In an environment of tournament pay, it is quite likely that marginally more productive
employees will receive
a. less than their marginal revenue product, while less productive employees receive
more than theirs.
b. more than their marginal revenue product, while less productive employees receive
less than theirs.
c. more than their marginal revenue product, as do less productive employees.
d. less than their marginal revenue product, as do less productive employees.
If there is a decrease in demand for picture frames, we would expect
a. both the price and quantity sold to increase.
b. both the price and quantity sold to decrease.
c. the price to decrease and the quantity sold to increase.
d. the price to increase and the quantity sold to decrease.
Which of the following factors substantially reduces the effectiveness of discretionary
changes in tax rates or government expenditures as a stabilization tool?
a. Even though computer models have enhanced our forecasting ability, policy makers
at the Federal Reserve have been reluctant to utilize information supplied by the
models.
b. When fiscal policy is altered, the Fed generally shifts monetary policy in a manner
that offsets the impact of the fiscal action.
c. Changes in government expenditures and taxes are always offset by equal changes in
private spending.
d. Since it takes time for fiscal policy to work and since the future is difficult to
forecast, it is difficult to time fiscal policy changes correctly.
Figure 17-8
Refer to Figure 17-8. With trade, this country
a. exports 20 wagons.
b. exports 50 wagons.
c. imports 30 wagons.
d. imports 50 wagons.
It is difficult to predict the behavior of oligopolistic firms because
a. there are few real-world examples of oligopolies for economists to study.
b. oligopolists make decisions independently of each other.
c. firms in oligopolistic industries react to each other’s behavior in many ways.
d. economists have paid little attention to the topic in recent years and so have not yet
applied to it the techniques of modern economic theory.
Which of the following is a widely-used and closely-watched forecasting tool
concerning the future direction of the macro-economy?
a. the excess reserves of commercial banks
b. the Phillips curve
c. the index of leading indicators
d. the current budget deficit or surplus
e. the velocity of the M1 money supply
Which of the following is true?
a. Anticipated inflation is an increase in the price level that comes as a surprise, at least
to most individuals.
b. Unanticipated inflation is a change in the price level that is widely expected.
c. Decision makers are generally able to anticipate slow steady rates of inflation with a
fairly high degree of accuracy.
d. Inflation will increase the prices of goods and services that households purchase but
not the wage rates of workers.
Suppose, over the past year, the real interest rate was 3 percent and the inflation rate
was 1 percent.
a. The dollar value of savings increased at 2 percent, and the value of savings measured
in goods increased at 3 percent.
b. The dollar value of savings increased at 1 percent, and the value of savings measured
in goods increased at 2 percent.
c. The dollar value of savings increased at 3 percent, and the value of savings measured
in goods increased at 1 percent.
d. The dollar value of savings increased at 4 percent, and the value of savings measured
in goods increased at 3 percent.
Economic choice and competitive behavior are the result of
a. basic human greed.
b. poverty.
c. private ownership of resources.
d. scarcity.
Profit-sharing plans, where employees receive bonuses in proportion to the company’s
profits,
a. reduce the principal-agent problem.
b. are intended to reduce the number of employees who are residual claimants.
c. eliminate shirking problems.
d. are essentially gifts to employees and do not generate any benefit for the firm’s
owners.
Three basic decisions must be made by all economies. What are they?
a. How much will be produced; when will it be produced; who will produce it?
b. What goods will be produced; how will goods be produced; for whom will goods be
produced?
c. What will be consumed; how will goods be consumed; for whom will goods be
consumed?
d. How will the opportunity cost principle be applied; if the law of comparative
advantage will be utilized, how will it be utilized; will the production possibilities
constraint apply?
