Samantha is lending Jack $1,000 for one year. The CPI is 1.60 at the time the loan is
made, and they both expect it to be 1.68 in one year. If Samantha and Jack agree that
Samantha should earn a 3% real return for the year, the nominal interest rate on this
loan should be ______ percent.
A. 3
B. 5
C. 8
D. 11
Dave’s Mirror Company expects to sell $1,000,000 worth of mirrors and to produce
$1,250,000 worth of mirrors in the coming year. The company purchases $300,000
worth of new equipment during the year. Sales for the year turn out to be $900,000.
Actual investment by Dave’s Mirror Company equals ______ and planned investment
equals _______.
A. $250,000; $150,000
B. $300,000; $200,000
C. $550,000; $450,000
D. $650,000; $550,000
The difference between the economy’s potential output and its actual output relative to
its potential output at a point in time is called the:
A. budget deficit.
B. trade deficit.
C. output gap.
D. full-employment rate.
This graph illustrates the marginal cost, marginal private benefit, and marginal social
benefit of immunization against a contagious childhood disease.
One reason ____ children should be immunized is that
A. all; there are social benefits in addition to private benefits.
B. fewer than 150; immunizations pose risks.
C. fewer than all; medical care resources are scarce.
D. 100; that is the number at which marginal benefits equal marginal cost.
Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.
The cost of reducing the injury rate by 1% is $200 per worker. Firms currently pay
$20,000 per year to workers, without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury
rate. The total cost of hiring a worker to the existing firms is __________ and to the
new firms it is __________.
A. $20,000; $19,500
B. $20,000; $18,500
C. $19,800; $19,500
D. $20,000; $19,700
The cost-benefit principle indicates that an action should be taken:
A. if the total benefits exceed the total costs.
B. if the average benefits exceed the average costs.
C. if the net benefit (benefit minus cost) is zero.
D. if the extra benefit is greater than or equal to the extra costs.
If a single firm, belonging to a perfectly competitive industry in long run equilibrium,
discovers a significant cost saving methodology, then:
A. all firms will enjoy economic profits for a short period of time.
B. the rest of the industry will quickly adopt the new methodology.
C. the firm will enjoy economic profits forever.
D. the firm will lower its price to drive the rest of the industry out of business.
The annual increase in the dollar value of a financial asset is called the:
A. real rate of return.
B. inflation rate.
C. real interest rate.
D. nominal interest rate.
High Tech, Inc. produces plastic chairs that sell for $10 each. The following table
provides information about how many plastic chairs can be produced per hour.
For simplicity, assume that labor is the only input. How many workers will be hired if
the hourly wage for workers is $120?
A. 0
B. 3
C. 5
D. More than 5
Refer to the figure above. The invisible hand ______ allocate resources efficiently in
the market because ______.
A. does; demand and supply cross at the market equilibrium
B. does not; some costs of production are not included in private marginal costs
C. does; firms are motivated to maximize profit
D. does not; consumers are not willing to pay the external costs of production
The interest rate the Federal Reserve charges commercial banks to borrow reserves is
called the ______ rate.
A. Fed funds
B. prime
C. discount
D. Federal
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a
pound and the price of shrimp is $5 a pound.
If Casey’s income rises to $210, the rational spending rule would predict Casey would
buy
A. more fish and less shrimp.
B. more fish and more shrimp.
C. less fish and more shrimp.
D. more fish and the same amount of shrimp.
Refer to the figure above. Based on the Keynesian cross diagram, at short-run
equilibrium output autonomous expenditure equals ______ and induced expenditure
equals ______.
A. 1,000; 3,000
B. 1,000; 4,000
C. 3,000; 4,000
D. 4,000; 2,000
The chart below describes the short run productivity of workers at Paper Pushers Inc.,
an office support firm that has no variable costs other than labor.
If the market price is $5 per page, the first worker’s VMP is ____ and the third worker’s
VMP is ____.
A. $20; $525
B. $200; $150
C. $200; $525
D. $20; $15
Bob’s Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a
haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob’s
contribution to real GDP in the year 2010?
A. $21,000
B. $21,700
C. $24,000
D. $24,800
Arguing that economic growth will eventually stop because we will run out of natural
resources:
A. must be correct because scarcity exists.
B. will only be correct if growth takes the form of newer, more efficient goods and
services.
