Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade. If the
actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks
will Denmark gain compared to the “without trade” numbers?
A) 30
B) 100
C) 150
D) 900
Your roommate argues that he can think of no better situation than living in a
deflationary economy, as prices of goods and services would continuously fall. You
disagree and argue that during a deflation, people can be made worse off because
A) the purchasing power of people’s incomes would increase.
B) the purchasing power of the currency would decrease.
C) the value of the real interest rate will drop below the nominal interest rate.
D) borrowers will have to pay increasing amounts in real terms over time.
Potential GDP is defined as
A) the maximum of GDP that the economy can produce.
B) the amount of GDP produced if there is no frictional unemployment.
C) the level of GDP attained when all firms are producing at capacity.
D) the amount of GDP produced if there is no structural unemployment.
The increase in quality bias in the consumer price index refers to the idea that price
increases in the CPI reflect pure inflation, but ________ quality increases. This causes
the CPI to ________ the cost of the market basket.
A) also; understate
B) also; overstate
C) not; understate
D) not; overstate
Scenario 1-1 Suppose a cigar manufacturer currently sells 1,500 cigars per week and
makes a profit of $3,000 per week. The plant foreman observes, “Although the last 500
cell cigars we produced and sold increased our revenue by $7,500 and our costs by
$7,000, we are only making an overall profit of $3,000 per week so I think we need to
cut back on production. Using marginal analysis terminology, what is another economic
term for the incremental revenue received from the sale of the last 500 cigars?
A) gross earnings
B) marginal revenue
C) sales revenue
D) gross profit
The demand curve for a monopoly firm
A) is perfectly inelastic.
B) lies below its marginal revenue curve.
C) is the same as the market demand curve.
D) is horizontal.
As output increases,
A) average variable cost becomes smaller and smaller.
B) the difference between average total cost and average variable cost decreases.
C) marginal cost increases continuously.
D) the difference between average total cost and average variable cost becomes greater
and greater.
A bank is legally required to hold a fraction of its ________ as ________.
A) deposits; required reserves
B) deposits; excess reserves
C) loans; excess reserves
D) loans; required reserves
Table 12-14
Using the table above, answer the following questions. The numbers in the table are in
billions of dollars.
a. What is the equilibrium level of real GDP?
b. What is the MPC?
c. If potential GDP is $4,000 billion, is the economy at full employment? If not, what is
the condition of the economy?
d. If the economy is not at full employment, by how much should government spending
increase so that the economy can move to the full employment level of GDP?
If, at the firm’s projected sales level, the marginal cost is $40, the average cost is $50
and the markup is 30 percent, then its selling price is
A) $40.
B) $50.
C) $52.
D) $65.
The difference between the salaries paid to movie stars and to actors who play
supporting roles is much greater today than it was in the 1930s and 1940s. What factor
explains this increase in relative salaries over time?
A) Technological advances in the entertainment industry increase the revenue that
successful movies can earn. This has increased the movie studios’ willingness to pay
high salaries to movie stars.
B) Agents of movies stars are effective in obtaining large salaries for their clients today.
Few movie stars had agents to negotiate for them in the 1930s and 1940s.
C) The studio system that dominated the industry in the 1930s and 1940s no longer
exists. The studio system allowed movie studios to sign actors to long-term contracts
that kept salaries down.
D) There was no actors’ union in the 1930s and 1940s. The rise of strong actors’ unions
has caused salaries of movies stars to be greater today than in previous years.
Economists refer to the conflict between the interests of shareholders and the interests
of top management as
A) a stock-equity problem.
B) a liability problem.
C) a principal-agent problem.
D) a financial intermediary problem.
What is the name of the organization that defines business cycle peaks and troughs in
the United States?
A) the Bureau of Labor Statistics
B) the Federal Reserve
C) the National Bureau of Economic Research
D) the National Peak and Trough Committee
If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a
new store, this is an example of
A) a stock market transaction.
B) direct finance.
C) a bond market transaction.
D) indirect finance.
Domestic producers require time to gain experience and lower their unit costs; this will
allow these producers to compete successfully in international markets. This statement
describes the ________ argument for protectionism.
A) diseconomies of scale
B) protecting national security
C) anti-dumping
D) infant industry
The ratio of the increase in equilibrium real GDP to the increase in autonomous
expenditure is called the
A) MPC.
B) multiplier.
C) MPS.
D) consumption function.
By 2013, ________ members of the European Union were using the euro as their
currency.
A) 12
B) 17
C) 28
D) 57