The difference between the price of electronic equipment in a retail store and on the
Internet reflects in part
A. the extent to which middlemen drive the price up for extra profit.
B. the lack of competition between brick and mortar stores and online stores.
C. the value of personal attention and support at the retail store.
D. excessive markup.
In Macroland, 500,000 of the 1 million people in the country are employed. Average
labor productivity in Macroland is $20,000 per worker. Real GDP per person in
Macroland totals:
A. $1,000.
B. $10,000.
C. $15,000.
D. $40,000.
If the frictional rate of unemployment equals 2 percent, the structural rate of
unemployment equals 3 percent, and the cyclical rate of unemployment equals 1
percent, then the natural rate of unemployment equals:
A. 6%.
B. 1%.
C. 3%.
D. 5%.
Slower real wage growth since the 1970s accompanied by rapid job growth can be
explained by:
A. skill-biased technological change.
B. globalization.
C. a productivity slowdown accompanied by an increase in the labor supply.
D. a productivity slowdown accompanied by a decrease in the labor supply.
For a given inflation rate, if a stock market crash makes consumers less willing to
spend, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; upward
D. aggregate supply curve; downward
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
Curly just graduated from State U and has three job offers: teaching at a prestigious
private high school nine months a year with summers off, working forty hours a week at
a bank in a small city, and working more than sixty hours a week for a high-powered
investment firm on Wall Street (in New York City).
The annual salary for each of these offers is probably:
A. lowest for the Wall Street job, middling for the bank job, and highest at the high
school.
B. lowest for the bank job, middling on Wall Street, and highest at the high school.
C. lowest at the high school, middling on Wall Street, and highest for the bank job.
D. lowest at the high school, middling for the bank job, and highest on Wall Street.
Fiscal policy can shift
A. aggregatedemand only.
B. both aggregate demand and potential output.
C. both aggregate demand and short-run aggregate supply, but not long-run aggregate
supply.
D. only short-run functions.
The impact of government policies on the building of new roads and highways would
be studied in the field of:
A. microeconomics.
B. macroeconomics.
C. government economics.
D. marginal economics.
The demonstration effect suggests that people will save less when they
A. base their spending decisions (and consequently their saving decisions) on spending
decisions of others who spend more than they do.
B. base their saving decisions on their projections of income and spending needs over
their lifetime.
C. recognize that the real interest rate has increased.
D. control their spending in order to save more when the real interest rate increases.
The reason that the prisoner’s dilemma presents a dilemma is that:
A. neither player has a comparative advantage, so neither can infer what the other
player will choose.
B. the market cannot be in equilibrium because the players do not have dominant
strategies.
C. each player has an incentive to play his or her dominant strategy, but when both
choose the dominant strategy each player has a lower payoff than he or she would have
had if they each had chosen the dominated strategy.
D. each player has an incentive to play his or her dominated strategy, but when both
choose the dominated strategy each player has a lower payoff than he or she would
have had if they each had chosen the dominant strategy.
Holding other factors constant, if the income tax is replaced with a consumption tax so
that saving is not taxed, 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
Refer to the figure above. The loss of surplus resulting from monopoly is represented
by the area _______.
A. LEI
B. KLI
C. KEI
D. GCEL
An inflation hawk is someone who:
A. puts equal weight on maintaining output at potential and keeping prices stable.
B. is committed to maintaining low inflation even at the cost of reduced output and
employment.
C. is committed to maintaining output at potential even at the cost of high inflation.
D. encourages policy accommodation.
Hotelling’s model has been used to describe differentiation in the political “market”.
Suppose that 100 voters are evenly arrayed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
Refer to the information given above. If Candidate Y is running against Candidate Z:
A. Candidate Y will have an incentive to move to the left, and Candidate Z will have an
incentive to move to the right.
B. Both candidates will have an incentive to move to the left.
C. Both candidates will have an incentive to move toward each other’s position.
D. Neither candidate has any incentive to move.
On January 1, 2004, Edward invested $10,000 at 5% interest for one year. The CPI on
January 1, 2004 stood at 1.60. On January 1, 2005, the CPI was 1.76. The real rate of
interest earned by Edward was ______ percent.
A. -5
B. 0
C. 5
D. 10
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing
business. The table below represents the reservation prices for the eight students
enrolled in the class for which this book is required.
Assume that the marginal and average total cost for each book is $12.
If the bookstore can charge two different prices for this book, the economic profit for
the bookstore is ______.
