An increase in government spending lowers interest rates and increases the rate of
investment in new capital.
By the 2000s, investment banks had become significant participants in the secondary
market for mortgages.
A decrease in the marginal income tax rate is a fiscal policy which will increase
aggregate demand.
If the income elasticity for canned food is 0.8, then canned food is an inferior good.
To obtain real average hourly earnings, nominal average hourly earnings are multiplied
by the CPI.
Changes in the health of the average person are an important indicator of changes in the
standard of living.
Increased foreign direct investment in India has contributed to its recent economic
growth.
Positive analysis is concerned with “what ought to be,” while normative analysis is
concerned with “what is.”
If the income elasticity for canned food is 0.8, then canned food is an inferior good.
For most goods and services, the burden of a tax is on the sellers.
The graph below represents the market for alfalfa. The market price is $7.00 per bushel.
Identify the areas representing consumer surplus, producer surplus, and economic
surplus.
Jayanthi moves her yoga studio from her home to a space she rents in Oakland,
California. Holding everything else constant, as a result of this move,
A) her explicit cost falls and her implicit cost rises.
B) her implicit cost falls and her explicit cost rises.
C) her economic cost rises.
D) her opportunity cost rises.
Consider the following characteristics:
a. low transaction costs
b. small levels of pollution
c. high levels of pollution
d. clear assignment of property rights. Which of the above are assumptions behind the
Coase Theorem?
A) a, b, and d
B) a, c, and d
C) a and d
D) a only
Which of the following policies would reduce frictional unemployment?
A) a decrease in the minimum wage
B) a job retraining program
C) implementing an unemployment insurance policy
D) building an online job database that helps workers find jobs
In January, buyers of gold expect that the price of gold will fall in February. What
happens in the gold market in January, holding everything else constant?
A) The demand curve shifts to the right.
B) The quantity demanded increases.
C) The quantity demanded decreases
D) The demand curve shifts to the left.
Lionel’s Lawn Care is a company that maintains residential yards. Lionel’s cost for his
standard package of mowing, edging, and trimming is $15, and he charges $25 for this
service. For a total price of $40, Lionel will also trim shrubs, a service that adds an
additional $10 to the total cost of the standard package. Should Lionel continue to offer
the shrub-trimming service?
A) Yes, his marginal benefit is greater than his marginal cost.
B) Yes, but only if he raises the price of the standard package.
C) No, his marginal benefit is less than his marginal cost.
D) More information is needed for Lionel to make this decision.
Figure 2-11
Mercedes Benz produces a full line of luxury automobiles, including coupes, sedans,
and SUVs, at a variety of manufacturing plants across the globe. Assume Mercedes
Benz produces both coupes and SUVs at its Tuscaloosa, Alabama factory. Figure 2-11
shows changes to its production possibilities frontier in response to new developments
and Different strategic production decisions at this factory.
In response to changing consumer demands, Mercedes-Benz cuts back on the
production of SUVs and increases its production of coupes. This strategy is best
represented by
A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from H to J in Graph B.
A recession begins with a(n) ________ in spending by firms on capital goods and a(n)
________ in spending on durable goods by households.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Economists who support market-based reforms for health care believe that increased
competition among providers of health care would
A) decrease costs but decrease economic efficiency.
B) decrease costs and increase economic efficiency.
C) increase costs but increase economic efficiency.
D) increase costs and decrease economic efficiency.
The formula for aggregate expenditure is
A) AE = C + I + G.
B) AE = C + I + G – NX.
C) AE = C + I + G + NX.
D) AE = C + I + depreciation – NX.
Autarky is a situation in which a country
A) only exports products.
B) only imports products.
C) does not trade with other countries.
D) has no absolute advantage in any production.
Which of the following pricing strategies allows a firm to earn economic profit?
A) price discrimination
B) charging a price equal to marginal cost
C) charging a price equal to the average total cost of production
D) charging a price equal to the average variable cost of production
Suppose there are two cities that have rent controlled apartments. In one city (Albany)
all apartments are subject to rent control; in the other city (Halftrack) one-half of the
apartments are rent controlled. Which of the following is most likely to be true?
A) It will be XOAicult to find a rent-controlled apartment in Albany or Halftrack; rents
for the Halftrack apartments not subject to controls will be higher than they would be
without rent control.
B) It will be easier to find an affordable apartment in Albany since rents will be low
across the board.
C) It will be easier to find an affordable apartment in Halftrack, either a rent-controlled
apartment or another apartment, at a reasonable price.
D) It will be impossible to rent an apartment in either city at any price.
Which of the following policies would not help promote economic growth?
A) a law requiring that the funds in an individual retirement account be taxed
B) a law restricting elected officials from accepting expensive gifts and trips from
private individuals
C) a law that funds prenatal care for all expectant mothers
D) a law that subsidizes research in nanotechnology
Figure 13-1
Ceteris paribus, a decrease in government spending would be represented by a
movement from
A) AD1 to AD2.
B) AD2 to AD1.
C) point A to point B.
D) point B to point A.
How can increases in a country’s total income improve health?
Book publishers use price discrimination routinely, but the form of price discrimination
they use is different from the form used by airlines and other industries. Explain.
If you own a bond with a seven percent coupon rate and new bonds are paying five
percent, what will happen to your bond’s market price?
If the marginal product of labor is 45 units of output and the marginal product of capital
is 56 units of output while the wage rate is $20 per worker and the cost of capital is $28
per machine, are these two inputs being used in the least cost combination and what
should be done if they are not?
Define a sole proprietorship.
Describe the differences (in sign and relative magnitude) between the government
purchases multiplier and the tax multiplier.
Many book publishers use cost-plus pricing to establish prices for some of their books.
Would you expect a publishing company to use a strict cost-plus pricing system for all
its books? How might you determine if a publishing company actually does use
cost-plus pricing for all its books?
Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output
per day and her costs are as follows:
Suppose the current equilibrium price in the teapot market is $10. To maximize profit,
how many teapots will Veronica produce, what price will she charge, and how much
profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph
should include Veronica’s demand, ATC, AVC, MC, and MR curves, the price she is
charging, the quantity she is producing, and the area representing her profit (or loss).
Suppose that last year the unemployment rate was 5 percent and the inflation rate was
2.5 percent. If the natural rate of unemployment is 5 percent, how do you expect
inflation to change?
When is demand perfectly elastic? When is demand perfectly inelastic? What are the
values of the price elasticity of demand when demand is perfectly elastic or perfectly
inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?