The crowding-out effect occurs when an expansionary fiscal policy increases the
interest rate, decreases investment spending, and weakens fiscal policy.
An expansionary monetary policy may be more effective than a restrictive monetary
policy because commercial banks may decide to hold a large quantity of excess
reserves.
In the kinked-demand curve model, the firm’s marginal revenue curve and demand
curve are identical.
A rise in the price level decreases the real value of financial assets with fixed money
values and, as a result, decreases spending by the holders of these assets.
An increase in taxes would be an expansionary fiscal policy.
The supply of tickets to a major sporting event such as the Super Bowl or a World
Series game is perfectly inelastic.
The rationing function of prices refers to the fact that government must distribute any
surplus goods that may be left in a competitive market.
If there is a federal budget surplus, then government revenues are greater than its
expenditures.
One of the causes of the trade deficits of the late 1990s has been a declining saving rate
in the United States.
The terms of trade will favor a larger nation over a smaller nation.
A government subsidy per unit of output increases supply.
The percentage change in real income can be approximated by subtracting the
percentage change in the price level from the percentage change in nominal income.
In economics, a firm earns a normal profit when its total revenue equals its total
economic costs.
Because monopolistically competitive firms cannot earn long-run economic profits,
they do not have any degree of monopoly power.
From one year to the next, the Consumer Price Index rose from 140.3 to 144.5. The rate
of inflation was therefore 7.1 percent.
The demand curves for firms in a purely competitive industry are perfectly elastic.
From 2001 to 2011, the annual rate of inflation in the United States has averaged less
than 1 percent.
If a nation is incurring a trade deficit (it is buying more from abroadimporting, than it is
selling abroadexporting), then it is most likely producing beyond the frontier of its
production possibilities curve.
The Sherman Act declares that price discrimination, tying contracts, stock acquisitions
between corporations, and interlocking directorates are illegal when their effect is to
reduce competition.
In the U.S. economy, rents are the smallest source of household income.
The short run is a period of time during which all costs are fixed costs.
Economists who are willing to accept mild inflation consider it to be a necessary
by-product of high and growing spending that produces high levels of output, full
employment, and economic growth.
Minimum efficient scale varies by industry.
The economy of the United States can best be described as pure capitalism.
The marginal cost curve for a product slopes upward as more units are produced
because of the law of increasing costs.
A factor that serves as the economic basis for world trade is the uneven distribution of
resources among nations.
An increase in the quantity and quality of natural resources is a demand factor for
economic growth.
Price-fixing is illegal under Section 1 of the Sherman Act.
Economists agree that corporations always shift the corporate income tax to consumers
by raising product prices.
The Temporary Assistance to Needy Families program shifted responsibility for welfare
from the federal government to the states.
A point inside the production possibilities curve illustrates that resources are not being
used as efficiently as possible.
Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year that
sell for $3 a box. If variable costs are $2 per box and it has $125,000 in fixed operating
costs, in the short run the CCC should:
A. shut down as fixed costs are not being covered.
B. keep producing as profits are $25,000.
C. keep producing because variable costs are covered.
D. reduce production until the break-even point is reached.
A firm should increase the quantity of output as long as its:
A. marginal revenue is greater than its marginal cost.
B. marginal cost is greater than its marginal revenue.
C. average revenue is greater than its average total cost.
D. average revenue is greater than its average variable cost.
Refer to the above graph, which shows the supply and demand for money where Dm1,
Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent
different levels of the money supply. The initial equilibrium point is A. What will be the
new equilibrium point following a decrease in the money supply?
A. B.
B. E.
C. F.
D. I.
Refer to the above graph. It represents a monopolistically competitive firm in a
constant-cost industry. In long-run equilibrium this firm will:
A. continue to earn economic profits because it has monopolistic power to set its price.
B. become a perfectly competitive firm because there are no significant barriers to
entry.
C. break even because average total cost (ATC) and marginal cost (MC) will increase as
more firms enter the market.
