What is Taylor’s wealth?
Taylor has the following assets and liabilities:
A. $105,000
B. $107,000
C. $111,000
D. $419,000
Logrolling refers to:
A. legislation that affects the timber industry.
B. the practice whereby legislators support each other’s pork barrel spending.
C. the practice of introducing many similar bills in hopes that one of the versions will
pass.
D. the practice of attaching a controversial bill to a large appropriations bill.
The figure below shows Becky’s daily production possibilities curve for dresses and
skirts.
Of the labeled points, only ______ are attainable.
A. T and U
B. X, Y, and Z
C. W, X, Y, Z, and V
D. W, X, Y, Z, V, and T
To the patient, the marginal cost of medical care is zero under:
A. government-sponsored health care coverage.
B. first-dollar health insurance coverage.
C. an HMO.
D. no circumstances.
You have two options for how to spend the afternoon. You can either go see a movie
with your roommate or work as a tutor for the Math Department. From experience, you
know that going to see a movie gives you $20 worth of enjoyment, and with your
student discount, a movie ticket only costs $12. If you spend the afternoon working as a
math tutor, you will get paid $45. On a typical day, you wouldn’t be willing to spend the
afternoon working as a math tutor for less than $35. What is your opportunity cost of
seeing a movie this afternoon?
A. $8
B. $12
C. $22
D. $57
The M1 measure of money consists of the sum of:
A. currency, checking deposits, and travelers’ checks.
B. currency and travelers’ checks.
C. currency, checking deposits, and savings deposits.
D. checking deposits and travelers’ checks.
A seller’s reservation price is generally equal to:
A. the buyer’s reservation price.
B. the seller’s opportunity cost.
C. the seller’s marginal benefit.
D. the market price.
Even though conspicuous consumption can serve as a credible signal of ability, it can
lead to socially inefficient outcomes because:
A. conspicuous consumption has been demonstrated to be poorly correlated with ability.
B. conspicuous consumption is not highly correlated with earnings.
C. conspicuous consumption can lead to positional arms races.
D. earnings and ability are very poorly correlated.
Conspicuous consumption is an effective signal of ability if high-ability people:
A. tend to have low-paying but prestigious jobs.
B. are famous.
C. tend to receive the highest salaries.
D. save most of what they earn.
Suppose Firm A and Firm B are considering whether to invest in a new production
technology. For each firm, the payoff to investing (given in thousands of dollars per
day) depends upon whether the other firm invests, as shown in the payoff matrix below.
What is the Nash equilibrium of this game?
A. Firm A invests, and Firm B doesn’t invest.
B. Firm A doesn’t invest, and Firm B invests.
C. Firm A doesn’t invest, and Firm B doesn’t invest.
D. Firm A invests, and Firm B invests.
If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound
annual rate of interest, then after 50 years your deposit would be worth approximately:
A. $2,800
B. $18,420
C. $46,050
D. $250,750
Refer to the figure above. Assume the market is originally at point W. Movement to
point X is a combination of:
A. an increase in quantity supplied and an increase in demand.
B. an increase in supply and an increase in demand.
C. an increase in supply and an increase in quantity demanded.
D. a decrease in supply and an increase in quantity demanded.
If, in a particular market, all unexploited opportunities have been realized, one can
conclude that:
A. government regulation has proven successful.
B. the market is in equilibrium.
C. demanders are unable to find adequate amounts of the good.
D. excess demand is present.
Holding other factors constant, if new technology becomes available that allows
machines to produce manufactured goods more quickly and with fewer defects, then the
real interest rate will ______ and the equilibrium quantity of national saving and
investment will ____.
A. increase; increase
B. increase; decrease
C. increase; not change
D. decrease; increase
Two groups of workers not counted as unemployed in the official unemployment
statistics are ______ workers.
A. chronically unemployed and short-term unemployed
B. chronically-unemployed and discouraged
C. chronically unemployed and involuntary part-time
D. discouraged and involuntary part-time
The table below shows a pizzeria’s fixed cost and variable cost at different levels of
output. Pizza’s sell for $20 each.
When the pizzeria makes 100 pizzas per day, it earns an economic ______ of ______.
A. loss; $650
B. profit; $650
C. loss; $500
D. profit; $1,150
Suppose that there are two types of houses for sale: those with solid foundations and
those with cracked foundations. In all other respects, the two types of houses are
identical. Houses with solid foundations are worth $200,000, while those with cracked
foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers
know which type of house they have, but buyers cannot detect whether the foundation
has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and
20 percent of the houses for sale have a cracked foundation. How could the owner of a
house with a solid foundation credibly signal to potential buyers that the house has a
solid foundation?
A. Keep the house on the market for $200,000 because eventually buyers will catch on.
B. Simply tell potential buyers that the foundation is solid.
C. Lower the asking price to $196,000.
D. Offer a warranty to fix any foundation problems that develop in the next 12 months.
According to Okun’s law, when cyclical unemployment increases from 2 to 3 percent,
the recessionary gap widens from ______.
