If debit cards become more widely used by consumers and businesses, which of the
following is most likely to happen?
a. Currency holdings will remain the same, but the M1 money supply will fall.
b. The amount of currency held by the public will increase.
c. Less money will be held as currency and more money will be held in bank accounts,
which will increase the reserves of banks unless the Fed takes offsetting actions.
d. The money supply will be unaffected because debit card expenditures are considered
the equivalent of cash.
When economic growth (a gradual shift of LRAS to the right) expands the production
possibilities of an economy,
a. a higher rate of real output can be achieved in the short run, but it cannot be sustained
in the long run.
b. a larger output can be attained even if unemployment remains at its natural rate.
c. the general level of prices will rise if the money supply is held constant.
d. the equilibrium in the goods and services market will be disrupted.
“Since the wind and the flowing rivers can take away industrial waste without charge,
polluting is a profitable activity even when people are seriously harmed downwind or
downstream, unless environmental regulators stop it.” This statement is
a. false if the property rights of downwind or downstream individuals are protected.
b. true if the property rights of industrialists are enforced.
c. never true.
d. always true.
If net exports are negative, then
a. net capital outflow is positive (indicating an inflow of capital), so foreign assets
bought by Americans are greater than American assets bought by foreigners.
b. net capital outflow is positive (indicating an inflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
c. net capital outflow is negative (indicating an outflow of capital), so foreign assets
bought by Americans are greater than American assets bought by foreigners.
d. net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
Suppose the lowest-wage state in the United States is West Virginia and the
highest-wage state is New York. Which of the following would be true?
a. If New York trades with West Virginia, consumers in New York will be worse off.
b. If New York trades with West Virginia, wages in New York will fall until they equal
the wages in West Virginia.
c. New York would be better off if its state government imposed restrictions on the
importation of goods made in West Virginia.
d. Both New York and West Virginia will be better off if they are allowed to trade
freely.
Two workers are employed in the same job by the same firm; however, they are paid
different wage rates. This could be explained by differences in
a. the income effect
b. the price of the firm’s output
c. their marginal products due to differences in ability
d. working conditions
e. risk
An important assumption that is made when constructing a demand schedule is that
a. only price and quantity matter in determining demand.
b. people always want a certain amount of a product.
c. demand is too important to be left to the economists.
d. all other determinants of demand are held constant.
e. demand has a positive slope.
Abigail wishes to spend more time this week studying for her classes. Using the idea of
a production possibilities curve, and assuming Abigail is currently spending all of her
time efficiently, Abigail can spend more time studying this week only if
a. she also spends more time doing other things.
b. she spends less time doing other things.
c. Daylight Savings Time begins this week, so everyone moves their clocks ahead one
hour.
d. none of the above.
Which of the following is an example of a rational decision?
a. DeShawn enjoys the feeling of wind in his hair enough to ride his motorcycle without
a helmet, even though he fully realizes the potential for injury it creates by not wearing
one in the unlikely event he is in an accident.
b. Jayla, a burglar who breaks into houses, decides to break into the house at 265 Elm
Street, rather than the house next door because the house next door has a sign in the
yard that says “home protected by a security system.”
c. Nicolas, a drug user, chooses to buy his cocaine from Samuel, because Samuel’s
cocaine is as good as the cocaine from other dealers, but Samuel has lower prices.
d. All of the above are examples of rational choices.
Which of the following activities is not counted in our calculations of GDP?
a. the purchase of a hammer for household repairs
b. the labor services of a volunteer group building a home for a poor widow
c. the purchase of new, domestically-produced tires for your old foreign car
d. a haircut received and paid for at a beauty salon
Most of our environmental problems exist because of
a. a lack of enforced and easily traded property rights.
b. consumer ignorance.
c. profit maximization on the part of business firms.
d. the failure of political officials to regulate business activities.
A subsidy on a product will generate more actual benefit for producers (and less for
consumers) when
a. the supply of the product is relatively inelastic.
b. the supply of the product is relatively elastic.
c. the demand for the product is relatively inelastic.
d. either b or c is true
Since it is costly for stockholders to monitor corporate managers, managers may be able
to achieve personal perks and pursue other policies that conflict with profit
maximization. This is an example of
a. an external benefit.
b. economies of scale.
c. the principal-agent problem.
d. sunk costs.
Use the table of expected cost and revenue data for the Tuckers Tomato Farm below to
answer the following question(s). The Tuckers produce tomatoes in a greenhouse and
sell them wholesale in a competitive price-taker market.