D. break even because its demand curve will fall and become more elastic as it loses
sales to other firms entering the market.
The circular flow model:
A. assumes that central planning is taking place.
B. illustrates how natural resources are created.
C. illustrates how money is created by the banking system.
D. illustrates the interdependence of businesses and consumers.
Changes in the rate of interest will most likely affect:
A. the reserve ratio.
B. government spending.
C. investment spending.
D. aggregate supply.
Most modern banking systems are based on:
A. money of intrinsic value.
B. commodity money.
C. 100 percent reserves.
D. fractional reserves.
An explicit cost is:
A. omitted when accounting profits are calculated.
B. a money payment made for resources not owned by the firm itself.
C. an implicit cost to the resource owner who receives that payment.
D. always in excess of a resource’s opportunity cost.
A major component of the money supply (M1) is:
A. savings bonds.
B. checkable deposits.
C. gold certificates.
D. savings deposits.
The principle underlying the kinked-demand curve model of oligopoly is that the
demand curve facing one firm is more elastic when other firms in the industry:
A. match the firm’s price changes.
B. hold price constant when the firm changes its prices.
C. hold quantities constant when the firm changes its prices.
D. change prices in the opposite direction when the firm changes its prices.
Which is not a form of product differentiation for the monopolistically competitive
firm?
A. Brand names and trademarks.
B. Promotion and packaging.
C. Location and accessibility.
D. Standard weekday and weekend hours.
When the price of oil declines significantly, the price of gasoline also declines. The
latter occurs because of a(n):
A. increase in the demand for gasoline.
B. decrease in the demand for gasoline.
C. increase in the supply of gasoline.
D. decrease in the supply of gasoline.
Henry Trudeau deposits $2000 in currency in the First Street Bank. Later that same day
Jane Harris negotiates a loan for $5400 at the same bank. After these transactions, the
supply of money has:
A. increased by $2100.
B. increased by $3300.
C. increased by $5400.
D. decreased by $3300.
A public debt that is owed to foreigners can be burdensome because:
A. foreign interest rates are persistently higher than domestic interest rates.
B. payment of interest reduces the volume of goods and services available for domestic
uses.
C. payment of interest will conflict with a nation’s foreign aid programs.
D. payment of interest will necessarily have a deflationary effect on prices in the paying
nation.
Total fixed cost (TFC):
A. falls as the firm expands output from zero, but eventually rises.
B. falls continuously as total output expands.
C. varies directly with total output.
D. does not change as total output increases or decreases.
The view that labor unions may be a source of inflation would be best associated with
the:
A. supply-shock view of inflation.
B. cost-push view of inflation.
C. wage-push view of inflation.
D. demand-pull view of inflation.
Gross private domestic investment is the value of capital goods and buildings that are
produced that year:
A. plus residential construction and changes in business inventories.
B. plus the consumption of fixed capital and indirect business taxes.
C. minus changes in business inventories.
D. plus the consumption of fixed capital.
A firm in a purely competitive product market finds it must increase wages to attract
extra workers. The firm will hire labor up to the point where the marginal:
A. product of labor equals the wage rate.
B. revenue product of labor equals the wage rate.
C. revenue product of labor starts to decline.
D. revenue product is less than the cost of hiring an extra worker.
Which of the following definitions is correct?
A. Accounting profit + Economic profit = Normal profit.
B. Economic profit – Accounting profit = Explicit costs.
C. Economic profit = Accounting profit – Implicit costs.
D. Economic profit – Implicit costs = Accounting profits.
Refer to the above supply and demand graph. Point A represents the current equilibrium
level of output of this product and point B represents the optimal level of output from
society’s perspective. The amount of the subsidy to be given to consumers to correct
this externality problem would be measured by:
A.AB.
B.GH.
C.EF.
D.IJ.
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent,
then:
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. it is encountering constant returns to scale.
