Figure 12-2
In Figure 12-2, which of the graphs represents a monopolistic competitor in long-run
equilibrium?
a. 1
b. 2
c. 3
d. 4
Under the Bretton Woods system of fixed exchange rates,
a. devaluations were frequent and small.
b. devaluations were usually unforeseen.
c. the IMF ensured that exchange rates were never changed.
d. speculators could profit from an attack on a weak currency.
Which of the following is most likely to result in unemployment?
a. Aggregate demand grows more rapidly than aggregate supply.
b. Aggregate demand and aggregate supply grow at the same rate.
c. Aggregate supply grows more rapidly than aggregate demand.
d. Neither aggregate demand nor aggregate supply grows at all.
Proper inflation accounting is necessary to measure the size of the real deficit because
a. as a lender, the government gains from inflation.
b. otherwise, the deficit is understated in inflationary times.
c. the government is a borrower that pays back dollars of less real value in inflationary
times.
d. interest payments tend to fall in inflationary times.
The demand curve for a firm’s product is also the curve showing
a. total revenue.
b. marginal revenue.
c. average revenue.
d. average profits.
Because the personal income tax is an automatic stabilizer,
a. inflationary gaps are impossible.
b. the budget deficit grows during a recession.
c. the deficit needed to cure a recessionary gap increases.
d. the structural deficit grows during a recession.
e. All of the above are correct.
One complication that tends to prolong recessionary gaps is that wages
a. are fixed by unions, which represent nearly all workers in the United States.
b. tend to rise rapidly.
c. rarely fall.
d. tend to move in the opposite direction from prices.
The difficulty in analyzing oligopolistic behavior arises from the
a. degree of government regulation of the market structure.
b. interdependent nature of oligopolistic decisions.
c. large number of firms in the industry.
d. market power of consumers.
The U.S. government need never default on its debt because
a. it can easily nationalize banks, who own all the debt, and then owe it to itself.
b. it can raise the funds it needs to repay by taxation, and it can print money to repay.
c. it owes the debt to itself, and it can always ignore a demand for repayment.
d. it can simply reduce spending enough to generate funds to repay its debt.
In the real world, the actual multiplier is ____ the simplified multiplier.
a. much larger than
b. slightly larger than
c. equal to
d. slightly smaller than
e. much smaller than
To equalize traffic on transportation routes, a pricing arrangement called “peak,
off-peak pricing” would most likely be proposed by
a. economists.
b. politicians.
c. regulators.
d. the general public.
Is the call for protection on the basis of “infant industry” valid?
a. No, because protection has no place in industrial development.
b. No, protection is always improper.
c. Uncertain, economic theory has no answer to this question.
d. Yes, although it can be overstated and abused.
Table 7-1
In Table 7-1, the average physical product after five workers are hired is
a. 5.
b. 6.
c. 7.
d. 8.
“Those most able should pay the highest taxes” reflects the
a. ability-to-pay principle.
b. concept of horizontal equity.
c. idea of fiscal federalism.
d. benefits principle.
Monetarists have received this label because they emphasize the role of
a. money supply in determining aggregate supply.
b. the money supply in determining nominal GDP.
c. the Fed in making monetary policy.
d. the money supply in determining interest rates and investment.
If currency depreciates:
a. net exports rise and the aggregate demand curve shifts inward
b. net exports rise and the aggregate demand curve shifts outward
c. net exports fall and the aggregate demand curve shifts inward
d. net exports fall and the aggregate demand curve shifts outward
A firm’s demand curve for labor shifts when the
a. price of its output changes.
b. wage rate changes.
c. number of available workers changes.
d. All of the above are correct.
A larger interest rate spread in 2003-2006 is one of the factors that led to the recession
of 2007.
a. True
b. False
An airline can profit by offering standby customers an unsold seat at a substantial
discount just before takeoff because
a. additional passengers are needed to balance the load.
b. the marginal cost of additional passengers is very small.
c. additional passengers add little to fixed costs.
d. such passengers add more to profits than do those with reserved seats.
Higher prices
a. are always against the public interest.
b. may sometimes serve the public interest.
c. should never be allowed.
d. occur automatically for abundant goods.
