The primary tool of fiscal policy is
a. the money supply.
b. the stock market.
c. the federal budget.
d. regulation of the bond market.
Use the figure to answer the following question(s).
Figure 9-4
Figure 9-4 indicates the cost conditions for a firm operating in a price-taker market. If
the market price of the firm’s product is $6, what action will maximize the firm’s profit?
a. go out of business since it cannot make a profit
b. produce an output of 3 million
c. produce an output of 5 million
d. produce an output of 6 million
Which of the following statements is true for the U.S. economy?
a. Higher wages in the unionized sectors of the economy push up wages in the
nonunion sectors as well.
b. Inflation tends to accelerate when the proportion of the labor force that is unionized
increases.
c. Union workers currently receive wages that are 15 to 20 percent higher, on average,
than similar nonunion workers.
d. When we compare similar union and nonunion workers, we find virtually no
difference in the wages they receive.
If a nation is running a trade deficit, it is
a. spending more on public services than it is raising in tax revenues.
b. worse off as the result of its trade with foreign countries.
c. importing more goods and services than it exports.
d. encountering a balance of payments disequilibrium.
The inflationary premium is that portion of the interest rate that reflects
a. the real return derived by lenders.
b. the rush to buy goods before prices rise.
c. the expected annual rate of decline in the purchasing power of money while a loan is
outstanding.
d. the price that one must pay for earlier availability of goods and services during a
period of price stability.
Which of the following would increase the GDP of the United States?
a. A resident of California buys a case of wine from a winery in France.
b. A resident of Germany buys a software program from a company in Washington.
c. A resident of Florida spends $3,000 on a vacation in Mexico.
d. A Japanese investor purchases 100 shares of a computer company located in Illinois.
If a contestable market has only one seller, which of the following will keep the seller
from producing inefficiently and charging a price that generates long-run economic
profits?
a. government regulations
b. low costs of entry into and exit from the market
c. substantial economies of scale that provide a competitive advantage to large firms in
such markets
d. the threat of a government takeover of the firms in these markets
In the short run, if average variable cost equals $50, average total cost equals $75, and
output equals 100, the total fixed cost must be
a. $25.
b. $2,500.
c. $5,000.
d. $7,500.
Investments that are mistakenly made and generate losses
a. will occur when future revenues are known with certainty.
b. indicate that the capital market is incapable of generating wealth.
c. are normal costs of developing new projects and technologies in a world of
uncertainty.
d. will not occur when capital markets are operating efficiently.
Logrolling refers to
a. vote trading among legislators.
b. the tendency of voters to free-ride on the payment for public goods.
c. the power of well-organized interest groups.
d. the tendency of legislators to favor the interests of the timber (logging) industry.
A price index is designed to measure
a. changes in the general level of employment across time periods.
b. changes in the quantity of output produced across time periods.
c. the market value of output produced during the current period with the value of
output produced during an earlier time period.
d. the cost of buying a market basket of goods at a point in time relative to the cost of
buying the same market basket during an earlier time period.
If people expect the price of shorts to rise next month, the demand for shorts will
a. decrease now.
b. increase now.
c. stay the same now and increase next month.
d. stay the same now and decrease next month.
e. stay the same now and next month.
Incorporation of expectations into economic decision making and the economic
experience of recent decades indicate that in the long run
a. inflation relates directly to unemployment.
b. inflation is inversely related to unemployment.
c. there is no trade-off between inflation and unemployment.
d. high unemployment is a primary cause of inflation.
Other things constant, if Americans suddenly increased their desire to vacation in
Mexico, the dollar price of the Mexican peso would
a. increase, which is an appreciation of the Mexican peso.
b. increase, which is a depreciation of the Mexican peso.
c. decrease, which is an appreciation of the Mexican peso.
d. decrease, which is a depreciation of the Mexican peso.
Which of the following has resulted from the North American Free Trade Agreement
(NAFTA)?
a. Domestic producers in the United States, Canada, and Mexico have free access to
larger markets.
b. The low wages of Mexican workers have made it virtually impossible for American
and Canadian producers to export goods to Mexico.
c. A smaller variety of goods are available to consumers in all three countries.
d. Unemployment has increased in all three countries.
The balance of payments is
a. the equilibrium result when two countries achieve purchasing power parity.
b. an account that records changes in exchange rates between two countries.
c. an account that records all economic transactions between a country and all other
countries, usually within a year.
d. all of the above.
e. none of the above.