Which of the following could be considered to be a secondary effect caused by making
drugs such as cocaine illegal?
a. The higher prices that result from making them illegal results in more property theft
by users to afford the drugs.
b. The usage of police and law enforcement resources to enforce drug laws leads to
lower enforcement (and thus a higher amount) of other crimes.
c. Without the ability to use the legal system to enforce contracts, violence often results
when one party to a drug deal does not live up to their end of the bargain, thus the
amount of violence increases by making drugs illegal.
d. All of the above would be considered secondary effects of making drugs illegal.
Kimani sells life insurance and is considering buying a $50,000 Cadillac for business
purposes (thus, the expense reduces her taxable income). If Kimani is in the 40 percent
marginal tax bracket, how much after-tax income will she have to give up in order to
enjoy the Cadillac?
a. $20,000
b. $30,000
c. $25,000
d. $70,000
Figure 4-15
In Figure 4-15, suppose a price floor is established at $20.00. What is the result?
a. a shortage of 10 units
b. a surplus of 10 units
c. a shortage of 20 units
d. a surplus of 20 units
e. there is no change from the situation that exists at the equilibrium price
When a highly valued resource cannot be easily traded, as is often true with water
flowing in a river, then
a. it will not be hoarded by the rich, but will be available to all on an equal basis.
b. we can expect shortages from time to time, and conflicts over access to its use.
c. its price will be low as a result.
d. markets in the resource will clear more easily, without greed and profit to get in the
way.
A government with a national debt that is large and growing relative to the size of the
economy will
a. eventually find it difficult to borrow in global credit markets.
b. be able to borrow at lower interest rates than countries with less outstanding debt.
c. have to allocate a large and growing amount of tax revenue to the payment of interest
on the outstanding debt.
d. do both a and c.
It is important to distinguish between the privately held portion of the national debt and
the portion held by government agencies and the Federal Reserve system because
a. the government will not have to repay the privately held debt.
b. only the privately held debt creates a net interest liability for the federal government.
c. the privately held debt does not create a net interest liability for the federal
government.
d. taxes will have to be raised in order to pay the interest on the debt held by the Federal
Reserve system.
According to the law of comparative advantage,
a. individuals and nations gain when they specialize in producing those goods they
consume.
b. individuals and nations gain when they specialize in producing goods they can
produce at a high opportunity cost and can exchange for other desired goods they can
produce cheaply.
c. individuals and nations gain when they specialize in producing those items for which
they are the low opportunity cost producers and exchange for other desired goods they
can’t produce as cheaply.
d. all of the above are true.
Economic efficiency requires that costs associated with the expansion and utilization of
capital be balanced against the
a. future increases in output derived from improved tools and production methods.
b. reduction in future employment due to automation.
c. indirect costs of capital goods.
d. need to maintain a reserve army of the unemployed.
If two workers can produce 22 units of output, and the addition of a third worker
increases output to 30 units, the marginal product of the third worker is
a. 8 units.
b. 10 units.
c. 22 units.
d. 30 units.
Which of the following about unemployment is true?
a. The unemployment rates of the major European economies have been lower than the
United States during the last decade.
b. The natural rate of unemployment is unaffected by labor market regulations and other
dimensions of public policy.
c. High unemployment rates over lengthy time periods are indicative of structural
factors that are adversely affecting the natural rate of unemployment.
d. The unemployment rates of Spain and Italy were among the lowest in the world
during the past two decades.
Which of the following is most vital if the firms in an industry are going to earn
economic profit in the long run?
a. an inelastic demand for the product produced by the firms
b. an elastic demand for the product produced by the firms
c. managerial efficiency
d. high barriers to entry into the industry
In 2010, the proportion of all poverty-level families headed by a female was
a. approximately one-fourth.
b. approximately one-third.
c. approximately half.
d. more than three-fourths.
When the United States ran large budget deficits during 2001-2011,
a. private investment was strong and consumer expenditures declined as a percentage of
GDP.
b. private investment was weak and consumption increased as a share of GDP.
c. the trade deficit of the United States shrank, indicating that borrowing from
foreigners was declining.
d. the deficits were financed exclusively through borrowing from domestic sources.