A. greater than $120
B. less than $120
C. exactly $120
D. exactly $48
In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars
government purchases must be:
A. increased by $10 billion.
B. decreased by $10 billion.
C. increased by more than $10 billion.
D. decreased by less than $10 billion.
An editorial in the paper argues that students should only be allowed to attend school so
long as the marginal cost of educating that student is less than the marginal benefit of
that student’s education. The writer’s reasoning is an application of:
A. positive economics.
B. negative economics.
C. normative economics.
D. economic naturalism.
A measure of overall prices at a particular point in time is called:
A. a relative price.
B. the price level.
C. a real price.
D. inflation.
Macroland produces dishes and glassware. Before trade, a set of dishes sells for $100
and a set of glasses sells for $50. When Macroland opens to trade, foreign demand for
domestically produced china is strong, raising the price of a set of dishes to $125. But
foreign competition reduces the demand for domestically produced glasses, so that they
now sell for $25 a set. Assuming workers cannot move between industries, the wages of
workers producing dishes will ______ and the wages of workers producing glasses will
____.
A. increase; increase
B. increase; not change
C. increase; decrease
D. decrease; increase
Refer to the figure above. Correcting this externality would impose even higher costs
on the purchaser of the product if:
A. demand was less elastic than as shown.
B. demand was more elastic than as shown.
C. the tax was paid by the purchaser instead of the seller.
D. the tax was paid by the seller instead of the purchaser.
C + Ip + G + NX equals:
A. planned aggregate expenditure.
B. potential GDP.
C. the output gap.
D. the income-expenditure multiplier.
Deflation is a situation in which the:
A. quantity of goods and services produced is increasing over time.
B. quantity of goods and services produced is decreasing over time.
C. prices of most goods and services are falling over time.
D. prices of most goods and services are rising over time.
Consider an industry with two firms producing similar products.
Mega Corp’s total costs are TC = $5,000 + 100 × Quantity.
Big Inc’s total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above. Average total costs for these firms:
A. declines as quantity increases.
B. increases as quantity increases.
C. is constant for all quantities.
D. declines as quantity increases for Mega Corp and increases as quantity increases for
Big Inc.
The three firms shown below can choose among three workplace safety alternatives:
continue with the status quo, provide safety training or purchase new safety equipment.
The injury rates for the firms under the three alternatives as well as the costs of the
alternatives are shown in the table. The cost of treating an injury is $200.
If all three firms provided safety training the marginal cost would be ___ and the
marginal benefit would be ____
A. $350; $200.
B. $350; $1200.
C. $200; $200.
D. $100; $1200.
Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each
Monday. His reservation wage for this job is $7/hour.
Now suppose the director offers Matt $50/hour, but also announces that the earnings
from the job will be divided equally among Matt and the 99 other students who live in
Matt’s dorm. Will Matt still accept this job?
A. Yes, accepting the job means a positive surplus for Matt.
B. No, accepting the job means a negative surplus for Matt.
C. Yes, although accepting the job means a negative surplus for Matt, still it’s better
than having no job.
D. No, although accepting the job means a positive surplus for Matt, still it’s not the
best option for him.
If real GDP is less than potential GDP, then:
A. the actual unemployment rate is greater than the natural unemployment rate.
B. the actual unemployment rate equals zero.
C. the output gap is positive.
D. the actual unemployment rate is less than the natural unemployment rate.
If government chooses to use a head tax to finance a particular public good, then the
A. percent of income paid in taxes is constant.
B. amount of tax paid by each taxpayer declines as income rises.
C. percent of income paid in taxes declines as income rises.
D. percent of income paid in taxes increases as income rises.
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.
Refer to the figure above. If the price of a latte increases from $2.00 to $2.50:
A. total revenue would increase.
B. total revenue would stay the same.
C. total revenue would decrease.
D. the change in total revenue, if any, would depend on the supply curve.
The chart below describes the short run productivity of workers at Paper Pushers Inc.,
an office support firm that has no variable costs other than labor.
The VMP of the sixth worker is _____ than the VMP of the fourth worker because
A. less; the firm experiences economies of scale.
B. less; the sixth worker is less skilled than the fourth worker.
C. less; the firm experiences diminishing returns to inputs.
D. more; the workers can specialize and exploit comparative advantages.
A labor contract provides for a first-year wage of $15 per hour, and specifies that the
real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in
the first year and 1.09 in the second year. What dollar wage must be paid in the second
year?
A. $15.30
B. $16.09
C. $16.65
D. $16.68