A peak in the business cycle:
A. occurs when the unemployment rate is its greatest.
B. occurs when the inflation rate is its lowest.
C. is a temporary maximum point.
D. is a temporary minimum point.
If the price of labor falls relative to the price of capital, and as a result the quantity of
capital employed decreases, it can be concluded that:
A. the substitution effect is greater than the output effect.
B. the output effect is greater than the substitution effect.
C. the income effect is greater than the output effect.
D. labor cannot be easily substituted for capital.
Which is included in GDP?
A. Used autos purchased by consumers.
B. Social Security payments.
C. Telephone service for a home.
D. Bread for a restaurant.
A given unit of resource inputs produces 400 tons of corn and 200 tons of soybeans in
nation A and 300 tons of corn and 100 tons of soybeans in nation B. Which of the
following is correct?
A. The domestic opportunity cost of corn is lower in nation A than in nation B.
B. Nation A has a comparative advantage in soybeans.
C. There are no gains from trade between nation A and nation B.
D. The terms of trade favor nation A.
The increased-domestic-employment argument for tariff protection holds that:
A. domestic inflation is a desirable policy goal because it stimulates exports.
B. domestic deflation is a desirable policy goal because it stimulates imports.
C. an increase in tariffs will reduce net exports and stimulate domestic employment.
D. an increase in tariffs will increase net exports and stimulate domestic employment.
The purpose of the ceteris paribus assumption used in economic analysis is to:
A. make sure that all relevant factors are considered.
B. avoid making normative statements.
C. avoid making positive statements.
D. restrict the analysis to the effect of a single economic factor.
A trade deficit refers to an excess of:
A. imports of goods over exports of goods.
B. Exports of services over imports of services.
C. total debits over total credits in the capital account.
D. total payments over total revenues in the current account.
Refer to the above graph. The total opportunity cost of nine drill presses is:
A. 1 unit of bread.
B. 2 units of bread.
C. 3 units of bread.
D. 4 units of bread.
Foreign exchange rates refer to the:
A. price at which purchases and sales of foreign goods take place.
B. movement of goods and services from one nation to another.
C. price of one nation’s currency in terms of a second nation’s currency.
D. difference between exports and imports in a particular nation.
Answer the next question on the basis of the following table for a commercial bank or
thrift:
Refer to the above table. If the legal reserve ratio falls from 25 percent to 10 percent,
excess reserves of this single bank will:
A. rise by $6000 and the monetary multiplier will increase from 4 to 10.
B. rise by $60,000 and the monetary multiplier will increase from 4 to 10.
C. fall by $6000 and the monetary multiplier will decline from 30 to 10.
D. fall by $2000 and the monetary multiplier will decline from 10 to 4.
Along a production possibilities curve, an increase in the production of one type of
good can be accomplished only by:
A. decreasing the production of the other type of good.
B. increasing the production of the other type of good.
C. holding constant the production of the other type of good.
D. decreasing the price of the other type of good.
Elastic demand displays considerable:
A. price stretch.
B. income stretch.
C. quantity stretch.
D. cross-price stretch.
“Rivalry” in consumption means that:
A.there are multiple sellers of the good.
B.there are many buyers of the good.
C.a buyer may purchase goods from multiple sellers.
D.when one person buys a good, it is not available for another person to buy.
Refer to the above graph. If the MRC decreased:
A. quantity would increase.
B. quantity would decrease.
C. the firm would operate as a monopsonist.
D. the firm would increase the supply of labor.
Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of
Kansas City. She deposits these funds in her checking account to the First Commerce
Bank. Her checking account had a $150,000 balance before the sale of the security. The
reserves of the First Commerce Bank would:
A. increase by $4,750,000.
B. increase by $4,600,000.
C. decrease by $4,600,000.
D. decrease by $4,450,000.
In the kinked-demand model of noncollusive oligopoly, if one firm increases its price,
the most likely reaction of the other firms will be to:
A. decrease their prices.
B. increase their prices.
C. not change their prices.
D. fix prices.
In competing with rivals, oligopolistic firms will tend to use:
A. price cuts because they do not add to costs like advertising.
B. advertising because it is less easily duplicated than price cuts.
C. collusion because it is a legal way to increase market share.
D. price wars because they will increase the profits of firms.
Refer to the above graph. What will shift D1 to D2?