Gross domestic product (measured in real dollars) is an important social tool because it
provides
a. observers with a reasonably good index of social progress.
b. policy makers with a measure of the nation’s total wealth.
c. policy makers with information about the economy’s current rate of output and the
direction of recent changes.
d. economists with a reasonably good measure of income inequality.
Students in a class are assigned to groups to work on a project. A grade will be given for
each project, and everyone in the group will receive that grade. For the members of a
particular group, the grade is a
a. external benefit.
b. public good.
c. external cost.
d. repeat purchase item.
Figure 4-21
Refer to Figure 4-21. The price paid by buyers after the tax is imposed is
a. $18.
b. $14.
c. $12.
d. $8.
Which of the following will most likely occur under a system of clearly defined and
enforced private property rights?
a. Resource owners will fail to conserve vital resources, even if they expect their supply
to be highly limited in the future.
b. Resource owners will ignore the wishes of others, including others who would like to
use the resource that is privately owned.
c. Resource owners will fail to consider the wishes of potential future buyers when they
decide how to employ privately owned resources.
d. Resource owners will gain by discovering and employing their resources in ways that
are highly valued by others.
In the short run, which of the following is the most likely effect of an unanticipated
move to a more expansionary monetary policy?
a. an increase in employment
b. a decrease in employment
c. an increase in the velocity of money
d. an increase in prices proportional to the rise in the money supply
The main reason that the deficit grows in a recession is that
a. the government reacts quickly and adjusts taxes to compensate.
b. monetary policy that targets interest rates causes the costs of borrowing to fall.
c. the deficit causes the recession, and reducing the deficit cures the recession.
d. many forms of taxes act as automatic stabilizers.
After new HUD guidelines were issued in 1999, Freddie Mac and Fannie Mae
a. extended fewer loans to borrowers making a down payment of 5 percent or less.
b. extended more loans to borrowers making a down payment of 5 percent or less.
c. extended new loans only to borrowers making a down payment of at least 20 percent.
d. refused to extend new loans without full verification that the borrower had prime
credit status.
Arnold is considering purchasing a business for $100,000. It will pay him an annual
return of $8,000. If the interest rate is 10 percent, should he buy the business? What if
the interest rate was 6 percent?
Suppose the United Auto Workers union obtains a substantial wage increase for auto
workers. How will this affect the market for automobiles?
Why is competition important? Do business firms operating in competitive markets
have a strong incentive to serve the interests of consumers? Do business owners have to
care about the interests of others if they are going to provide them with helpful products
and services?
Is your economics textbook a public or private good? If you conclude that it is a private
good, why do we have copyright laws?
Briefly explain why the Social Security system will face a “crisis” in the coming years.
What are the macroeconomic policy implications of the rational expectations
hypothesis? What should policy makers do and not do?
Explain how an increase in the Mexican demand for American goods leads to a change
in the Mexican peso relative to the U.S. dollar.
What is the difference between the federal budget deficit and the national debt?
The Alpha Car Wash is known for the quality way in which every car is hand cleaned.
The Beta Car Wash uses machines, so consumers are generally willing to pay a higher
price for Alpha’s services. The Auto Washers union at Alpha has just succeeded in
obtaining a substantial wage increase. What will likely happen as a result?
What is fiscal policy? What is the relationship between fiscal policy and the federal
budget?
The president of a large public university proclaims, “If we can get the state
government to fund our new football stadium, it will not cost us anything.” Evaluate
this view from an economic perspective.
If the U.S. government were to run a substantial budget deficit, what would be the
effects on the economy under the new classical view?
Why is it more expensive to acquire a new house in an urban area than in a rural area if
the costs of labor and building materials are the same?
What is the natural rate of unemployment, and how does it relate to the concept of
potential (or full-employment) GDP?
Briefly explain the three functions of money.
Why don’t we divide the economic pie evenly so that each person receives the same
income?
According to the Keynesian model, in what ways will expansionary fiscal policy
stimulate aggregate demand?