In recent years, the ratio of earnings of the typical U.S. college graduate to the earnings
of the typical high school graduate without additional education has
a. risen as the demand for skilled labor has increased relative to the demand for
unskilled labor.
b. risen as the demand for skilled labor has decreased relative to the demand for
unskilled labor.
c. fallen as the demand for skilled labor has increased relative to the demand for
unskilled labor.
d. fallen as the demand for skilled labor has decreased relative to the demand for
unskilled labor.
When the price of running shoes goes from $100 to $80, the quantity demanded
increases from 20 to 30 million. Over this price range, the absolute value of the price
elasticity of demand is
a. 0.55.
b. 1.
c. 1.25.
d. 1.80.
e. 2.50.
When an economy is operating well below its full-employment capacity and the
marginal propensity to consume is 3/4, a $10 billion increase in investment will cause
the equilibrium income to rise by
a. $5 billion.
b. $10 billion.
c. $20 billion.
d. $40 billion.
If the federal government runs a budget deficit, and the budget deficit as a percent of
GDP is equal to the growth rate of real output, the
a. national debt will decrease as a share of GDP.
b. national debt will remain a constant share of GDP.
c. national debt will increase as a share of GDP.
d. size of the national debt (in dollar value) will decline.
Within the framework of the Keynesian model,
a. changes in output rather than changes in prices direct the economy to equilibrium.
b. changes in prices rather than changes in output direct the economy to equilibrium.
c. changes in interest rates and resource prices will direct the economy to equilibrium.
d. the economy will continually be in equilibrium.
If the monetary authorities persistently expand the money supply at a rapid rate, the
probable result will be
a. inflation.
b. high nominal interest rates.
c. rapid growth of real GDP.
d. both a and b.
The economic boom between 2002 and 2006 was primarily a result of
a. a reduction in stock prices along with rising oil prices.
b. a sharp reduction in the real price of resources and wages.
c. an increase in both housing and stock prices.
d. an increase in both resource prices and interest rates.
If nominal GDP increases 4 percent during a year, and real GDP increases 7 percent
during the same year, which of the following must by true?
a. The total value of GDP must have increased 11 percent during the year.
b. The general level of prices as measured by the GDP deflator decreased by
approximately 3 percent during the year.
c. The general level of prices as measured by the GDP deflator increased by
approximately 3 percent during the year.
d. Imports must have been about 3 percent larger than exports during the year.
In both price-taker and competitive price-searcher markets, the long-run market price of
a good will be equal to the
a. average total cost of producing the good.
b. average variable cost of producing the good.
c. average fixed cost of producing the good plus a normal return on that cost.
d. marginal revenue derived from the sale of an additional unit of the good.
Which of the following will be true when the foreign exchange market is in equilibrium
and exports exceed imports?
a. The nation is experiencing a trade deficit.
b. There will be a net inflow of capital.
c. There will be a net outflow of capital.
d. The exchange rate value of the domestic currency must rise.
The introduction of no-load stock and bond mutual funds has made investing in stocks
and bonds increasingly attractive to even the small investor. If, as a result, a large
amount of money were shifted from money-market deposit funds to these stock and
bond funds, how would the M1 and M2 money supply figures be affected?
a. The M2 money supply would decline; M1 would be unaffected.
b. The M2 money supply would increase; M1 would be unaffected.
c. The M2 money supply would increase; M1 would decline.
d. Both the M1 and M2 money supply figures would increase.
Which of the following would contribute to GDP?
a. An American company buys stock in another American company.
b. An American company produces goods in Canada.
c. A Canadian company buys stock in an American company.
d. A Canadian company produces goods in the United States.
Wages in the United States are higher than those in India primarily because
a. the weather is better in the United States.
b. a larger proportion of the labor force is unionized in the United States.
c. less capital per employee is required in the United States.
d. the human and physical capital of American workers exceeds that of their Indian
counterparts.
Which of the following variables are included in the index of leading indicators?
a. new orders placed with manufacturers, length of average workweek, permits for new
housing starts
b. changes in the M1 money supply, number of new credit cards, political stance of
current politicians
c. average worker salary, average number of children per family, current standard of
living
d. labor-force participation rate, household debt as a share of disposable income, the
real interest rate
A technological advance that increases labor productivity will
a. lower wages.
b. decrease the demand for labor as fewer workers are needed.
c. decrease the supply of labor as fewer workers are needed.
d. increase the demand for labor as MP rises.
e. decrease the demand for labor as MP falls.
The fallacy of composition is the fallacious view that
a. economic activity will benefit everyone.
b. what is true for the individual will also be true for the group.
c. it is possible for the whole to be greater than the sum of the individual parts.
d. association does not necessarily indicate causation.
Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15
pens or 5 pencils in one hour. Which of the following statements is correct?
a. Alexander has a comparative advantage over Jayden in the production of pencils
b. Alexander has a comparative advantage over Jayden in the production of pens
c. Jayden has a comparative advantage over Alexander in the production of pens
d. Alexander and Jayden cannot gain from specialization and exchange.
Discretionary fiscal policy involves
a. expansion of government revenues during a period of rapid growth.
b. contraction of government revenues during a recession.
c. automatic adjustments that affect the size of the budget deficit or surplus.
d. an intentional change in taxation or government spending.
e. both a and b.
