In a market economy, which of the following is most important if a worker is going to
achieve high earnings?
a. hard work
b. provision of goods and/or services that others value highly
c. having a graduate degree in a field like history or sociology
d. membership in a labor union
If the U.S. dollar appreciates, it means that
a. the domestic price level has declined.
b. the domestic purchasing power of the dollar has decreased.
c. fewer U.S. dollars are required to purchase foreign currencies.
d. more U.S. dollars are required to purchase foreign currencies.
Which of the following is part of the economic way of thinking?
a. Opportunity costs will always be incurred when scarce resources are used to produce
a good.
b. When the cost of an option increases, individuals will be less likely to choose it.
c. In addition to their immediate direct effects, economic actions often generate
secondary effects that are observable only after the passage of time.
d. All of the above are part of the economic way of thinking.
If the Fed unexpectedly increases the money supply, real GDP
a. increases because the resulting increase in the interest rate leads to a decrease in
investment.
b. increases because the resulting decrease in the interest rate leads to an increase in
investment.
c. decreases because the resulting increase in the interest rate leads to a decrease in
investment.
d. decreases because the resulting increase in the interest rate leads to an increase in
investment.
e. decreases because the resulting decrease in the interest rate leads to an increase in
investment.
If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the
Euro has
a. appreciated, since its value has increased.
b. appreciated, since the price of U.S. dollars has increased.
c. appreciated, making U.S. goods cheaper in Euros.
d. depreciated, since its value has declined.
e. depreciated, since its value has increased.
Which of the following is important if a country is going to achieve and sustain high
rates of economic growth?
a. investment in physical and human capital
b. improvements in technology
c. institutional and policy arrangements consistent with economic efficiency
d. All of the above.
A family has decided to go away for the summer. The monthly mortgage payment on
the family’s house is $1,000. Water, electricity, natural gas, and maintenance bills, to be
paid by the family, will be $700 per month if the house is occupied and zero otherwise.
If the family wishes to minimize losses from being away, it should rent the house for as
much as the market will bear, as long as the monthly rent is above which of the
following? (Assume wear and tear to be the same whether or not the house is occupied.)
a. $300
b. $700
c. $1,000
d. $1,700
Firms in a high-wage nation such as the U.S. can compete effectively with imports from
low-wage nations if
a. skill levels are identical in the nations
b. the U.S. reduces tariffs on imports
c. low-wage nations impose tariffs on U.S. made goods
d. labor productivity is higher in the low-wage nation
e. labor productivity is higher in the U.S.
If the U.S. economy grew rapidly in the future, would this eliminate the long run deficit
of Social Security?
a. No; future Social Security benefits are tied to nominal wages and therefore increases
in real incomes will also increase the future retirement benefits.
b. Yes; a rapid real growth rate would increase tax revenues without increasing the real
benefit levels of future recipients.
c. Yes, more rapid growth would lead to inflation and this would help eliminate the
system’s long run deficit.
d. Yes, but only if the rapid growth led to a substantial increase in net exports.
Figure 14-8
Refer to Figure 14-8. There is excess money demand at an interest rate of
a. 2 percent.
b. 3 percent.
c. 4 percent.
d. None of the above is correct.
Under rent control, landlords cease to be responsive to tenants’ concerns about the
quality of the housing because
a. with shortages and waiting lists, they have no incentive to maintain and improve their
property.
b. they become resigned to the fact that many of their apartments are going to be vacant
at any given time.
c. with rent control the government guarantees landlords a minimal level of profit.
d. with rent control it becomes the government’s responsibility to maintain rental
housing.
Figure 17-13
Figure 17-13 shows domestic supply and demand for baseballs in the United States. The
world price of a baseball is $3. With free trade, how many baseballs will be purchased
in the United States?
a. 4,000
b. 6,000
c. 8,000
d. 10,000
e. 12,000
The value of a good
a. depends on many factors, including who uses it and under what circumstances.
b. is determined by the cost of producing it.
c. depends on the labor necessary to supply the good.
d. can be measured objectively by a survey of manufacturers of the good.
Which of the following properly describes the interest-rate effect of aggregate demand?
a. A higher price level leads to higher money demand, higher money demand leads to
higher interest rates, a higher interest rate increases the quantity of goods and services
demanded.
b. A higher price level leads to higher money demand, higher money demand leads to
lower interest rates, a higher interest rate reduces the quantity of goods and services
demanded.
c. A lower price level leads to lower money demand, lower money demand leads to
lower interest rates, a lower interest rate reduces the quantity of goods and services
demanded.
d. A lower price level leads to lower money demand, lower money demand leads to
lower interest rates, a lower interest rate increases the quantity of goods and services
demanded.