A. 4 percent to 6 percent
B. -2 percent to -3 percent
C. 0 percent to 1 percent
D. -4 percent to -6 percent
As one moves down along a linear demand curve (i.e., from high price, low quantity
pairs to low price, high quantity pairs), demand:
A. becomes more elastic.
B. increases.
C. decreases.
D. becomes less elastic.
Government policies intended to decrease planned spending and output are called
______ policies.
A. aggregate
B. monetary
C. fiscal
D. contractionary
In reference to short-term economic fluctuations, the “peak” refers to:
A. a period in which the economy is growing at a rate significantly above normal.
B. the high point of economic activity prior to a downturn.
C. the high point of economic activity prior to a recovery.
D. a particularly strong and protracted expansion.
Mexico and the members of OPEC produce crude oil. Realizing that it would be in their
best interests to form an agreement on production goals, a meeting is arranged and an
informal, verbal agreement is reached. If both Mexico and OPEC abide by the
agreement, then OPEC’s profit will be $200 million and Mexico’s profit will be $100
million. If both Mexico and OPEC cheat on the agreement, then OPEC’s profit will be
$175 million and Mexico’s profit will be $80 million. If only OPEC cheats, then
OPEC’s profit will be $185 million, and Mexico’s profit will be $60 million. If only
Mexico cheats, then Mexico’s profit will be $110 million, and OPEC’s profit will be
$150 million. You may find it helpful to fill in the payoff matrix below.
Suppose Mexico chooses first, and then OPEC, after seeing Mexico’s choice, chooses
second. Before Mexico chooses, OPEC tells Mexico that if Mexico cheats on the
agreement, then OPEC will also cheat, and if Mexico abides by the agreement, then
OPEC will also abide. This is an example of a ______, and the outcome is that ______.
A. commitment problem; neither will cheat
B. credible threat; neither will cheat
C. prisoner’s dilemma; both will cheat
D. non-credible threat; both will chea
The level of income below which the federal government classifies a family as poor is
called the:
A. relative measure of poverty.
B. absolute measure of poverty.
C. poverty threshold.
D. median income threshold.
Savers may prefer to use financial intermediaries rather than lending directly to
borrowers because financial intermediaries:
A. reduce the cost of gathering information about borrowers.
B. have a monopoly on lending.
C. increase the risk of lending.
D. offer higher rates of return than available elsewhere.
Refer to the figure below. At P = 4, how does the price elasticity of demand for D1
compare to that for D2?
A. It will be equal for D1 and D2.
B. It will be greater for D1 than for D2.
C. It will be lower for D1 than D2.
D. The price elasticity of demand for both D1 and D2 will be greater than one.
Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a
smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a
smoothie. What is the opportunity cost to Dan of making a sandwich?
A. 1/3 of a smoothie
B. 3 smoothies
C. 15 smoothies
D. 5 smoothies
Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both
firms require their employees to work for 9 hours a day, but Firm A allows its
employees to have a flexible work schedule, while Firm B requires its employees to be
at work from 9am to 5pm. Otherwise, the jobs are identical. You would expect:
A. Sarah’s wages to be the same at both firms.
B. Sarah’s wages to be higher at Firm A than at Firm B.
C. Sarah’s wages to be lower at Firm A than at Firm B.
D. Sarah to turn down both job offers.
The phenomenon known as ______ occurs when inflation causes people to pay an
increasing percentage of their income in taxes even when their real incomes have not
changed.
A. hyperinflation
B. bracket creep
C. the Fisher effect
D. substitution bias
Holding other factors constant, if food prices decline relative to the prices of other
products, then the real wages of agricultural workers will ______ and employment of
agricultural workers will _____.
A. increase; increase
B. increase; decrease
C. decrease; not change
D. decrease; decrease
The optimal amount of crime control occurs when:
A. the total benefit of reduced crime is greater than the total cost of reduced crime.
B. the marginal benefit of reduced crime equals the marginal cost of reduced crime.
C. the total benefit of reduced crime equals the total cost of reduced crime.
D. the incidence of crime is zero.
If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2,
then what is velocity if the money stock equals 2,000?
A. 2
B. 2.5
C. 5
D. 10
The Boy Scouts have so far sold 100 tickets for their upcoming raffle, but they sell a
constant additional 12 tickets every day. After three more days of selling tickets, the
stock of tickets sold will be ____, and the flow of tickets sold will be ____.
A. 136; 12
B. 36; 12
C. 100; 36
D. 136; 36
When housing prices decrease, household wealth _____, and consumption _____.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Assume that all firms in this industry have identical cost curves, and that the market is
perfectly competitive.
If the market supply curve is given by S3, then we would expect firms to:
A. exit the market in the long run.
B. enter the market in the long run.
C. neither exit nor enter the market in the long run.
D. shut down in the short run.