Legislation that offers immediate and easily recognized benefits, at the expense of costs
that are observable only in the distant future, is often enacted even when economic
inefficiency results. This can be expected because of
a. a lack of incentive for operational efficiency in the public sector.
b. market failure.
c. the special-interest effect.
d. the shortsightedness effect.
The employment/population ratio identifies the proportion of the population age 16 and
over that is
a. either looking for work or on layoff waiting to be rehired.
b. employed.
c. in the labor force.
d. unemployed.
Wages in the United States are higher than wages in China primarily because
a. worker productivity is higher in the United States.
b. in the United States, less capital is required per employee.
c. China has more natural resources that employees can work with.
d. the United States has more people and, therefore, a larger number of skilled workers.
The expansionary effects of an increase in government expenditures will tend to be
offset, at least partially, if
a. government borrowing drives interest rates upward.
b. taxes are not also increased.
c. business decision makers and consumers become more optimistic as the result of the
fiscal stimulus.
d. the economy is operating well below its full-employment capacity.
Among the 23 long-standing members of the Organization for Economic Cooperation
and Development (OECD), the highest rates of economic growth during recent decades
have been achieved by
a. Western European countries.
b. the countries with the smallest government expenditures as a share of GDP.
c. the countries with the largest government expenditures as a share of GDP.
d. the countries with the most rapid growth of government expenditures as a share of
GDP.
Which of the following is true when long-run equilibrium conditions are present in
price-taker and competitive price-searcher markets?
a. MR = ATC in both price-taker and competitive price-searcher markets.
b. P = ATC in price-taker markets; P = MC in competitive price-searcher markets.
c. P = MC in both price-taker and competitive price-searcher markets.
d. P = ATC in both price-taker and competitive price-searcher markets.
Assuming that firms maximize profits, how will the price and output policy of an
unregulated monopolist compare with ideal market efficiency?
a. The output of the monopolist will be too large and the price too high.
b. The output of the monopolist will be too large and the price too low.
c. The output of the monopolist will be too small and the price too high.
d. The output of the monopolist will be too small and the price too low.
During the early 1990s, many workers in military-related industries lost their jobs as the
defense budget was reduced. Unemployment of this type is called
a. cyclical unemployment.
b. the natural rate of unemployment.
c. frictional unemployment.
d. structural unemployment.
The mortgage default rate is
a. the percentage of home mortgage loans in which the borrower has failed to make the
current monthly payment.
b. equal to the foreclosure rate.
c. the percentage of home mortgages in which the borrower is 90 days or more late with
the payment or it is in the foreclosure process.
d. the percentage of home mortgages in which the borrower owes more than the home
is worth.
During the Great Depression fiscal and monetary policy was characterized by
a. an increase in tax rates and a contraction in the money supply.
b. a decrease in tax rates and a contraction in the money supply.
c. a decrease in tax rates and an expansion in the money supply.
d. an increase in tax rates and an expansion in the money supply.
The branch of economics that applies the principles and methodology of economics to
the operation of the political process is known as
a. private choice analysis.
b. public choice analysis.
c. government operations analysis.
d. policy preference analysis.
A decrease in resource prices will increase the incentive of
a. users to purchase the resource.
b. suppliers to provide more of the resource.
c. firms to find and develop substitutes for the resource.
d. consumers to look for alternatives that do not contain the resource.
Adam Smith’s invisible hand principle stresses
a. that benevolence is a powerful motivator that encourages individuals to engage in
productive economic activity.
b. the tendency of the competitive market process to direct self-interested individuals
into activities that enhance the economic welfare of society.
c. the potential of government regulation as a means of bringing the self interest of
individuals into harmony with the economic welfare of society.
d. the tendency of self-interested individuals to pursue activities that benefit themselves
but harm the overall economic welfare of society.
In a competitive market, if the production process involves an external benefit, the
market will
a. produce the economically efficient outcome.
b. result in a market price that is higher than the efficient one.
c. result in a market price that is lower than the efficient one.
d. result in too much of the good being produced compared to the ideal efficient
outcome.
Which of the following is true regarding the per person income of the world during the
past 1000 years
a. The world’s income per person has approximately doubled during the past 1000 years
and most of that growth has occurred since 1900.
b. The world’s income per person changed very little during the 800 years prior to 1813,
but it has increased by nearly tenfold during the past 200 years.
c. The world’s income per person has grown steadily during the past 1000 years.
d. The world’s per person income grew at an annual rate of more than 2 percent during
1000-1813, but the annual growth rate has declined as the population increased during
the past 200 years.
Which of the following best illustrates the concept of “derived demand”?
a. A decrease in the price of glass causes the demand for plastic to decrease.
b. An increase in the demand for bread leads to an increase in the demand for flour.
c. A decrease in the price of air travel leads to an increase in the quantity demanded of
air travel.
d. An increase in the demand for peanut butter leads to an increase in the demand for
jelly.
(I) In the 1960s and 1970s, most economists believed that there was a permanent
trade-off between inflation and unemployment.
(II) Today, most economists believe there is no permanent trade-off between inflation
and unemployment.
a. Both I and II are true.
b. Both I and II are false.
c. I is true; II is false.
d. I is false; II is true.