A. An increase in the price of a complementary input.
B. A decrease in the demand for the product produced by the labor.
C. An increase in the price of a substitute input (if the output effect is greater than the
substitution effect).
D. An increase in the price of a substitute input (if the substitution effect is greater than
the output effect).
Government programs, such as Social Security, food stamps, AFDC, SSI, Medicare,
and Medicaid, that guarantee particular levels of transfer payments to all who fit the
programs’ criteria are called:
A. public assistance programs.
B. social insurance programs.
C. benefit-reduction programs.
D. entitlement programs.
Refer to the above graph for a firm in pure competition. Line B represents:
A. total revenue.
B. marginal revenue.
C. average total cost.
D. average fixed cost.
In product markets:
A. households sell products to business firms.
B. households sell resources to business firms.
C. businesses sell resources to households.
D. businesses sell goods and services to households.
Money is not considered to be an economic resource because:
A. as such it is not productive.
B. money is not a free gift of nature.
C. the terms of trade can be determined in nonmonetary terms.
D. idle money balances do not earn interest income.
The crowding-out effect suggests that:
A. increases in consumption are always at the expense of saving.
B. increases in government spending will close a recessionary expenditure gap.
C. increases in government spending may raise the interest rate and thereby reduce
investment.
D. high taxes reduce both consumption and saving.
If the supply of labor in a purely competitive labor market decreases, the labor:
A. supply curve for a single employer will shift downward.
B. supply curve for a single employer will shift upward.
C. demand curve for a single employer will shift upward.
D. demand curve for a single employer will shift downward.
Refer to the above graph. The producer illustrated:
A. is a monopsonist since MR = P for every unit sold.
B. is a pure competitor in the output market since it must pay the market wage.
C. is a monopsonist in its output market since it has control over the market wage rate.
D. hires labor in a competitive market since it must pay each worker W*, the market
wage rate.
Scaling back the U.S. “war on terror” would:
A. shift U.S. production from “defense goods” to “civilian goods.”
B. shift U.S. production from “civilian goods” to “defense goods.”
C. shift the production possibilities curve inward.
D. suggest that the United States is allocating less than the optimal amount of resources
to the war on terror.
In the United States, income taxes and transfer payments:
A. are the source of most of the operational lag with fiscal policy.
B. act as automatic stabilizers for fluctuations in income.
C. decrease interest rates and the net export effect.
D. destabilize the economy.
In which case would the quantity of money demanded by the public tend to increase by
the greatest amount?
A. The interest rate increases and nominal GDP increases.
B. The interest rate increases and nominal GDP decreases.
C. The interest rate decreases and nominal GDP decreases.
D. The interest rate decreases and nominal GDP increases.
What is a potential negative effect of advertising?
A. It provides important information to consumers.
B. It promotes monopoly power in industry.
C. It contributes to allocative and productive efficiency.
D. It lowers search costs in product purchases.
One reason economists have difficulty applying the scientific method is because:
A. economic conditions are constant.
B. controlled laboratory experiments are often infeasible and sometimes impossible.
C. people are involved, and their behavior is entirely unpredictable.
D. the scientific method does not apply to economics.
In long-run equilibrium, a monopolistically competitive firm achieves:
A. productive and allocative efficiency.
B. productive efficiency but not allocative efficiency.
C. allocative efficiency but not productive efficiency.
D. neither allocative efficiency nor productive efficiency.
The tools of monetary policy for altering the reserves of commercial banks are the:
A. tax rate and level of government spending.
B. Consumer Price Index and unemployment rate.
C. public debt, budget surplus, and budget deficit.
D. discount rate, reserve ratio, and open-market operations.