Table 9-1
Refer to Table 9-1. If the market price is $500, what is the maximum economic profit
per month the Tuckers can earn?
a. $50
b. zero
c. $50
d. $100
Which of the following would be most appropriate if the Federal Reserve wanted to
increase the money supply in order to stimulate the economy?
a. buy U.S. securities
b. force the Treasury to reduce the national debt
c. raise the discount rate
d. increase the reserve requirements
What was the original stated purpose of Fannie Mae and Freddie Mac?
a. to allow the government to extend loans directly to low-income and minority
households
b. to help provide liquidity in the secondary mortgage markets
c. to operate as non-profit entities that would provide competition for for-profit
mortgage companies
d. to take on mortgages going into default in order to prevent them from going into
foreclosure
Which of the following is true of modern technology?
a. Improvements in technology have propelled the production possibilities and living
standards of people in North America, Western Europe, and several other parts of the
world.
b. In low-income countries, proven technologies can be either emulated or imported at a
low cost.
c. Often, perverse institutions and policies in low-income countries undermine the gains
from improvements in technology.
d. All of the above.
If a profit-maximizing firm shuts down in the short run, it must be true that before the
shutdown, at all positive output levels,
a. average total cost was less than average variable cost
b. fixed cost was greater than total revenue
c. variable cost was greater than total revenue
d. profit was zero
e. total cost plus total revenue was less than profit
Which of the following is the largest source of revenue for the federal government?
a. corporate income tax
b. payroll tax
c. personal income tax
d. user charges
Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do
you advise this competitive price-taker firm to do?
a. Increase output.
b. Decrease output.
c. Shut down operations.
d. Stay at the current output; the firm is earning a profit of $400.
e. Stay at the current output even though the firm is losing $200.
Figure 4-18
Refer to Figure 4-18. In this market, which of the following price controls would be
binding?
a. a price ceiling of $2.00, and it would cause a shortage
b. a price ceiling of $5.00, and it would cause a surplus
c. a price floor of $2.00, and it would cause a shortage
d. All of the above are correct.
According to the Keynesian view, if policy makers thought the economy was about to
fall into a recession, which of the following would be most appropriate?
a. a reduction in government expenditures and/or an increase in taxes
b. an increase in government expenditures and/or a reduction in taxes
c. make no policy changes because market forces will assure the maintenance of full
employment.
d. maintain a balanced budget
Figure 17-7
The domestic country is Jamaica.
Refer to Figure 17-7. With trade, Jamaica
a. imports 150 calculators.
b. imports 250 calculators.
c. exports 100 calculators.
d. exports 250 calculators.
Which of the following examples illustrates a proportional income tax?
a. I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,000 in taxes.
b. I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $500 in taxes.
c. I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $800 in taxes.
d. I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,200 in taxes.
A decrease in supply will cause
a. an increase in demand.
b. a decrease in demand.
c. an increase in quantity demanded.
d. a decrease in quantity demanded.
e. a decrease in equilibrium price.
If there is an increase in both the supply and demand for a good, which of the following
will definitely occur?
a. The price of the good will increase.
b. The price of the good will decrease.
c. The equilibrium quantity will increase.
d. The equilibrium quantity will decrease.
Which of the following has occurred since the North American Free Trade Agreement
(NAFTA) took affect in 1994?
a. U.S. trade with both Mexico and Canada has increased.
b. Employment in the United States is now slightly lower than before the agreement.
c. Employment in the United States is now substantially higher than before the
agreement.
d. Both a and b are true.
e. Both a and c are true.
The primary purpose of measuring the overall level of prices in the economy is to
a. allow for the measurement of GDP.
b. allow consumers to know what kinds of prices to expect in the future.
c. allow for the comparison of dollar figures from different points in time.
d. allow for the comparison of dollar figures from the same point in time.
Which one of the following is an area of continued disagreement among modern
macroeconomists with regard to the use of fiscal policy?
a. Automatic stabilizers help reduce the fluctuations in aggregate demand and output.
b. It is difficult to time changes in discretionary fiscal policy in a manner that will
promote stability.
c. Fiscal policy is much less potent than the early Keynesian view implied.
d. Budget deficits are a highly effective tool with which to combat a severe recession.
Figure 15-3
As shown in Figure 15-3, 20 percent of families earned a cumulative share of about
____ percent of income.
a. 5
b. 10
c. 30
d. 50
If price rises, what happens to supply of a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain–economic theory has no answer to this question.
Suppose that competitive price-searcher firms are earning positive profits. In the
transition from this initial situation to a long-run equilibrium,
a. the number of firms in the market decreases.
b. each existing firm experiences a decrease in demand for its product.
c. each existing firm experiences a rightward shift of its marginal revenue curve.
d. each existing firm experiences an upward shift in its average total cost curve.
Which one of the following statements most accurately indicates the basic motivation
for behavior?
a. Individuals are motivated primarily by selfish desires; thus, personal costs and
benefits influence their actions.
b. Individuals are motivated primarily by humanitarian concerns; therefore, personal
costs and benefits exert little influence on most of their actions.
c. Individuals are motivated by a variety of forces; however, changes in personal
benefits and costs influence the choices of both selfish and humanitarian individuals.
d. Individuals are motivated by a variety of forces; however, changes in personal
benefits and costs affect behavior only when individuals are motivated by selfishness.