The economic systems of the former Soviet Union, the People’s Republic of China, and
Cuba are best classified as:
a. traditional economies.
b. command economies.
c. market economies.
d. decentralized economies.
What famous economist said that the market economy seemed to be controlled by an
invisible hand?
a. Alfred Marshall.
b. Adam Smith.
c. Karl Marx.
d. Robert L. Heilbroner.
Which of the following will cause a movement upward along a supply curve?
a. Increases in raw-material costs.
b. Increases in labor costs.
c. Increases in the cost of machinery.
d. Increases in the market price of a good, other things being equal.
The interest rate on loans made by banks in the market in which they lend and borrow
reserves from each other for very short periods of time is known as the:
a. discount rate.
b. legal reserve rate.
c. federal funds rate.
d. open market rate.
e. margin rate.
Deadweight loss is not the result of:
a. an efficient market.
b. an inefficient market.
c. zero consumer surplus.
d. zero producer surplus.
At the federal level, the single most important tax, accounting for slightly less than half
of revenue, is the:
a. corporate income tax.
b. personal income tax.
c. estate tax.
d. property tax.
e. sales tax.
The marginal propensity to consume (MPC) is computed as the change in:
a. consumption divided by the change in savings.
b. consumption divided by the change in disposable personal income.
c. consumption divided by the change in GDP.
d. None of these.
The theory of comparative advantage suggests that a(n):
a. industrialized country should not import.
b. country that is not competitive should import everything.
c. country specialize in producing goods or services for which it has a lower
opportunity cost.
d. none of these.
Fiat money is money:
a. accepted by law regardless of its intrinsic value.
b. that is not included as part of the M1 money supply.
c. that is backed by gold or silver held on reserve by the government.
d. such as coins that are made from metal.
An increase in the supply of money will:
a. reduce the rate of interest and, thereby, trigger an increase in current spending by
households and businesses.
b. reduce aggregate demand and real output.
c. increase only the general level of prices.
d. lead to a higher rate of unemployment.
The substitution bias is believed to cause the consumer price index to:
a. overstate the true rate of inflation.
b. understate the true rate of inflation.
c. understate the true GDP deflator.
d. none of these.
According to the equation of exchange, if M = 200, P = 100, and Q = 10, the V is:
a. 20.
b. 2.
c. 10.
d. 5.
e. 2,000.
“Lower marginal tax rates encourage people to work, save, and invest, resulting in more
output and a larger tax base.” This statement most closely reflects which of the
following schools of economic thought?
a. Keynesian.
b. Adam Smithian.
c. Aggregate demandian.
d. Supply-side economics.
Which of the following would most likely occur if the federal government increased its
spending and enlarged the size of the budget deficit during a period of full
employment?
a. The rate of inflation would decline.
b. The r ate of inflation would rise.
c. A recession would develop.
d. Interest rates would fall.
The city of Logan Square needs $40 million for a network of streetlights. There are
20,000 residents in the Logan Square neighborhood, meaning the cost for each resident
is $2,000. Psychiatrist Denise Miller refuses to donate $2,000 towards the project. This
is an example of the problems encountered with:
a. consumer goods.
b. capital goods.
c. rival goods.
d. public goods.
e. private goods.
The relationship between MPC and MPS is:
a. 1 + MPC = MPS.
b. 1 – MPC = MPS.
c. 1 + MPS = MPC.
d. MPC – MPS = 1.
Exhibit 9-3 Keynesian aggregate-expenditures model
As shown in Exhibit 9-3, equilibrium GDP is:
a. $2 trillion.
b. $6 trillion.
c. $10 trillion.
d. $12 trillion.
e. $14 trillion.
By functioning as a unit of account, money provides a common measurement of the
relative value of goods and services.
In economics terminology, the process of accumulating money is investment.
An increase in a budget deficit financed by borrowing can increase interest rates and
reduce investment spending thereby creating lower rates of economic growth.
Explain why GDP was never intended to be a measure of social well being.
The statement “The income tax is unfair to those who work hard to earn their incomes”
is an example of positive economic analysis.
Discuss the determinants of the equilibrium interest rate and how it may change. What
can the Fed do to change the interest rate?
Excess reserves equal total reserves plus required reserves.