Which of the following was most responsible for bringing the Great Depression to an
end?
a. the increase in industrial demand due to the military build-up prior to World War II
b. the expansionary monetary policy of the Fed during the 1930s
c. the New Deal policies that expanded government spending, stimulated demand, and
increased output
d. the increase in import tariffs that saved jobs and expanded total employment
Which of the following shifts both short-run and long-run aggregate supply to the left?
a. a decrease in the actual rate of inflation
b. a decrease in the expected rate of inflation
c. a decrease in the capital stock
d. a drought in the Midwest agricultural areas.
The short run is a time period such that
a. the existing firms in the market do not have sufficient time to change the amounts of
any of the inputs that they employ.
b. the existing firms in the market do not have sufficient time to either increase or
decrease their current rate of output.
c. the existing firms in the market do not have sufficient time to increase the size of
their existing plant or build a new factory.
d. new firms may build plants and enter the industry.
If the expected rate of inflation is zero, the real interest rate must
a. also equal zero.
b. be greater than the money (nominal) interest rate.
c. be equal to the money (nominal) interest rate.
d. be less than the money (nominal) interest rate.
An analysis of market failure and government failure indicates
a. government decision making is always preferable to using markets.
b. market decision making is always preferable to public-sector action.
c. government action is necessary whenever market failure occurs.
d. both the market and the government may fail to meet conditions of economic
efficiency; in each individual case, the choice of market or public-sector action requires
careful evaluation.
When the Patient Protection and Affordable Care Act is fully implemented, it will
a. substantially reduce the share of health care expenses paid by a third party.
b. require individuals to pay an annual tax-penalty of up to $695 if they do not have an
approved health insurance plan.
c. require firms with fewer than 50 employees to provide health insurance for their
workers.
d. make it legal for individuals to purchase health insurance from an insurer in another
state.
Suppose an excise tax is imposed on two products X and Y, both of which have
identical supply elasticities. The demand for good X is highly elastic, while the demand
for good Y is highly inelastic. The deadweight loss (or excess burden) will be
a. equal in both cases.
b. larger for good X than good Y.
c. larger for good Y than good X.
d. zero in both cases.
Which of the following about inflation is true?
a. High rates of inflation are usually associated with wide year-to-year changes in
inflation.
b. High rates of inflation are usually associated only with very large countries such as
the United States.
c. High rates of inflation are usually associated only with smaller countries such as
Costa Rica.
d. High rates of inflation will generally improve the economic efficiency of an
economy.
Economists generally use GDP to measure a nation’s total output because it is
a. equal to the sales value of all transactions conducted during a period and thus can be
easily calculated.
b. the best available measure of the true costs of producing consumer goods.
c. unaffected by changes in the prices of products over time.
d. a relatively reliable measure of the value of all final product goods and services
produced during a specific time period.
During 2003-2007, the price of crude oil increased substantially on the world market.
Other things constant, how will an unanticipated increase in oil prices influence the
general level of prices and real output of oil-importing nations such as the United States
and Japan?
a. Both real output and the general level of prices will decrease.
b. Both real output and the general level of prices will increase.
c. Real output will increase, and the general level of prices will decrease.
d. Real output will decrease, and the general level of prices will increase.
Suppose the velocity of money is 8, the amount of money in circulation is $200 billion,
the index of prices is 150, and real GDP is $10 billion. According to the strict quantity
theory of money, if the money supply doubled to $400 billion,
a. the velocity of money would fall to 4.
b. the index of prices would increase to 300.
c. real GDP would increase to $20 billion.
d. the velocity of money would rise to 16.
As long as a market is contestable, then even if it has only a few sellers, the
a. threat of new entrants will prevent the prices from rising above the competitive level.
b. producers will be able to charge prices that are high enough to produce long-run
economic profits.
c. producers will not face new competition because the barriers to entry are high.
d. market will never be expected to come close to the competitive result.
Suppose that in Australia, the government allows private ownership of chickens but not
of cows. If the people of Australia permanently increase their desire to purchase more
chicken and beef, in the long run, we would expect
a. the population of chickens to rise and the population of cows to fall.
b. the population of cows to rise and the population of chickens to fall.
c. the populations of both chickens and cows to increase.
d. both chickens and cows to become extinct in Australia unless the government places
the animals on the endangered species list.
Which of the following is most likely to throw an economy into a recession?
a. a reduction in the real interest rate
b. an unanticipated increase in short-run aggregate supply
c. an unanticipated increase in aggregate demand
d. an unanticipated reduction in aggregate demand
Given the following schedule, what price and output level would a profit-maximizing
price searcher choose?
a. price, $45; output, 2 units
b. price, $35; output, 3 units
c. price, $30; output, 4 units
d. price, $25; output, 5 units
Which of the following would be most likely to improve the standard of living of a
less-developed country?
a. development of strong labor unions.
b. more foreign investment, attracted by the expectation of economic and political
stability.
c. adoption of trade barriers (higher tariffs and quotas).
d. widespread use of price controls to allocate goods and resources.