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One potential problem with using fiscal policy to close recessionary output gaps is that:
A. sustained government deficits can be harmful to long-run economic growth.
B. decreased government spending can cause inflationary pressure to build.
C. reductions in interest rates can reduce savings and, therefore, investment.
D. it may be offset by automatic stabilizers.
Suppose that there are three power-generating plants, all of which generate emissions.
The table summarizes the cost of emission reduction for each firm given five different
levels of pollution:
It would cost Firm A ____ to reduce emissions by one ton if it currently emits 3 tons,
and ___ to reduce an additional ton of emissions if it currently emits 2 tons.
A. $14; $20
B. $14; $16
C. $16; $20
D. $30; $50
The price of a gallon of gasoline at the pump increased by 10 percent at the same time
that the inflation rate was 15 percent. The nominal price of gasoline _____, and the real
price of gasoline _____.
A. increased; also increased
B. increased; decreased
C. increased; did not change
D. decreased; increased
The value of unpaid childcare services provided by a stay-at-home dad ______ included
in GDP; the value of daycare services purchased from a licensed childcare provider
______ included in GDP.
A. is; is not
B. is; is
C. is not; is not
D. is not; is
Refer to the figure above. Sven could move from the bold PPC to the dashed PPC by:
A. finding a job that paid a higher wage.
B. studying fewer hours but more effectively per hour.
C. devoting fewer hours to sleeping and eating.
D. spending more time on the activity for which he has a comparative advantage.
Three workers run a house painting business and always work the same number of
hours together. The paint they use requires applying two coats. Each worker paints 200
square feet per hour using a roller or 80 square feet per hour using a brush. If a
technological advance provides a paint that only requires one coat, their average labor
productivity per hour as a team:
A. increases.
B. decreases.
C. remains the same.
D. may either increase or decrease.
Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays
annual compound interest, and you do not withdraw from the account until your
retirement at the age of 65, 44 years later. How much more will be in your account if
the interest rate is 6 percent rather than 5 percent?
A. $440
B. $1,549
C. $4,428
D. $8,557
Final goods and services are ______ production and ______ counted in GDP.
A. the end products of; are
B. the end products of; are not
C. used up in the process of; are
D. used up in the process of; are not
A labor contract provides for a first-year wage of $10 per hour, and specifies that the
real wage will rise by 3 percent in the second year of the contract and by another 3
percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and
1.15 in the third year. What dollar wage must be paid in the third year?
A. $10.61
B. $11.15
C. $12.20
D. $12.31
Refer to the figure above. Based on the figure, which interval represents a business
cycle expansion?
A. A to B
B. B to C
C. A to B to C
D. B to C to D
A price-taker confronts a demand curve that is:
A. vertical at the market price.
B. upward sloping.
C. downward sloping.
D. horizontal at the market price.
The labor market model that predicts an equilibrium wage equal to VMP applies
A. only to markets for unskilled labor.
B. only to competitive labor markets.
C. to all labor markets.
D. to labor markets that are exempt from minimum wage laws.
Recession in the United States typically are:
A. limited to a few industries.
B. limited to specific regions of the country.
C. widely felt outside the United States.
D. confined to the domestic economy.
Refer to the figure above. Moving from Point C to Point B, the opportunity cost of 25
more salads is:
A. 5 fewer pizzas.
B. 10 fewer pizzas.
C. 15 fewer pizzas.
D. 30 fewer pizzas.
If potential output equals $8 billion and actual output equals $7 billion, then this
economy has an output gap equal to:
A. -$1 billion.
B. $1 billion.
C. 12.5 percent.
D. -12.5 percent.
A commitment problem exists when:
A. players cannot make credible threats or promises.
B. players cannot make threats.
C. there is a prisoner's dilemma.
D. players cannot make promises.
Starting from full employment at the initial target inflation rate, if there is an adverse
inflation shock, then the Federal Reserve must _____ in order to avoid a recession.
A. increase the target inflation rate.
B. decrease the target inflation rate.
C. maintain the initial target inflation rate.
D. shift the short-run aggregate supply curve up.
If the market for sport utility vehicles has excess supply, then one can say that:
A. supply is greater than demand.
B. quantity supplied is greater than quantity demanded.
C. demand is greater than supply.
D. quantity demanded is greater than quantity supplied.
The self-control hypothesis suggests that people:
A. base their spending decisions (and consequently their saving decisions) on spending
decisions of others.
