If you were a government official that wanted to raise the equilibrium price of milk,
which of the following actions would you take?
a. Take milk from government storage and sell it.
b. Encourage farmers to produce more milk.
c. Subsidize purchases of dairy equipment.
d. Encourage farmers to produce less milk.
Government purchases include spending on goods and services by
a. the federal government only.
b. state and federal governments only.
c. local, state and federal governments.
d. local, state and federal governments, as well household spending by employees of
those governments.
Firms should hire additional units of a resource as long as the
a. marginal product of the resource exceeds the price of the resource multiplied by the
quantity of output produced.
b. marginal product of the resource is less than the price of the resource.
c. price of the output produced is positive.
d. marginal revenue product of the resource exceeds the cost of employing an additional
unit of the resource.
Use the figure to answer the following question(s).
Figure 8-2
Using Figure 8-2, calculate the firm’s total cost of producing 20 units of output.
a. $8
b. $120
c. $180
d. $240
Modern bankers
a. expand the money supply by printing currency when they need it.
b. decrease the supply of money when they extend additional loans.
c. hold only a fraction of their assets in the form of reserves against their deposits.
d. can increase their profits by increasing their holdings of excess reserves.
If ten years ago the price of a movie ticket was $5 and the average hourly wage was
$10, and today the price of a movie ticket is $8 and the average hourly wage is $20,
then
a. movies are now relatively cheaper in terms of work hours.
b. movies are now relatively more expensive in terms of work hours.
c. the relative price of movies has remained constant.
d. workers now need to work longer hours to earn one movie ticket.
If a firm refuses to hire any minorities due to a personal prejudice, its profits
a. will increase markedly.
b. will decrease.
c. will not be affected.
d. will increase slightly.
Actual GDP will be below potential GDP
a. when the economy is at full employment.
b. during an economic boom.
c. when resources are fully utilized.
d. during a recession.
When the actual reserves held by a bank exceed the legal requirement, the bank
a. will have to borrow from the Fed.
b. has excess reserves, which can be used to extend additional loans.
c. cannot extend additional loans.
d. will have to reduce its outstanding loans.
Internet sites such as eBay make it easier for sellers and buyers to find one another and,
by doing so,
a. reduce transactions costs.
b. increase transaction costs.
c. reduce the number of exchanges that occur.
d. lower the value created by the goods and services available.
Price discrimination refers to a system of pricing
a. based on buyer income rather than buyer demand conditions, so the poor pay more
than the rich.
b. that is always more profitable than simple “single-price” pricing.
c. that forces customers who require more service to pay higher prices.
d. where consumer groups with a more elastic demand for the product are charged
lower prices.
Economic efficiency indicates that
a. if something is worth doing, you should do it as well as humanly possible.
b. all pollution should be eliminated.
c. automobiles should be made as safe as possible
d. it nearly always makes sense to stop an activity well before perfection is achieved.
A competitive price-taker market in long-run equilibrium is described as efficient
because firms
a. produce at the low point on their average cost curve.
b. produce where marginal cost yields a profit.
c. earn no more than the cost of capital.
d. are not profitable.
Between 1930 and 1980, government expenditures as a percent of GDP in the United
States
a. more than tripled.
b. remained constant at 10 percent.
c. declined from 30 percent to 20 percent.
d. increased from 30 percent to 40 percent.
The foreign holdings of U.S. dollars
a. are hard to explain since the dollar is not legal tender outside the United States.
b. have decreased substantially during the last decade.
c. indicate that foreigners have confidence in the monetary policy and economy of the
United States.
d. are largely held in countries with a lengthy historical record of monetary and price
stability.
A recent study suggested that moderate wine drinking may actually benefit one’s health.
If this information leads to an increased demand for wine, we would expect
a. both the price and quantity of wine sold to increase.
b. both the price and quantity of wine sold to decrease.
c. the price to decrease and the quantity of wine sold to increase.
d. the price to increase and the quantity of wine sold to decrease.
When employment discrimination results from the personal prejudices of employers,
economic theory suggests that
a. competitive forces will tend to reduce discrimination.
b. the wages of employees who are discriminated against will rise.
c. an employer who discriminates will have the same costs as those who do not
discriminate.
d. discrimination by an employer will reduce production costs since the employer can
pay lower wages.
The multiplier principle indicates that if business decision makers become more
optimistic about the future and, as a result, increase their investment expenditures by
$82 billion, real GDP
a. will increase by less than $82 billion if the economy was initially operating well
below capacity.
b. will increase by more than $82 billion if the economy was initially operating well
below capacity.
c. will increase by more than $82 billion if the economy was initially operating at
full-employment capacity.
d. will decline if the marginal propensity to consume is less than 1.
