For a given inflation rate, if concerns about future weakness in the economy cause
businesses to reduce their spending on new capital, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; upward
D. aggregate supply curve; downward
Dean decided to play golf rather than prepare for tomorrow’s exam in economics. One
can infer that:
A. Dean has made an irrational choice.
B. Dean is doing poorly in his economics class.
C. the economic surplus from playing golf exceeded the surplus from studying.
D. the cost of studying was less than the cost of golfing.
Anchored inflationary expectations are beneficial to an economy because they:
A. reduce the inside lag of macroeconomic policymaking.
B. rapidly shift the central bank’s monetary policy reaction function.
C. shorten recessions caused by adverse inflation shocks.
D. eliminate any changes in short-run aggregate supply.
A reduction in the workers’ marginal productivity would result in
A. an increase in labor supply.
B. an increase in equilibrium employment level.
C. a reduction in the equilibrium wage rate.
D. a decrease in labor supply.
The advantage to selling pollution permits rather than using a fixed percent reduction
for all firms is
A. government raises additional revenue.
B. reductions in pollution are accomplished by those firms that can do so at least cost.
C. enforcement costs are eliminated.
D. pollution is driven to zero.
Refer to the figure above. The law of diminishing marginal returns becomes evident at
_____ units of output.
A. 33
B. 66
C. 99
D. 132
Assume both the demand and the supply of bagels increase. Which of the following
outcomes is certain to occur?
A. The equilibrium price of bagels will rise.
B. The equilibrium quantity of bagels will rise.
C. The equilibrium price of bagels will fall.
D. The equilibrium quantity of bagels will fall.
Industrial production, total sales, nonfarm employment, and after-tax household income
are examples of ______ indicators of economic activity.
A. coincident
B. preceding
C. lagged
D. real
If Alex deposits $1,000 from her paycheck into her checking account and, at the same
time, increases her credit card balance by $1,500, then her saving is ______, and her
wealth ______.
A. +$1,000; decreases by $500
B. +$500; decreases by $1,000
C. -$500; increases by $2,500
D. -$500; decreases by $500
The demand for labor increases when the:
A. real wage increases.
B. real wage decreases.
C. value of the marginal product of labor increases.
D. value of the marginal product of labor decreases.
Starting from long-run equilibrium, a positive inflation shock results in a short-run
equilibrium with ___ inflation and ____ output.
A. higher; higher
B. higher; lower
C. lower; higher
D. lower; lower
Application of the Principle of Comparative Advantage leads to:
A. greater specialization of labor and other factors of production.
B. less specialization of labor and other factors of production.
C. societies without any specialization of labor.
D. lower total output.
Growth in real GDP per capita has:
A. been steady over the course of human history.
B. slowed since the mid-nineteenth century compared to before.
C. been more rapid since the mid-nineteenth century than before.
D. increased over the last 150 years only in the United States and Canada.
Refer to the figure above. At a price of $20:
A. the market would be in equilibrium.
B. there would be excess supply of approximately 25 units.
C. there would be excess demand of approximately 25 units.
D. there would be excess demand, but it is impossible to know by how much.
Which of the following is NOT an example of explicit costs?
A. Wages paid to workers
B. Personal savings of the owner invested in the firm
C. Salaries paid to management
D. Office space rent
Suppose Marion and Gab must both choose between two jobs, a safe job that pays
$250/week and a risky job that pays $300/week. The value of safety to each is
$75/week. Each also values having a higher income than the other at $75/week. Having
the same job (income) as the other means no change in satisfaction. The following
payoff matrix shows the income (satisfaction) each would get based on the other
decision.
Comparing the payoffs when both choose the risky job with the payoffs when both
choose the safe job,
A. both would prefer the risky job outcome.
B. both would prefer the safe job outcome.
C. Gab prefers the risky job outcome while Marion prefers the safe job outcome.
D. Marion prefers the risky job outcome while Gab prefers the safe job outcome.
Larry was accepted at three different graduate schools, and must choose one. Elite U
costs $50,000 per year and did not offer Larry any financial aid. Larry values attending
Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an
annual $10,000 scholarship. Larry values attending State College at $40,000 per year.
No Name U costs $20,000 per year, and offered Larry a full $20,000 annual
scholarship. Larry values attending NoName at $15,000 per year.
The opportunity cost of attending Elite U is:
A. $50,000
B. $10,000
C. $20,000
D. $15,000
According to the textbook, one possible way of solving the commitment problem in the
kidnapping game is for the victim to:
A. give the kidnapper a blank check.
B. promise never to reveal the kidnapper’s identity.
C. offer to cut off one finger to show his sincerity.
D. do something illegal and allow the kidnapper to record it.
From a macroeconomic perspective, the problem of low household saving has probably
been overstated because:
A. household saving is not related at all to an economy’s ability to accumulate new
capital.
