Which of the following would cause prices to fall and output to rise in the short run?
a. Short-run aggregate supply shifts right.
b. Short-run aggregate supply shifts left.
c. Aggregate demand shifts right.
d. Aggregate demand shifts left.
Data on trade barriers, income levels, and the growth of per capita GDP indicate that
a. there is no link between trade restrictions and either the per capita income levels or
growth rates of economies.
b. countries that impose high trade restrictions have both high income levels and rapid
rates of economic growth.
c. countries that impose high trade restrictions have low income levels, but they have
been growing rapidly in recent decades.
d. countries that have lower trade restrictions have both higher income levels and more
rapid rates of economic growth than those with high trade barriers.
The value marginal product of a resource is
a. the marginal product of the resource multiplied by the price of the product it helps to
produce.
b. the price of the product times the price of the resource.
c. larger when the product price is smaller.
d. larger when the marginal product is smaller.
Use the figure below to answer the following question(s).
Figure 9-2
When an economy is experiencing the aggregate demand and supply conditions
depicted in Figure 9-2,
a. the actual rate of unemployment will equal the natural rate of unemployment.
b. buyers and sellers will have correctly anticipated the level of prices P1.
c. the output y1 will tend to persist into the future unless market conditions change.
d. all of the above are correct.
Which of the following is most likely to help the residents of a nation produce more
goods and services and achieve higher income levels?
a. higher tax rates
b. a higher rate of investment
c. a smaller trade sector
d. greater use of taxation to transfer income from the rich to the poor
Figure 15-3
As shown in Figure 15-3, if people behave according to adaptive expectations theory,
an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to
move
a. directly from E1 to E3 and then remain at E3.
b. directly from E1 to E2 and then remain at E2.
c. from E1 to E2 initially and then eventually move back to E1.
d. from E1 to E2 initially and then eventually move to E3.
If the crowding-out effect is strong, how will the potency of discretionary fiscal policy
be affected?
a. It will make fiscal policy more potent.
b. It will make fiscal policy less potent.
c. The potency of fiscal policy will be unaffected.
d. The potency of expansionary fiscal policy will be reduced, but that of restrictive
fiscal policy will be enhanced.
Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to
U.S. output is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
A free-rider problem exists when a good that has the following characteristic?
a. Rivalry in consumption.
b. Elastic demand.
c. Inelastic demand.
d. Nonexcludable.
If expected inflation is constant and the nominal interest rate increased 3 percentage
points, the real interest rate would
a. increase 3 percentage points.
b. increase, but by less than 3 percentage points.
c. decrease, but by less than 3 percentage points.
d. decrease by 3 percentage points.
If the interest rate is 5 percent, what is the current value of $110 to be received one year
from now?
a. $104
b. $73
c. $220
d. $116
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80
cents, Emma notices that the restaurant has a value meal containing three tacos and a
medium drink all for $2.50. For Emma, the marginal cost of purchasing the third taco
would be
a. zero.
b. 20 cents.
c. 75 cents.
d. 80 cents.
Consumer surplus is the area on the graph
a. above the supply curve and below the demand curve.
b. below the demand curve and above the market price.
c. that represents the gains that producers receive when they sell a product.
d. that reflect the opportunity cost of producing the a good.
When people speak of the labor force participation rate, they are actually talking about
the percentage of
a. people not working but actively seeking work.
b. people who are working.
c. new entrants into the labor force.
d. working-age people who are either working or seeking work.
Low-skill workers earn a lower wage than more experienced, higher skilled workers
because the
a. low-skill workers lack the intelligence necessary to do any other form of work.
b. low-skill workers were never given the opportunity to invest in human capital.
c. supply of low-skill workers is large relative to the demand for workers in this skill
category.
d. low-skill workers are too lazy to search for other employment opportunities.
A price floor set above an equilibrium price tends to cause persistent imbalances in the
market because
a. Quantity demanded exceeds quantity supplied but price cannot rise to remove the
shortage.
b. Quantity demanded exceeds quantity supplied but price cannot fall to remove the
surplus.
c. Quantity supplied exceeds quantity demanded but price cannot rise to remove the
shortage.
d. Quantity supplied exceeds quantity demanded but price cannot fall to remove the
surplus.
Xavier is on layoff from his assembly-line job in Detroit, and he expects to return in
about four weeks. During this time, he is vacationing in Florida. The Bureau of Labor
Statistics would classify Xavier as
a. employed.
b. unemployed.
c. not part of the labor force.
d. a temporary retiree.
