In a traditional economy, decisions about what to produce, how to produce, and who
should get society’s output are made by
a. the market
b. the government
c. repeating what was done in the past
d. business firms
e. nonprofit firms
Carl is considering attending a concert with a ticket price of $35. He estimates that the
cost of driving to the concert and parking there will total an additional $20. In order to
attend the concert, Carl will have to take time off from his part-time job and forgo
studying for an exam scheduled for the next morning. He estimates that he will lose 3
hours at work, at a wage of $6 per hour, plus 2 hours of study time. Carl’s opportunity
cost of attending the concert equals
a. $73 plus the value of the higher exam grade he could earn by studying longer
b. $73
c. $35 plus the value of the higher exam grade he could earn by studying longer
d. $35
e. $55 plus the value of the higher exam grade he could earn by studying longer
Normative economics deals with
a. how the economy actually works
b. how a change in government budgets affects the price level
c. how prices are determined in specific markets
d. value judgments
e. the historical growth of an economy
Suppose that the equilibrium interest rate is 8 percent, but the actual interest rate is 5
percent. Very quickly,
a. bond prices fall
b. bond prices will rise
c. the interest rate will begin to fluctuate until bondholders reduce their demand for
money
d. the primary bond market will start its adjustment process
e. the supply and demand for money will both increase
If real disposable income increased by $10,000 and real consumption spending
increased by $7,500, what is the marginal propensity to consume (MPC)?
a. 0.25
b. 1.0
c. 0.75
d. 1.75
e. 1.25
The September 11 attacks no doubt worsened the slowdown that had already begun
earlier in mid-2000..
Assume the economy is currently in equilibrium. Use the following information to
calculate the total value of injections
Total injections are
a. $10.7 trillion
b. $5.1 trillion
c. $5.9 trillion
d. $5.7 trillion
e. $5.3 trillion
The cumulative total of the federal government’s budget deficits has been greater than
the total of its surpluses.
For the average living standard of a nation to __________, __________ must increase
faster than the price level
a. increase; nominal GDP
b. increase; real GDP
c. decrease; nominal GDP
d. remain constant; nominal GDP
e. decrease; real GDP
Due to the multiplier effect, a decrease in investment spending
a. is greater than the resulting decrease in GDP
b. has a minimal impact on the economy
c. causes the money supply to increase
d. leads to an even larger decrease in output
e. results in increased autonomous consumption
Which of the following describes the correct relationship among the nominal interest
rate, the real interest rate, and the inflation rate?
a. Real interest rate = nominal interest rate + inflation rate
b. Real interest rate = nominal interest rate – inflation rate
c. Nominal interest rate = real interest rate – inflation rate
d. Inflation rate = real interest rate – nominal interest rate
e. Inflation rate = nominal interest rate + real interest rate
In a market economy,
a. the government primarily determines the distribution of resources
b. prices determine the allocation of resources
c. what society produces is what it produced in the past
d. resource costs increase as specialization increases
e. absolute advantage is the primary determinant of resource allocation