Which of the following identities regarding the balance of payments must be true?
a. Current-Account Balance + Capital Account Balance + Official Reserve Balance = 0
b. Current-Account Balance + Capital Account Balance + Official Reserve Balance = 1
c. Current-Account Balance + Capital Account Balance + Merchandise Imports = 0
d. Current-Account Balance + Capital Account Balance + Net Financial Inflow = 0
Several producers in industry A developed an improved technology that reduces the
quantity of resources used to produce a given output. Which of the following would be
expected?
a. The per-unit costs of production of the firms adopting the technology would increase.
b. In the short run, economic profits would be earned by the earliest firms adopting the
technology.
c. Product price would immediately fall to the minimum average total cost of the firms
quickly adopting the technology, thus retarding the rate at which firms enter the
industry.
d. Producers who adopt the technology will have short-run economic losses.
Maurice can drive or fly from Jacksonville, Florida to Atlanda, Georgia, for a one-day
business trip. If he drives, he will be able to work three hours once he arrives in Atlanta,
whereas traveling by plane will enable him to work eight hours. His expected income
from each hour of work in Atlanta is $30. If Maurice is a rational decision maker, he
will fly if and only if the price differential (air cost minus driving cost) is less than
a. $30.
b. $90.
c. $150.
d. $240.
Which of the following would lead to an increase in the demand for computer software?
a. a decrease in the price of computer software
b. a decrease in the price of personal computers
c. an decrease in the cost of producing computer software
d. an decrease in personal income
U.S. imports are
a. not added to U.S. GDP because they are produced abroad
b. added to U.S. GDP because they are consumed domestically
c. added to U.S. GDP because they represent an increase in inventories
d. added to U.S. GDP as government purchases because the government decides what
goods may be imported
e. not added to U.S. GDP because they are intermediate goods
If Mateo is paid $25,000 to sell his crop of tomatoes even though he would have been
willing to have sold the crop for as little as $20,000, this indicates that
a. Mateo received no producer surplus from the transaction.
b. Mateo received $5,000 of producer surplus from the transaction.
c. Mateo received $20,000 of producer surplus from the transaction.
d. Mateo received $25,000 of producer surplus from the transaction.
Which of the following most clearly indicates why the franchiser of a product has a
strong incentive to monitor the quality of the product among all of the franchised
sellers?
a. The franchiser has a monopoly on the sale of products in his industry.
b. If quality is not maintained, the franchiser will be limited in his ability to sell other
franchises and collect franchise fees.
c. If quality is not maintained, the government will prohibit future sales of the
franchises.
d. Franchisers do not gain financially by maintaining quality, but they generally
maintain quality anyway because they are consumers as well as producers.
A price-searcher firm will expand output until
a. marginal revenue falls to equal the rising marginal cost.
b. marginal revenue rises to equal the falling marginal cost.
c. marginal revenue falls below marginal cost.
d. marginal cost rises above marginal revenue.
The vertical long-run aggregate supply curve reflects the fact that in the long run, an
increase in the price level
a. will not alter the economy’s maximum sustainable rate of output.
b. will increase the economy’s maximum sustainable rate of output.
c. will reduce the quantity of goods and services purchasers will demand.
d. will improve the overall efficiency of resource use.
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
a. larger firms always have lower per-unit costs than smaller firms.
b. at small output rates, average fixed costs (AFC) will be high, while at large output
rates, marginal cost (MC) will be high.
c. diminishing returns will be present when output is small, while high AFC will push
average total cost to high levels when output is large.
d. diseconomies of scale will be present at both small and large output rates.
The term price searcher applies to all firms that
a. face a downward-sloping demand curve.
b. face an upward-sloping demand curve.
c. operate in a purely competitive environment.
d. purchase resources in a noncompetitive market.
Which of the following will most likely accompany an unanticipated increase in
aggregate demand?
a. an increase in real output
b. an increase in unemployment
c. a decrease in real GDP
d. a decrease in the demand for resources
According to the rational expectations theory, expansionary monetary policy is fully
effective only if
a. the policy is anticipated by workers and firms.
b. aggregate supply shifts to the left.
c. the economy is operating at or above its potential output level.
d. policy makers follow through on their previously announced plans.
e. the effects of the policy are unexpected.
Which of the following would be recorded as a credit in the U.S. balance of payments
accounts?
a. the purchase of a German business by a U.S. investor
b. the import of Honda trucks by a U.S. automobile distributor
c. European travel expenditures of an American college student
d. the purchase of a U.S. Treasury bond by a French investment company