B. household saving has been increasing steadily over the last three decades.
C. it is national saving, not household saving, that allows an economy to accumulate
new capital.
D. household saving represents a smaller share of national saving than does public
saving.
When all buyers have identical demand curves, we can get the market demand curve by
A. adding their quantity demanded vertically
B. multiplying each quantity by the number of consumers
C. adding all the prices first than adding all the quantity demanded
D. adding each consumers utility
This graph illustrates the demand faced by a firm.
Refer to the figure above. At a price of $8 per unit of output, the total revenue for the
monopolist is ____, and the marginal revenue earned from the last unit sold is ____.
A. $8; 8
B. $24; 8
C. $32; 4
D. $40; 0
The cross-price elasticity of two goods that are close substitutes can never be:
A. negative.
B. less than one.
C. greater than one.
D. positive.
This graph illustrates the marginal costs and marginal benefits of acquiring information
before making a major purchase.
Suppose the marginal cost and marginal benefit curves were MC and MB several
decades ago. However, because information about this product is now available on line,
the
A. optimal value of information will increase.
B. optimal amount of information will increase.
C. optimal amount of information will stay the same, but it will cost less to acquire.
D. demand for information will increase.
Refer to the figure above. When the firm lowers price from $8 to $7, marginal revenue
is less than $7 because:
A. marginal cost is greater than $3.
B. the consumer only pays $4 for the fourth unit.
C. the firm is charging $1 less for each of the first three units of output.
D. demand is perfectly elastic.
If the natural rate of unemployment is 4 percent, what is the actual rate of
unemployment if output is 2 percent above potential?
A. 0 percent
B. 2 percent
C. 3 percent
D. 6 percent
If actual GDP equals potential GDP, then:
A. the actual unemployment rate is greater than the natural rate of unemployment.
B. the actual unemployment rate equals the natural rate of unemployment.
C. the actual unemployment rate is less than the natural rate of unemployment.
D. there is a recessionary gap.
The lemons model is used to analyze
A. the market for citrus products.
B. markets with asymmetric information.
C. the smart-for-one-dumb-for-all principle.
D. the low hanging fruit principle.
Angel’s marginal utility for playing pool is 10 after playing 5 games. Angel’s marginal
utility for bowling is 6 after 3 games. If both pool and bowling cost $1 a game, to
maximize his utility Angel should
A. bowl more and play pool less
B. just go home
C. bowl only
D. bowl less and play pool more
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals
5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be
______ by approximately ______ to eliminate any output gap.
A. decreased; 250
B. decreased; 200
C. increased; 250
D. increased; 200
Refer to the figure above. A decrease in supply is represented by shifting from:
A. curve A to curve B.
B. curve B to curve A.
C. curve C to curve D.
D. curve D to curve C.
The economy of Alpha operates according to Okun’s law. In Alpha, potential GDP
equals $500 billion, actual GDP equals $480 billion, and the natural rate of
unemployment is 5 percent. What is the actual rate of unemployment in Alpha?
A. 1 percent
B. 3 percent
C. 4 percent
D. 7 percent
Which of the following would be an example of the rationing function of price?
A. Switching from a Ph.D. in economics to finance because finance salaries are higher
B. Bill Gates purchasing the Mona Lisa for $5 billion
C. A firm attempting to lower its explicit costs
D. Government price controls
The union wage premium refers to
A. the dues one must pay in order to join a union.
B. the union wage rate minus union membership dues.
C. the deduction for union insurance.
D. the amount by which union wages exceed nonunion wages.
Two firms can choose from five different technologies to reduce their pollution: A, B,
C, D and E. The amount of pollution emitted by each technology and the cost of the
technologies are shown in the table. Both firms have adopted technology A and
currently emit 4 tons apiece. The government is considering two plans to reduce
pollution: a 50% reduction by both firms or selling pollution permits. One permit
entitles the owner to emit one ton of pollution. Without a permit, no pollution can be
emitted.
Industrio would be willing to pay up to ___ for the right to discharge 1 ton of pollution,
and Capitalista would be willing to pay up to __ for the right to discharge 1 ton of
pollution.
A. $50; $25
B. $1000, $600
C. $50, $50
D. $300, $200
This graph illustrates the demand faced by a firm.
Refer to the figure above. The firm will charge a price of $8 only if:
A. marginal cost is $8.
B. marginal cost is $0.
C. average total cost is $8.
D. marginal cost is less than $8.