B. want to save, but lack the discipline to refrain from consuming.
C. substantially decrease their saving when the real interest rate increases.
D. control their spending in order to save more when the real interest rate increases.
All of the following are reasonable arguments against adopting a zero inflation target
EXCEPT that a zero inflation target:
A. makes the undesirable effects of deflation more likely.
B. prevents the central bank from achieving a negative real interest rate.
C. is not consistent with long-run price stability.
D. based on the CPI would not generate "true" price stability because of CPI
measurement problems.
Refer to the figure above. With the subsidy, what is the consumer surplus?
A. $1,000
B. $7,500
C. $10,100
D. $14,000
It is spring, and several graduates of State U are seeking employment. State U graduates
have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest
employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few
hard workers. While Acme does not require students to submit a transcript with their
applications, the hiring officer believes that high GPAs signal a willingness to work
hard.
Suppose both Acme and students applying for a position with Acme know that all
students with GPAs of 3.0 or better include transcripts. Therefore,
A. no students with GPAs less than 3.0 include transcripts.
B. all students with GPAs of 2.5 and above do include transcripts.
C. students with GPAs of less than 3.0 persuade those with higher GPAs to not include
transcripts.
D. Acme will consider transcripts to be not credible sources of information.
The equilibrium price and quantity of any good or service is established by:
A. only demanders.
B. only suppliers.
C. government regulations.
D. both demanders and suppliers.
According to the cost-benefit principle, you should switch to another task or job when:
A. the benefit from performing the new task is less than the benefit from continuing to
perform the original task.
B. the benefit from performing the new task just exceeds the opportunity cost of
performing that new task.
C. your productivity at the first task has diminished to the point at which the benefit
from continuing with that task is zero.
D. the opportunity cost of performing the original task is less than the benefit of
performing the original task.
One way to avoid counting the prices of intermediate goods multiple times in
computing the value of GDP is to:
A. sum the value added of only producers of final goods and services.
B. sum the value added of only producers of intermediate goods and services.
C. sum the value added of producers of both intermediate and final goods and services.
D. subtract the value added of producers of intermediate goods and services from the
value added of producers of final goods and services.
Lee and Cody are competitors. Each is considering whether to take aggressive action
against the other or to cooperate. Cody can observe Lee's decision. Their decision tree
can be diagrammed as follows:
Refer to the figure above. Suppose Cody tells Lee that any aggression on Lee's part will
be met with aggression, but that if Lee cooperates, Cody will respond cooperatively.
Cody's statement is:
A. a commitment device.
B. a non-credible threat and promise.
C. a description of the two equilibria for this game.
D. a credible threat and promise.
When a U.S. restaurant purchases French wine and the French wine company uses the
proceeds to buy U.S. government debt, U.S. ______ and there is a capital ______
to/from the United States.
A. imports increase; outflow
B. imports decrease; inflow
C. imports increase; inflow
D. exports increase; outflow
The slope of any production possibilities curve is __________ because __________.
A. negative; more production of one good means less production of the other
B. constant; the tradeoff in production never changes
C. positive; more production of one good means more production of the other
D. positive; more production of one good means less production of the other
The components of M2 that are not also in M1:
A. sum to an amount that is smaller than the sum of the components of M1.
B. pay lower rates of interest than do the components of M1.
C. are not usable for making payments.
D. are usable for making payments, but at a greater cost or inconvenience than currency
or checks.
Refer to the figure above. Moving from demand curve D2 to demand curve D1 could be
caused by a(n):
A. increase in consumers' incomes.
B. increase in quantity supplied.
C. increase in the price of a substitute.
D. increase in the price of a complement.
Suppose several United States software design companies compete with each other in a
perfectly competitive environment. If one company decides to move some of its offices
to a low-wage country in order to reduce operating costs:
A. the other companies will still be able to remain profitable while operating solely in
the United States.
B. the company that moves to the lower-wage country will earn positive economic
profits in the long run because it will keep a cost advantage.
C. the other companies will also move to the low wage country in order to remain in the
industry.
D. the first company to move will charge a lower price than the companies remaining in
the United States.
Refer to the figure above. At a price of $3, the market will experience ______________
in the amount of _________ units.
A. excess demand; 5 units
B. excess supply; 7 units
C. equilibrium; 4 units
D. excess supply; 3 units