An unexpected decrease in the demand for accountants will lead to
a. an increase in the earnings of accountants.
b. an increase in the incentive of students to prepare for a career in accounting.
c. a reduction in the future supply of accountants.
d. an increase in the employment opportunities of accountants.
When a monopolist is producing at the profit-maximizing output level, the value to
consumers of one additional unit of output will
a. exceed the monopolist’s marginal cost.
b. equal the monopolist’s marginal cost.
c. be less than the monopolist’s marginal cost.
d. exceed the price of the additional unit.
If consumption of education creates an external benefit, then in order to increase
efficiency relative to the outcome determined by private decisions,
a. more education must be produced.
b. the same amount of education must be produced, and the price should be lower.
c. less education must be produced, and the price should be higher.
d. less education must be produced, and the price should be lower.
e. less education must be produced at the same price.
GDP will tend to overstate the productive capacity of a country when
a. economic bads like pollution are produced and then must be cleaned up.
b. there is a sizable underground economy.
c. nonmarket production represents a large portion of the economy.
d. working conditions improve, allowing jobs to be completed safer and faster.
Your brother graduated from college 10 years ago and started to work at a salary of
$20,000. You expect to graduate this year and start to work for $35,000. If the consumer
price index was 80 ten years ago and is 120 this year, who will have received the higher
real starting salary?
a. You will have.
b. Your brother did.
c. You and your brother both will have started at the same real salary level.
d. Not enough information is supplied to answer the question.
Use the figure below to answer the following question(s).
Figure 10-2
At which point in Figure 10-2 is the economy experiencing an economic boom?
a. G
b. I
c. F
d. H
In the aggregate demand/aggregate supply model, when the output of an economy is
less than its long-run potential, the economy will experience
a. declining real wages and interest rates that will stimulate employment and real
output.
b. rising interest rates that will stimulate aggregate demand and restore full
employment.
c. a budget surplus that will stimulate demand and, thereby, help restore full
employment.
d. rising real wages and real interest rates that will restore equilibrium at a higher price
level.
Which of the following best illustrates the fallacy of composition?
a. If Jamal had more money, he could afford to buy more goods.
b. If Aisha stood up at a basketball game, she could get a better view of the game; if
everyone stood up at a basketball game, everyone could have a better view of the game.
c. If the price of bread rose, consumers would buy less; if consumers bought less bread,
the price of bread would rise.
d. High housing prices cause people to buy less housing, but an increase in income
might cause them to buy more housing.
Under a flexible exchange rate system, the rate that equates demand and supply in the
exchange rate market also equates the
a. value of the nation’s merchandise exports with the value of its merchandise imports.
b. value of the nation’s purchases of goods, services, and assets from foreigners with the
value of the nation’s sales of these items to foreigners.
c. debit and credit items on current account transactions.
d. debit and credit items on capital account transactions.
The level of money income below which a family is considered poor is called the
a. bottom 20 percent of the income distribution.
b. poverty threshold income level.
c. guaranteed income level.
d. subsistence income level.
When a single firm has control over the market supply of a resource that is essential to
the production of a good,
a. economies of scale are usually important.
b. monopoly is frequently the result.
c. diseconomies of scale are the usual cause.
d. competition for the resource makes monopoly almost impossible
If on-the-job working conditions have improved over time,
a. real GDP will understate the growth rate of real income.
b. real GDP will overstate the growth rate of real income.
c. the GDP deflator will overestimate inflation.
d. real GDP will overstate the growth rate of real income, and the GDP deflator will
understate inflation.
Which of the following would be most likely to enhance the growth rate of an
economy?
a. imposition of a quota restricting the quantity of steel imports
b. gradual elimination of all tariffs over the next 10 years
c. legislation limiting the number of hours employees can work during a week to 32
d. legislation requiring employers to provide one year of severance pay to any
employee who is dismissed from employment
Which of the following contributed to the financial crisis of 2008?
a. the housing price boom (2002-2005), followed by a housing price bust (2007-2008)
b. a sharp reduction in stock prices in 2008
c. a sharp increase in the price of crude oil from January 2007 to mid-year 2008
d. all of the above
Compared to a situation where transaction costs are zero, the existence of transaction
costs
a. will reduce the volume of trade.
b. will reduce the gains from trade.
c. may lead some buyers and sellers to employ middlemen.
d. All of the above are correct.