The key explanation for the prevalence of waterway pollution is
a. the inclusion in production of all costs involving use of the waterway.
b. that there are private costs but no costs to society.
c. that waterways are often an open access, commonly owned resource.
d. that waterways are subject to the market’s normal control procedures.
A professional gambler moves from a state where gambling is illegal to a state where
gambling is legal. Most of his income was, and continues to be, from gambling. His
move
a. necessarily raises GDP.
b. necessarily decreases GDP.
c. doesn’t change GDP because gambling is never included in GDP.
d. doesn’t change GDP because in either case his income is included.
Which of the following is true?
a. Employers who discriminate against women will have lower costs than rival firms
that hire employees strictly on the basis of merit (productivity).
b. If employers can hire equally productive female employees at a lower wage than
males, the profit motive gives them a strong incentive to do so.
c. The female/male earnings ratio is higher for persons who are married than for those
who remain single.
d. Both a and c are true.
Individuals are more likely to engage in productive activities when institutions and
policies
a. create a fair and unbiased judicial system.
b. result in high and variable rates of inflation.
c. transfer a large share of income through the political process.
d. are used to centrally plan the economy.
The Fed pushed interest rates to artificially low levels during 2002-2004. The Austrian
view predicts that this policy will lead to
a. excessive investment in long-lasting assets like housing that will eventually prove to
be unprofitable and result in recession.
b. an increase in sound investments that will propel future economic growth.
c. a reduction in the general level of prices that will throw the economy into a recession.
d. an increase in aggregate demand that will generate sustainable expansion in both real
output and employment.
A government passes a new law allowing only 1,000 tons of pollution per day to be
generated and simultaneously sells 1,000 transferable rights to emit one ton each of
pollution per day. Which of the following is true?
a. The pollution will be created by those least willing and able to pay the damages.
b. The pollution will be created by those most willing and able to pay for the right to
pollute.
c. The funds collected by the government will be enough to compensate any individuals
harmed by the pollution.
d. Pollution will increase from zero to 1,000 units per day.
e. There will be no incentive for polluters to try to sneak emissions past government
monitoring devices.
The Federal Reserve System is owned by
a. federal government agencies such as the Treasury.
b. the Congress of the United States.
c. the banks that are members of the Federal Reserve System.
d. anyone who buys stock over the counter.
e. people who have deposits in member banks.
Which of the following is true of exchange?
a. The value of a good is determined by the cost of the resources required to produce the
good.
b. Exchange makes it possible for trading partners to produce more goods through
division of labor and adoption of mass production methods.
c. Nothing new is created by exchange; if one party to an exchange gains, the other
must lose an equal amount.
d. Both a and b are true.
What impact did the change in housing prices during 2002 to 2005 have within the
framework of the AD/AS model?
a. Declining housing prices reduced aggregate demand shifting AD leftward.
b. Rising housing prices increased aggregate demand shifting AD rightward.
c. Rising housing prices led to increased construction shifting LRAS leftward.
d. Declining housing prices caused SRAS to shift leftward.
If an unanticipated reduction in aggregate demand throws a market economy into a
recession,
a. market forces will cause the economy to spiral downward and a lengthy period of
depressed conditions is the expected result.
b. lower real resource prices and interest rates will act as a stabilizing force and direct
the economy back to its full employment potential.
c. higher real resource prices and interest rates will help to direct a market economy
back to its full employment potential.
d. the natural rate of unemployment will rise until it is once again equal to the actual
rate of unemployment.
Which of the following provides the most secure protection for a firm with monopoly
power?
a. quality advertising
b. legal barriers restricting entry into the market of the monopolist
c. predatory pricing
d. limited economies of scale
When economists say an individual has made a rational choice, they mean the
individual has
a. made the choice by weighing their own subjective costs and benefits.
b. made a “good” decision, one that reasonable outside observers would have also
made.
c. neglected to consider the unintended consequences arising from their decision.
d. ignored their own personal interests and made the choice that is best for society.
Other things constant, a reduction in the real interest rate will
a. cause consumers to cut back on their purchases of durable items like automobiles.
b. induce businesses to increase their level of investment.
c. increase the natural rate of unemployment.
d. increase the actual rate of unemployment.
Until recently, George lived in a home that was newly constructed in 2005. In 2005, he
paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which
of the following statements is correct regarding the sale of the house?
a. The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP.
b. The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP.
c. The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused
2005 GDP to be revised upward by $25,000.
d. The 2006 sale affected neither 2005 GDP nor 2006 GDP.
Low rates of inflation are generally associated with
a. low rates of government spending.
b. small or nonexistent government budget deficits.
c. low rates of productivity growth.
d. low rates of growth of the quantity of money.