Systematic overestimation or underestimation of inflation will
a. occur under rational expectations but not under adaptive expectations.
b. occur under adaptive expectations but not under rational expectations.
c. occur under both rational and adaptive expectations.
d. not occur under either rational or adaptive expectations.
Other things constant, if the demand for a final product is quite elastic, the demand for a
resource used to produce the product will tend to be
a. highly inelastic.
b. of unitary elasticity.
c. a curve sloping upward to the right.
d. quite elastic as well.
Use the figure to answer the following question(s).
Figure 8-1
According to Figure 8-1, what is the firm’s approximate total cost when it produces
three units?
a. 10
b. 16
c. 48
d. 60
Taxes create deadweight losses because they
a. reduce profits of firms.
b. distort incentives.
c. cause prices to rise.
d. create revenue for the government.
Figure 2-2
Which of the following would most likely cause the production possibilities curve for
breadfruit and fish to shift outward from AA to BB in Figure 2-2?
a. a decrease in the labor force of the country
b. a sudden change in consumer preferences for more fish and less breadfruit
c. a major technological advance
d. a decrease in the capital stock
When a society cannot produce all the goods and services people wish to have, it is said
that the economy is experiencing
a. scarcity.
b. shortages.
c. inefficiencies.
d. inequities.
Use the table below to answer the following question. The table outlines the production
possibilities of Slavia and Italia for food and clothing.
Which of the following is true?
a. Italia has a comparative advantage in producing both food and clothing.
b. Italia is the low-opportunity cost producer of clothing.
c. Slavia is the low-opportunity cost producer of food.
d. Italia has a comparative advantage in producing food.
When market failure is present,
a. democratic political decision-making can be counted on to improve the efficiency of
resource allocation.
b. market allocation will achieve idealized economic efficiency.
c. the conditions implied by idealized efficient allocation of resources will be absent,
but it does not follow that political action will improve the situation.
d. democratic political decision-making will never be able to improve the efficiency of
resource allocation.
The increase in the share of loans extended to borrowers with little or no down payment
contributed to the financial crisis of 2008 because these loans
a. initially depressed housing prices.
b. were extended only to borrowers with prime credit status.
c. had much higher default rates than loans to borrowers making larger down payments.
d. were unavailable to low-income borrowers, who would have profited the most from
such loans.
Which of the following would most likely increase the price of automobiles?
a. a decrease in the price of steel used to produce automobiles
b. an increase in the price of gasoline
c. a decrease in consumer income
d. the United Auto Workers union obtaining a substantial wage increase for auto
workers
As the dollar appreciates, which of the following is most likely to occur?
a. More Americans will travel abroad.
b. American imports will fall.
c. More foreigners will visit the United States.
d. American firms will reduce their investments abroad.
Because of transactions which take place in the underground economy, the
a. GDP calculation tends to overstate the actual value of goods sold in the economy.
b. GDP calculation tends to accurately portray the value of goods sold in the economy.
c. GDP calculation tends to understate the actual value of goods sold in the economy.
d. value of the GDP calculation will be equal to the value of the national income
calculation.
e. value of the GDP calculation through the expenditure approach will be greater then
the value calculated through the income approach.
If the interest rate is 7 percent, what is the current value of $80 to be received one year
from now?
a. $47.05
b. $74.77
c. $85.60
d. $136
When persons underestimate inflation (when actual inflation exceeds the expected rate),
actual unemployment will
a. exceed the natural rate of unemployment.
b. equal the natural rate of unemployment.
c. fall below the natural rate of unemployment.
d. increase if the government is running a budget deficit and decrease if a budget
surplus is present.
Figure 3-23
Refer to Figure 3-23. The movement from point A to point B on the graph would be
caused by
a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.
The difference between actual real GDP and potential GDP
a. decreases as the unemployment rate rises.
b. increases as the unemployment rate rises.
c. increases as the employment rate rises.
d. decreases as the labor force increases.
In which of the following situations is the political process likely to result in the
inefficient and wasteful use of resources?
a. when the benefits are concentrated and the costs are concentrated
b. when the benefits are concentrated and the costs widespread
c. when the benefits are widespread and the costs are concentrated
d. when the benefits are widespread and the costs are widespread
Figure 2-9
Refer to Figure 2-9. The opportunity cost of obtaining 10 additional toasters by moving
from point B to point A is
a. 10 toothbrushes.
b. 20 toothbrushes.
c. 30 toothbrushes.
d. zero, since the economy has the additional resources to produce 10 additional
toasters.
In order to achieve a high rating on the Economic Freedom of the World index, a
country must
a. provide for the even-handed protection of private property and rely primarily on open
markets and voluntary exchange to coordinate economic activity.
b. use central planning to direct investment and resolve the three basic economic
problems of what, how, and for whom goods will be produced.
c. protect domestic businesses from foreign rivals who generally provide shoddy
products.
d. protect domestic workers from businesses that are unwilling to pay high wages and
provide quality working conditions.