C. ignores the power of markets to recognize shortages and induce changes in behavior.
D. is supported today by the fact that richer countries have fewer natural resources.
In most markets scarce goods or services are rationed among competing users, and
______ perform that task.
A. non-monetary prices
B. monetary prices
C. government organizations
D. private organizations
Comparing the non-price discriminating monopoly outcome to the perfectly price
discriminating monopoly outcome, profits are:
A. the same.
B. less when price discriminating.
C. greater when price discriminating.
D. greater when charging a uniform price.
Refer to the figure above. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is
shown graphically as D1 being _____ D2.
A. more; flatter than
B. more; steeper than
C. less; flatter than
D. less; steeper than
The money supply in Macroland is currently 2,500, bank reserves are 200, currency
held by public is 500, and banks’ desired reserve/deposit ratio is 0.10. Assuming the
values of the currency held by the public and the desired reserve/deposit ratio do not
change, if the Central Bank of Macroland wishes to increase the money supply to 3,000,
then it should conduct an open-market ______ government bonds.
A. purchase of 50
B. purchase of 250
C. sale of 500
D. sale of 50
A demand shock is a change in planned spending that is:
A. caused by changes in output.
B. caused by changes in the inflation rate.
C. caused by changes in output and changes in the real interest rate.
D. not caused by changes in output or changes in the inflation rate.
A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high
rate of expected inflation tends to lead to a ____ rate of actual inflation.
A. high; high
B. high; low
C. low; low
D. low; high
Ingrid has been waiting for the show “Mamma Mia!” to come to town. When it finally
does come, ticket prices are $60. Ingrid’s reservation price is $75. But when Ingrid tries
to buy a ticket, they are sold out.
Refer to the information above. Ingrid decides to try to buy a ticket from a scalper (a
person who has purchased extra tickets at the box office with the intent to resell those
tickets). If Ingrid finds someone who is willing to sell her a ticket for $70, she should:
A. not purchase it because it is overpriced by $10.
B. not purchase it because the cost to the scalper was only $60, and it is unfair of the
scalper to take advantage of the ticket shortage.
C. purchase it because to do so will lead to an increase in surplus.
D. purchase it even though it is not surplus-enhancing.
Refer to the figure above. The economy pictured in the figure has a(n) ______ gap with
a short-run equilibrium indicated by point ___.
A. recessionary; A
B. recessionary; B
C. recessionary; C
D. expansionary; A
According to the cost-benefit principle:
A. the lowest cost activity usually gives the lowest benefit.
B. a person should always choose the activity with the lowest cost.
C. a person should always choose the activity with the greatest benefit.
D. the extra costs and benefits of an activity are more important considerations than the
total costs and benefits.
Two methods used to adjust nominal values for inflation are:
A. substituting and complementing.
B. indexing and deflating.
C. aggregating and disaggregating.
D. realand nominal.
As living standards improve,
A. things that were once luxuries become needs.
B. things that were once wants become needs.
C. needs are eliminated, leaving only wants.
D. needs remain the same, but wants increase.
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing
business. The table below represents the reservation prices for the eight students
enrolled in the class for which this book is required.
Assume that the marginal and average total cost for each book is $12.
Refer to the information above. What will be the economic profit for the bookstore
when selling its profit-maximizing quantity?
A. $60
B. $120
C. $180
D. $240
Refer to the figure above. Based on the diagram, if potential output equals 8,000 and
the real interest rate is 2%, then there is ______ gap and the Fed must ______ the real
interest rate so that output will equal potential output.
A. a recessionary; raise
B. an expansionary; reduce
C. no output; not change
D. an expansionary; raise
Price ceilings that are below the equilibrium price result in:
A. increased total economic surplus.
B. shortages.
C. surpluses.
D. the same amount of total economic surplus with a reallocation from producers to
consumers.
A public good that would benefit Karen, Tammy, and Max has a one time installation
cost of $900. These three voters must approve any tax plan by simple majority and all
three will cast a vote.
The net social benefit of providing the public good is
A. $100.
B. $700.
C. $900.
D. $1,000.
Which of the following is a stock?
A. Saving
B. Income
C. Consumption
D. Wealth
Which of the following contributed to the turn-around in the government budget from a
surplus in the early 2000s to record deficits by the end of the decade?
A. An increase in household saving.
B. An increase in business saving.
C. An increase in tax revenues because of a recession.
D. An increase in government spending on homeland security and wars.