When collective decision making is utilized to resolve economic questions regarding
the allocation of resources,
a. the role of markets will be replaced by political decision making.
b. centralized decision making in all areas is inevitable.
c. the preferences of individuals are of no importance.
d. economic efficiency will be assured.
Union membership has fluctuated during the last several decades. Which of the
following statements best describes the effect of unions on the share of total output
allocated to labor?
a. The share of output going to labor has been virtually constant, even though union
membership as a share of the labor force has fluctuated.
b. The share of total output going to labor has followed the same pattern as the business
cycle in recent years.
c. The share of total output going to labor rose as union membership rose from 1945 to
1960 and fell as union membership declined during the 1960 through 2000 period.
d. The share of total output going to labor has increased substantially, even though
during the last several decades union membership has declined.
Liam wants to buy some milk and a box of cereal. If Liam buys 4 gallons of milk at
$3.00 per gallon, the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of
cereal is free. For Liam, the marginal cost of buying a fifth gallon of milk is
a. zero.
b. $1.00.
c. $2.00.
d. $3.00.
Water shortages are usually the result of
a. profit-seeking owners of the resource holding water off the market and refusing to
trade.
b. bad forecasts by water planners.
c. monopoly fixing of water prices.
d. a lack of tradeable property rights in water.
Sophia is tending to her home garden while awaiting recall from her seasonal part-time
job. The Bureau of Labor Statistics would classify Sophia as
a. not in the labor force.
b. employed.
c. unemployed.
d. employed as a household worker.
Consider the following information for the U.S. economy (figures in billions).
Table 7-2
Refer to Table 7-2. Gross domestic product is equal to
a. $7,761.
b. $11,004.
c. $13,557.
d. $14,055
There are 1,000 identical firms in a price-taker industry. In the short run, the total
revenues of each firm are less than total costs. What will happen in the long run?
a. Nothing, because each firm is already maximizing its profits.
b. Additional firms will enter the market, and price will be driven down to where each
firm will be making just enough to stay in business (cover its variable costs).
c. Additional firms will enter the market, but the price will remain the same because the
existing firms will not allow it to decrease.
d. Firms will exit the market, and the product price will rise.
Over time, which of the following will most likely result from a depreciation in the
exchange rate of the dollar?
a. Inflation will decline.
b. Foreign goods will cost Americans less, and therefore, the imports of Americans will
rise.
c. U.S. goods exported abroad will cost less in foreign countries, so foreigners will buy
more of them.
d. U.S. goods exported abroad will cost more in foreign countries, so foreigners will
buy fewer of them.
Stock market analysts often argue that lower interest rates are good for the stock
market. Does this argument make sense?
a. No; lower interest rates will tend to slow down the economy, and this will be bad for
the stock market.
b. Yes; the lower rates of interest will increase the value of future income (and capital
gains), and stock prices will rise to reflect this factor.
c. No; the lower rates of interest will reduce the value of future income (and capital
gains), and this will cause stock prices to fall.
d. Yes; the lower interest rates will cause inflation, and inflation is generally good for
the stock market.
Suppose demand increases and supply increases. Which of the following will happen?
a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
decrease.
b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
increase.
c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will
increase.
d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will
decrease.
e. The change in equilibrium price and quantity cannot be determined.
Equilibrium in the loanable funds market is initially present at a stable price level (zero
inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary
monetary policy eventually leads to actual and expected inflation of 6 percent,
a. both the nominal and real interest rates will rise to 10 percent.
b. the nominal interest rate will rise to 10 percent, but the real interest rate will remain
at 4 percent.
c. the real interest rate will rise to 10 percent, but the nominal interest rate will remain
at 4 percent.
d. both the real and nominal interest rates will remain at 4 percent.
If the quantity supplied of euro were greater than the quantity demanded, then the price
of the
a. euro would rise.
b. euro would fall.
c. dollar would fall.
d. euro would be in equilibrium.
Answer the following questions:
a. What is meant by the term “business cycle”?
b. What economic indicators would indicate where the economy is in the business
cycle? Explain.
c. Give the four phases of the business cycle in their order of occurrence.
d. What criterion must be met for our economy to be officially in a recession?
Use the figure below to answer the following question(s).
Figure 3-9
Given the demand (D) and supply (S) for gasoline in Figure 3-9, if the price of gasoline
were $1 per gallon,
a. consumers would wish to purchase more than was being supplied.
b. producers would be supplying more than consumers wished to purchase.
c. the quantity consumers wished to purchase would equal the quantity that producers
wished to supply.
d. there would be a tendency for the price of gasoline to fall.
An unexpected shift to a more expansionary monetary policy will generally
a. stimulate aggregate demand and real output as soon as the policy is instituted.
b. exert its primary impact on aggregate demand and real output 6 to 15 months in the
future.
c. cause inflation in the short run, but expand real output in the long run.
d. increase real interest rates in the short run.
As per capita GDP has risen in the United States and other countries,
a. life expectancy and leisure time have also risen and infant mortality and illiteracy
have gone down..
b. life expectancy has risen but leisure time has gone down, while infant mortality and
illiteracy have remained the same.
c. various quality of life variables have been unaffected.
d. most quality of life variables such as life expectancy and expenditures on leisure time
activities have fallen.
The crowding-out effect implies that restrictive fiscal policy will
a. increase aggregate demand and employment.
b. lead to a significant increase in the natural rate of unemployment.
c. be highly effective against inflation.
d. reduce real interest rates.