An increase in the price of a good would
a. decrease the demand for the good.
b. decrease the quantity demanded for the good.
c. increase the demand for the good.
d. decrease the quantity supplied of the good.
In an economy with persistent inflation,
a. real GDP will grow faster than nominal GDP.
b. nominal GDP will grow faster than real GDP.
c. nominal and real GDP will grow at the same rate.
d. nominal and real GDP will both fall.
Supply-side economics stresses that
a. aggregate demand is the major determinant of real output.
b. marginal tax rates exert important incentive effects that influence real output.
c. an increase in government expenditures and tax rates will cause real income to rise.
d. expansionary monetary policy will cause real output to expand without accelerating
inflation.
A firm is currently operating where the MC of the last unit produced is $84, and the MR
of this unit is $70. What would you advise this firm to do?
a. Shut down.
b. Increase output.
c. Stay at its current output.
d. Decrease output.
e. Decrease price.
Which of the following reduced the effectiveness of the Fed’s low interest rate policy
during the aftermath of the 2008-2009 recession?
a. The heavy indebtedness of households.
b. The reduction in the earnings derived from savings accounts, certificates of deposits,
and other forms of savings used by many Americans.
c. The increased fear of inflation fueled by the Fed’s expansionary monetary policy.
d. All of the above.
If a U.S. dollar exchanges for 0.6 English pounds, the dollar price of a pound is
a. $0.60.
b. $1.50.
c. $1.67.
d. $1.75.
The demand curve of a monopolist is
a. identical to the marginal cost curve.
b. downward sloping and above the marginal revenue curve.
c. downward sloping and below the marginal revenue.
d. elastic because of a recognized interdependence with other firms.
Which tax rate measures the percent of your income paid in taxes?
a. the marginal tax rate
b. the average tax rate
c. progressive tax coefficient
d. the excise tax rate
Most of the income of Americans comes from
a. transfer payments.
b. the ownership of bonds and physical assets.
c. the ownership of bonds and corporate stocks.
d. the ownership of human capital.
Figure 3-7
In Figure 3-7, suppose D1 and S1 indicate the initial conditions in the market for ice
cream. Which of the following changes would tend to cause the shift from D1 to D2 in
the market for ice cream?
a. a decrease in the price of sugar, an ingredient used to produce ice cream
b. an increase in the price of frozen yogurt, a substitute for ice cream
c. abnormally cold weather that decreased consumer desire for ice cream
d. an increase in the price of milk, an ingredient used to produce ice cream
The real rate of interest is the
a. money rate of interest plus the inflationary premium.
b. money rate of interest minus the inflationary premium.
c. yield one can expect to receive on loanable funds without taking significant risk.
d. risk component associated with the ownership of real assets.
Which of the following will tend to retard the growth and prosperity of a country?
a. imposition of price controls and regulations that restrain domestic and international
trade
b. an expansionary monetary policy that leads to high rates of inflation
c. high marginal tax rates
d. all of the above
Why is it difficult for economists to predict the price and output policy that will emerge
in oligopolistic markets?
a. Economists cannot determine if barriers to entry exist in a market.
b. Economists cannot predict the reactions that firms will have to the actions and
decisions of other firms.
c. The government prevents economists from acquiring the information that would lead
to good predictions.
d. Firms have a set price and output policy, but the policy is concealed to discourage
competition.
Shifts in monetary policy will
a. stimulate output and employment almost immediately, and this will make it easier for
policy-makers to change monetary policy in a manner that will promote
macroeconomic stability.
b. stimulate output and employment almost immediately, and this will make it more
difficult for policy-makers to change monetary policy in a manner that will promote
macroeconomic stability.
c. stimulate output and employment with time lags that are long and variable and this
will make it easier for policy-makers to change monetary policy in a manner that will
promote macroeconomic stability.
d. stimulate output and employment with time lags that are long and variable and this
will make it more difficult for policy-makers to change monetary policy in a manner
that will promote macroeconomic stability.
Which of the following helps explain why the aggregate quantity demanded of goods
and services is inversely related to prices within the framework of the AD/AS model?
a. As prices fall, domestic consumers have an incentive to buy more of the cheaper
goods and services.
b. As prices fall, the monetary authorities will have to increase the money supply, which
will lead to an increase in the quantity of goods and services purchased.
c. As prices fall, the government will have to reduce taxes, which will lead to an
increase in the quantity of goods and services purchased.
d. As prices fall, the wealth of people holding the fixed quantity of money increases,
causing them to expand their purchases of goods and services.
If a country with a large government debt uses money creation to service and repay the
debt, this will lead to
a. lower interest rates.
b. an appreciation of the nation’s currency in the foreign exchange market.
c. inflation, higher interest rates, and a financial crisis.
d. rapid economic growth, as the expansionary monetary policy stimulates the economy
and generates the additional tax revenue to service the larger debt.
If the quantity of a good supplied is not very sensitive to the price of the good, this is
illustrated by a
a. demand curve that is relatively flat (more horizontal).
b. demand curve that is relatively steep (more vertical).
c. supply curve that is relatively flat (more horizontal).
d. supply curve that is relatively steep (more vertical).