Moe divides his time between studying Physics and studying Economics. He has
discovered that he can earn grades as shown on this production possibilities curve.
Moe needs to earn at least an 80 in both economics and physics to keep his scholarship.
Given his current PPC, an 80 in both classes is ______.
A. infeasible
B. attainable, but only if Moe is efficient
C. efficient
D. attainable, but inefficient
Nominal GDP measures the ______ of production.
A. change in the volume
B. physical volume
C. current dollar value
D. base year value
Holding other factors constant, if Congress passes a 5% investment tax credit under
which a firm receives $5 in tax refunds from the government for every $100 it spends
on new capital equipment, then the real interest rate will ______ and the equilibrium
quantity of national saving and investment will _____.
A. increase; increase
B. increase; decrease
C. increase; not change
D. decrease; increase
If the actual rate of unemployment equals the natural rate of unemployment, then:
A. potential output is greater than real GDP.
B. potential output equals real GDP.
C. potential output is less than real GDP.
D. there is a recessionary gap.
Labor income in the U.S. equals approximately ______ of GDP.
A. one third
B. two fifths
C. one half
D. two thirds
One difference between the long run and the short run in a perfectly competitive
industry is that:
A. economic profits in the long run are always greater than they are in the short run.
B. economic profits in the short run are always greater than they are in the long run.
C. firms necessarily earn zero economic profit in the long run but may earn positive or
negative economic profit in the short run.
D. firms necessarily earn positive economic profit in the long run but may earn positive
or negative economic profit in the short run.
An increase in the quantity demanded of tea occurs whenever:
A. the population of tea drinkers grows.
B. the price of coffee rises.
C. tea drinkers receive an increase in their incomes.
D. the price of the tea falls.
Refer to the figure above. With no subsidy, the equilibrium price of sugar is _____ and
the equilibrium quantity is ______ tons per day.
A. $1,000; 14
B. $1,000; 10
C. $1,500; 14
D. $1,500; 10
A village has five residents, each of whom has accumulated savings of $50. Each
villager can use the money to buy a government bond that pays 10% interest per year or
to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The
price of the goat that the villager will get at the end of the year depends on the amount
of weight it gains while grazing on the commons, which in turn depends on the number
of goats sent onto the commons, as shown in table below.
Refer to the information given above. Suppose a village elder decides the total number
of goats and bonds with the goal of maximizing total village income. The village
income will be _______.
A. $250
B. $125
C. $70
D. $15
Although GDP is not the same as economic well being, high levels of GDP are
positively correlated with all of the following EXCEPT:
A. longer life expectancies.
B. higher rates of literacy.
C. higher material standards of living.
D. higher rates of infant mortality.
E-commerce and an internet presence are important to many firms, requiring employees
with specialized skills that are in short supply. The invisible hand solves the
employment problem by:
A. encouraging the government to set up new training programs.
B. giving selfish workers the incentive to acquire the skills in order to receive high
wages.
C. allowing the few employees with the skills to exploit the firms.
D. moving slowly until the e-commerce craze ends.
A village has five residents, each of whom has accumulated savings of $50. Each
villager can use the money to buy a government bond that pays 10% interest per year or
to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The
price of the goat that the villager will get at the end of the year depends on the amount
of weight it gains while grazing on the commons, which in turn depends on the number
of goats sent onto the commons, as shown in table below.
Refer to the information given above. Left to private incentives, the villagers earn
_____ than when goat grazing is determined collectively.
A. less total income
B. more total income
C. the same amount of total income
D. either more or less total income depending on the market price of goats
Arguments in favor of programs that tax income to redistribute wealth include:
A. these programs provide a financial incentive to work harder.
B. these programs provide a financial incentive to invest in human capital.
C. these programs help to reduce poverty.
D. these programs discourage firms from discriminating in their hiring.
According to Okun’s Law, when cyclical unemployment increases from 2 to 3 percent,
the recessionary gap increases from ______ percent.