Michael takes 10 minutes to iron a shirt and 20 minutes to type a paper. Aiden takes 10
minutes to iron a shirt and 30 minutes to type a paper. Which of the following
statements is correct?
a. Aiden has a comparative advantage in ironing.
b. Aiden has a comparative advantage in typing.
c. Michael has a comparative advantage in ironing.
d. Neither can gain from specialization and exchange.
During the 2000-2009 decade,
a. the economic freedom rating of the United States fell, but the growth rate of real
GDP was more rapid than in recent decades.
b. the economic freedom rating of the United States increased and the growth of real
GDP was more rapid than that of recent decades.
c. the economic freedom rating of the United States fell and the growth of real GDP was
less rapid than that of recent decades.
d. the economic freedom rating of the United States increased but the growth of real
GDP was less rapid than that of recent decades.
A monopolist earning short-run economic profit determines that at its present level of
output, marginal revenue is $23 and marginal cost is $30. Which of the following
should the firm do to increase profit?
a. Raise price and lower output.
b. Lower price and lower output.
c. Raise price and raise output.
d. Lower price and raise output.
e. Lower output but leave price unchanged.
Public choice theory assumes voters, politicians, and other individuals in the public
sector are largely motivated by
a. a desire to promote the general welfare.
b. a desire to meet the conditions of economic efficiency for the economy as a whole.
c. altruism or the good of the public as a whole.
d. personal self-interest.
Which of the following observations was made famous by Adam Smith in his book The
Wealth of Nations?
a. There is no such thing as a free lunch.
b. People buy more when prices are low than when prices are high.
c. No matter how much people earn, they tend to spend more than they earn.
d. Households and firms interacting in markets are guided by an “invisible hand” that
leads them to desirable market outcomes.
Trade creates value by
a. moving goods from people who value the goods less to people who value the goods
more.
b. permitting trading partners to expand output through specialization in areas where
they each have a comparative advantage.
c. permitting trading partners to expand output through the adoption of mass production
methods.
d. all of the above.
Which of the following will be classified as a liability on the balance sheet of a
commercial bank?
a. vault cash
b. loans extended to customers
c. checking deposits of customers
d. deposits held at a Federal Reserve bank
Other things constant, an increase in the demand for bicycles will
a. decrease the price of bicycles.
b. decrease the quantity of bicycles bought and sold.
c. decrease the demand for bicycle workers and lower their wages.
d. increase the demand for bicycle workers and increase their wages.
Land used to grow alfalfa could also be used to grow hay. Which of the following is
true when the farmer plants hay and the market price of alfalfa rises?
a. The opportunity cost of producing hay decreases.
b. The opportunity cost of producing hay increases.
c. There will be no change in the opportunity cost of producing hay.
d. The opportunity cost of producing alfalfa increases.
Which of the following is true?
a. When economies of scale are important in an industry, the domestic market of a small
country may not be large enough to support cost-efficient firms.
b. In small countries, firms in industries where economies of scale are important will
tend to export little, if any, of their output.
c. The size of the trade sector (exports plus imports) as a share of GDP will generally be
larger in more populous countries than in smaller less-populated countries.
d. Countries with higher trade barriers have higher growth rates.
A profit-maximizing farmer will apply additional units of fertilizer until the marginal
revenue product (MRP) of fertilizer is half the MRP of skilled labor when a unit of
fertilizer
a. costs twice as much as a unit of skilled labor.
b. costs half as much as a unit of skilled labor.
c. is half as productive, on average, as a unit of skilled labor.
d. is twice as productive, on average, as a unit of skilled labor.
During the last 20 years, what has happened to the marginal tax rates imposed on
high-income taxpayers and the personal income tax revenues collected from them?
a. Both the rates imposed and the revenues collected from the rich have increased.
b. Both the rates imposed and the revenues collected from the rich have declined.
c. The tax rates imposed on the rich have declined, but the revenues collected from
them have increased.
d. The tax rates imposed on the rich have increased, but the revenues collected from
them have declined.
Which of the following is a reason to study the decisions of price takers?
a. While there are not many price-taker markets, these few markets dominate the
economy.
b. The decision making of both price searchers and price takers is identical.
c. The price-taker model enhances our knowledge of competition as a dynamic process.
d. Price takers are the most common type of business in the real world.
When the price of a good falls, consumers buy more of the good because it is cheaper
relative to competing goods. This statement describes the
a. consumer equilibrium effect.
b. price effect.
c. income effect.
d. substitution effect.
When the economy is in macro equilibrium,
a. the sum of savings plus investment must equal the sum of imports plus exports.
b. the sum of savings plus imports plus taxes must equal the sum of investment plus
government purchases plus exports.
c. the sum of savings plus government purchases must equal exports minus imports.
d. the government’s budget must be in balance.
During normal times, the multiplier effect of an increase in government spending
financed by taxes will be
a. strengthened, if the additional spending flows into sectors of the economy where the
unemployment rates are low.
b. weakened by an offsetting reduction in spending due to the higher taxes.
c. unaffected, as long as the higher taxes are in the future.
d. strengthened, if corporate tax rates are increased and personal tax rates remain
unchanged.