D. the marginal products of all inputs are falling.
If a minimum wage is set at W, what will happen to employment in the monopsonistic
labor market shown in the diagram above?
A. Employment will decrease.
B. Employment will increase.
C. Employment will stay the same.
D. Employment may increase but usually it tends to stay the same.
A factory, mine, store, or warehouse that performs one or more functions in making and
distributing goods and services is:
A. a firm.
B. a plant.
C. an industry.
D. a corporation.
An increase in expected future income will:
A. increase aggregate demand and aggregate supply.
B. decrease aggregate demand and aggregate supply.
C. increase aggregate supply.
D. increase aggregate demand.
If the Fed sells government securities to commercial banks in the open market:
A. the Fed gives the securities to the commercial banks, and the commercial banks pay
for them by writing a check that increases their reserves at the Fed.
B. the Fed gives the securities to the commercial banks, and commercial banks pay for
them by writing a check that decreases their reserves at the Fed.
C. commercial banks give the securities to the Fed, and the Fed pays for them by
increasing the reserves of commercial banks at the Fed.
D. commercial banks give the securities to the Fed, and the Fed pays for them by
decreasing the reserves of commercial banks at the Fed.
In 1999, McDonald’s introduced the “Big Xtra” and it turned out to be a successful
product. In the marketplace for fast-food products, this success would be an example of:
A. derived demand.
B. medium of exchange.
C. consumer sovereignty.
D. roundabout production.
Answer the next question on the basis of the following consolidated balance sheet for
the commercial banking system. Assume the required reserve ratio is 30 percent. All
figures are in billions.
Refer to the above data. If the commercial banking system actually loans the maximum
amount it is able to lend:
A. reserves and deposits equal to that amount will be gained.
B. excess reserves will be $2.6 billion.
C. excess reserves will fall to $1.7 billion.
D. excess reserves will be reduced to zero.
In a market economy, the money incomes of individuals depend primarily upon:
A. government policies in setting wages and interest rates.
B. the value and amounts of the productive resources the individuals possess.
C. the amount of college education the individuals have.
D. who you know and how well you know them.
Demand-pull inflation will:
A. increase productivity.
B. decrease input prices.
C. increase the strength of the multiplier.
D. decrease the strength of the multiplier.
Market failures occur when:
A.the government sets price floors and ceilings.
B.the competitive market system under- or overallocates resources to production of
goods.
C.there are no externalities.
D.goods are rival in consumption.
Other things equal, if the price of a key resource used to produce product X falls, the:
A. product supply curve of X will shift to the right.
B. product demand curve of X will shift to the right.
C. product supply curve of X will shift to the left.
D. product demand curve of X will shift to the left.
Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1
million of them become discouraged over their job prospects and cease to look for
work. As a result of this, the official unemployment rate would:
A. decline.
B. increase.
C. increase in the short run but eventually decline.
D. be unchanged.
The income elasticity of demand for jewelry is 2. Other things equal, a 10 percent
increase in consumer income will:
A. decrease the quantity of jewelry purchased by 20 percent.
B. increase the quantity of jewelry purchased by 10 percent.
C. decrease the quantity of jewelry purchased by 10 percent.
D. increase the quantity of jewelry purchased by 20 percent.
Waybelow Normal University has found it necessary to institute a crime-control
program on its campus to deal with the high costs of theft and vandalism. The
university is now considering several alternative levels of crime control. This table
shows the expected annual costs and benefits of these alternatives.
Refer to the above information. The marginal costs of additional levels of crime control
are:
A.$60,000 for Level Two.
B.$20,000 for Level Three.
C.$5,000 for Level Five.
D.$10,000 for Levels Two, Three, Four, and Five.
Which is a likely result of imposing tariffs to increase domestic employment?
A. A decrease in consumer prices
B. A decrease in the tariff rates of foreign nations
C. An increase in the number of jobs
D. An increase in the possibility of retaliatory tariffs