corn on their land. In
addition, suppose an increase in the demand for corn causes the price of corn to
increase. In the long run, this increase in the demand for corn is likely to ______ the
price of soy beans.
A. lead to an increase in
B. lead to a decrease in
C. have no effect on
D. have an ambiguous effect on
In professional baseball, some players earn over $20 million per year, while the average
salary is about $4 million per year. The most likely explanation for this is that:
A. the market for baseball players is a winner-take-all market.
B. the best players are 5 times better than the average player.
C. owners are overspending on players’ salaries.
D. racial discrimination.
If there is a floor on wages created by a minimum wage, union contracts, or other
factors, then a decline in the marginal productivity of low-skilled workers will ______
the demand for low-skilled workers and ______ the number of unemployed workers.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
During Thanksgiving you participated in a pumpkin-pie eating contest. You really
enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one
you became ill and lost the contest. After the third pie, your total utility
A. increased, but by less than for the first three pies.
B. decreased.
C. stayed the same.
D. was zero.
Suppose that the share of population employed in Country C is 50 percent, and that
Countries C and D have the same real GDP per capita. Based on the information in the
table, what share of Country D’s population must be employed?
A. 12.5 percent
B. 25.0 percent
C. 75.0 percent
D. 100.0 percent
Refer to the figure below.
Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals:
A. 1,200.
B. 400.
C. 600.
D. 800.
If consumption spending increases by $10 million with no changes in net taxes, then:
A. public saving increases.
B. public saving decreases.
C. private saving increases.
D. private saving decreases.
Since 1925, the longest recession in the United States lasted:
A. 120 months.
B. 21 months.
C. 43 months.
D. 60 months.
If domestic saving is less than domestic investment, then a country will have a ______
and positive net capital ______.
A. trade deficit; outflows
B. trade deficit; inflows
C. trade balance; inflows
D. trade surplus; outflows
A sudden change in the normal behavior of inflation, unrelated to the nation’s output
gap, is called:
A. short-run equilibrium.
B. long-run equilibrium.
C. an inflation shock.
D. inflation inertia.
You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2
dividend per share in one year. What should you pay (rounded to the nearest dollar) for
the stock today if you require an 8% return?
A. $60
B. $62
C. $67
D. $70
If a 10% decrease in the price of a good leads to a 20% increase in the quantity
demanded, then what is the price elasticity of demand?
A. ½.
B. 2.
C. 10.
D. 20.
Once a firm has determined the quantity of output it wishes to sell, the maximum price
it can charge for each unit is determined by:
A. the average cost of making the product.
B. the demand curve facing the firm.
C. the marginal cost of making the product.
D. the firm’s marginal revenue curve.
If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent,
then the price elasticity of demand for cheese is equal to:
A. 30.
B. 0.30.
C. 0.333.
D. 3.
Suppose the figure below shows Annie’s demand curve for physical therapy. The
marginal cost of each visit to the physical therapist is $150.
Relative to when Annie has to pay the entire marginal cost of each visit, the loss of total
economic surplus due to first-dollar medical insurance would be ______ per year.
A. $150
B. $1,125
C. $2,250
D. $4,500
Induced expenditure is the portion of planned aggregate expenditure that:
A. equals aggregate output.
B. equals planned spending.
C. equals autonomous expenditure.
D. depends on output.
Assume that average labor productivity is the same in each country. Based on the
information in the table, which country has the highest real GDP per capita?
A. Country A
B. Country B
C. Country C
D. Country D
If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5
units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n):
A. perfectly competitor.
B. monopolistic competitor.
C. oligopolist.
D. monopolist.
If an activity generates a positive externality, the government can increase total
economic surplus by ______ the activity, and if an activity generates a negative
externality, the government can increase total economic surplus by ______ the activity.
A. taxing; banning
B. subsidizing; banning
C. subsidizing; taxing
D. publicizing; taxing
Financial intermediaries, such as commercial banks, help borrowers, particularly small
borrowers, by:
A. providing information to evaluate financial investments.
B. offering tax-preferred borrowing opportunities.
C. eliminating the risk of borrowing.
D. providing credit that might otherwise not be available.
Structural unemployment is:
A. the additional unemployment not captured in official statistics resulting from
discouraged workers and involuntary part-time workers.
B. the extra unemployment that occurs during periods of recession.
C. short-term unemployment that is associated with the process of matching workers
with jobs.
D. long-term and chronic unemployment that exists even when the economy is
producing at a normal rate.
Physical capital is:
A. the factories and machinery used to produce other goods and services.
B. the talents, training, and education of workers.
C. the financial resources available for investment.
D. the physical labor of workers.
Refer to the figure below. At the equilibrium price, total consumer surplus in this
market is:
A. $4,000 per day
B. $8,000 per day
C. $12,000 per day
D. $24,000 per day
If the quantity supplied of money is less than the quantity demanded of money, people
will ______ bonds which will cause bond prices to ______ and the nominal interest rate
to ______ until the quantity demanded and quantity supplied of money are equal.
A. sell; fall; rise
B. sell; fall; fall
C. sell; rise; fall
D. buy; fall; rise
If Tim insures his car against theft, it will:
A. decrease the likelihood that his car will be stolen.
B. have no effect on the likelihood that his car will be stolen.
C. increase his incentive to prevent his car from being stolen.
D. decrease his incentive to prevent his car from being stolen.
Holding other factors constant, if employers automatically enroll employees in
retirement savings programs in order to overcome psychological barriers to saving, then
the real interest rate will ______ and the equilibrium quantity of saving and investment
will ________.
A. increase; increase
B. increase; not change
C. increase; decrease
D. decrease; increase
Countries with small amounts of capital per worker tend to have ______ levels of real
GDP per person and ______ levels of average labor productivity.
A. high; high
B. high; low
C. low; low
D. low; average
If demand is ______ with respect to price, a price increase will ______ total revenue.
A. elastic; increase
B. inelastic; increase
C. unit elastic; decrease
D. inelastic; decrease
In reference to short-term economic fluctuations, the “trough” refers to:
A. a period in which the economy is growing at a rate significantly below normal.
B. the low point of economic activity prior to a downturn.
C. the low point of economic activity prior to a recovery.
D. a particularly strong and protracted recession.
A firm whose production process exhibits constant returns to scale would find that if it
doubled all of its inputs, its output would ______.
A. double
B. more than double
C. less than double
D. remain constant
If either the production or consumption of a good generates an external cost, then the:
A. social demand curve will lie to the right of the private demand curve.
B. social marginal cost curve will lie to the right of the private marginal cost curve.
C. social marginal cost curve will lie to the left of the private marginal cost curve.
D. social demand for the good will equal zero.