The exchange rate
a. is the ratio of two countries’ GDPs.
b. is the rate at which one country’s money is flowing into another country.
c. states the price of one currency in terms of another currency.
d. is closely related to the concept of absolute advantage.
Which of the following policies would a Keynesian expect to produce the largest
increase in income?
a. a reduction in government spending of $100 billion
b. an increase in transfer payments of $100 billion
c. an increase in government spending of $100 billion
d. a tax cut of $100 billion
Economic rent refers to profit derived from owning an apartment complex.
a. True
b. False
The difference between national income and disposable income is
a. residential investment.
b. federal deficits.
c. net exports.
d. financial investment.
e. the amount of taxes collected.
The U.S. economy is relatively closed in terms of economic activity related to exports
and imports.
a. True
b. False
If demand is more elastic, the portion of an excise tax borne by a buyer will
a. increase.
b. decrease.
c. be unchanged.
d. increase for normal goods, decrease for inferior goods.
Government regulations to insure the safety of bank deposits and to control the money
supply include
a. limitations on the types and quantities of assets in which banks may invest.
b. elimination of the need for required reserves.
c. setting interest rate ceilings on savings and money market deposit accounts.
d. All of the above are correct.
The Italian government collects a smaller amount of the taxes it is owed than the U.S.
government. Other things being equal,
a. U.S. and Italian GDP should be equal.
b. U.S. GDP should be higher than Italian GDP.
c. U.S. GDP should be lower than Italian GDP.
d. U.S. residents are better off than Italian residents.
Because of a recession in Japan, net exports from the United States decrease by $10
billion. If the MPC is 0.75, how much less spending will occur in the U.S. economy in
the second “round” of spending?
a. $17.5 billion
b. $10 billion
c. $7.5 billion
d. $5.0 billion
States rely primarily on income taxes as a source of revenue.
a. True
b. False
The federal government receives most of its revenue from personal income taxes and
payroll taxes.
a. True
b. False
Federal budget deficits are often increased by supply-side policies because of their
reliance on
a. income tax cuts.
b. income tax increases.
c. increased government spending.
d. decreased government spending.
“Intel Inside” accompanies virtually all IBM-compatible computers. Intel manufactures
the Celeron and Pentium chips that are a key component of personal computers. Does
Intel have a monopoly?
One of the most controversial public policy issues in recent decades is the size and
growth of the U.S. budget deficit and public debt. Discuss where we are, compared to
other countries, and how we got here.
Tour companies and cruise lines often offer last minute fares that are far below the
prices paid by customers who have booked their trips far in advance. Use marginal
analysis to explain this pricing tactic.
What are the two approaches followed by the U.S. government to ease the burden on
the victims of free trade?
Do you agree that currency depreciation will lead to an increase in the debt burden of
the companies that borrow in foreign currency? Explain with an example.
How does a firm that is losing money in the short run decide whether to shut down or
continue to produce to minimize its losses?
Why do economists view structural budget deficit as a good measure of the direction of
the fiscal policy?
Distinguish between invention and innovation.
Complete the table below by computing the missing numbers from those that are given.
At various times, the United States has undergone the painful process of reducing
military spending. Military bases from the Carolinas to California pleaded to be spared,
citing huge job losses if they close. How can one rationally decide which bases to shut
down, given the necessity of jobs?
Draw a graph showing the typical competitive firm losing money but continuing to
operate. Explain why the firm continues to operate rather than shut down.
What is the stock market’s role in achieving efficient use of resources?
What is the relevance of the marginal productivity principle in explaining the use of
inputs in production?
Explain why government, rather than private firms, is required for efficient mosquito
eradication programs.
What is “crowding out”? Why is it important in discussions of fiscal policy? Use an
appropriate diagram to illustrate your answer.
It has been found that people die at a much higher rate in hospitals than in most other
environments, leading some to conclude that hospitals cause death. What is the problem
with this reasoning?
“Optimal input curve analysis is useless. Since firms never know the demand for their
product with certainty, they will rarely operate at the optimal input combination.” Agree
or disagree?
Explain why marginal revenue is less than price for a monopolist.
Discuss that factors that help explain the rapid productivity growth in the United States
after 1995.
The estimated cost of automobile jobs saved due to limitations on foreign autos is
$105,000 per job. Why is there a cost to saving jobs through protectionism?