A. 4 to 6
B. -2 to -3
C. 0 to 1
D. -4 to -6
A job is most likely to be outsourced if it:
A. involves face-to-face contact.
B. cannot be done by a computer.
C. does not require complex communication.
D. does not require use of computers or other technology.
House prices in the U.S. increased dramatically _____, and decreased dramatically
______.
A. from 2001 to 2006; from 2007 to 2009
B. from 2007 to 2009; from 2001 to 2006
C. from 2001 to 2009; from 2006 to 2007
D. from 2006 to 2009; from 2001 to 2006
Angelina Jolie’s economic rent from starring in a movie is equal to the difference
between:
A. her initial offer and her final salary, including royalties.
B. her initial offer and what she could earn in a different film.
C. her final salary and the average for leading actresses.
D. her final salary and the least she would be willing to accept for a role.
When recessions are the result of slowing growth in potential output, the government’s
best response is a policy to:
A. increase aggregate demand.
B. decrease aggregate demand.
C. promote saving and investment.
D. reduce government spending.
Refer to the figure above. Based on the Keynesian cross diagram, short-run equilibrium
output equals:
A. 3,000.
B. 3,250.
C. 4,000.
D. 4,750.
The reason nonunion firms do not always drive the union firms out of business is
A. markets are not competitive.
B. consumers look for the union label.
C. union firms hire more selectively, employing workers with greater human capital.
D. union firms cut corners in other areas.
Lou and Alex live together and share household chores. They like to cook some meals
ahead of time and eat leftovers. Suppose that in one hour Lou and Alex can do the
following:
Alex and Lou have worked out an efficient arrangement. Under that arrangement:
A. Alex and Lou do half of the cooking and half of the cleaning.
B. Alex does all of the cleaning, while Lou does all the cooking.
C. Lou does all of the cleaning and half of the cooking.
D. Lou does all of the cleaning, while Alex does all of the cooking.
Suppose that a new drug has been approved to treat a life-threatening disease. Demand
for that drug is shown on the graph below. Prior to approval of this drug, the only
treatment for this condition was non-prescription pain relief. Demand for one brand of
non-prescription pain reliever is also shown on the graph below.
Refer to the figure above. The main reason for the difference in the slopes of the
demand curves is that:
A. one drug has many substitutes and the other does not.
B. one drug is new on the market and the other has been available for a long time.
C. one drug is heavily regulated by the Food and Drug Administration and the other is
not.
D. one market is in equilibrium and the other is not.
Suppose a borrower and lender agree to an interest rate on a loan when inflation is
expected to be 6%. The borrower would benefit the most if which of the following
inflation rates actually occurred?
A. 0%
B. 3%
C. 6%
D. 9%
Spending on durable goods, nondurable goods, and services is included in:
A. consumption expenditures.
B. investment.
C. government purchases.
D. net exports.
Refer to the figure above. Based on the figure, if autonomous spending falls from 400
to 200, then the new short-run equilibrium output will equal:
A. 1,200.
B. 400.
C. 600.
D. 800.
A flexible exchange rate is an exchange rate whose value:
A. is determined by the law of one price.
B. varies according to the supply and demand for the currency in the foreign exchange
market.
C. is established annually by the International Monetary Fund.
D. reflects the comparative advantage of the home country versus other foreign
countries.
To ensure that your salary maintains its real purchasing power from year to year, your
nominal salary must be:
A. deflated.
B. indexed.
C. aggregated.
D. hyperinflated.
Consider an industry with two firms producing similar products.
Mega Corp’s total costs are TC = $5,000 + 100 × Quantity.
Big Inc’s total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above. If each firm produces 10 units, Mega Corp will
have total costs of _____ and Big Inc will have total costs of _____.
A. $6,000; $6,000
B. $5,000; $4,000
C. $5,100; $4,200
D. $15,000; $14,200
The government expenditure component of GDP includes:
A. purchases of final goods and services.
B. interest payments on government debt.
C. transfer payments.
D. payments made to social security recipients.
Early settlers in the town of Dry Gulch drilled wells to pump as much water as they
wanted from the single aquifer beneath the town. (An aquifer is an underground body of
water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to
be drilled deeper at higher cost.
Refer to the information given above. The aquifer beneath Dry Gulch is:
A. an external cost.
B. private property.
C. a commons.
D. an external benefit.