Cyclical unemployment is equal to zero when:
A. there is no recessionary gap.
B. there is no expansionary gap.
C. actual GDP and potential GDP are equal.
D. frictional unemployment equals structural unemployment.
Which of the expenditure components of GDP can be negative?
A. consumption spending on durables.
B. government purchases of goods and services.
C. consumption spending on services.
D. net exports.
Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook
for a given class. The marginal cost of supplying each book is constant and equal to
$10, and Campus Books has no fixed costs. The table below shows the reservation
prices of the eight students enrolled in the class.
What will be Campus Books’ economic profit if it must charge a single price to all of its
customers?
A. $180
B. $130
C. $128
D. $120
Suppose that you have noticed that almost all of the car dealers in your city are located
along a three-block stretch of the same street. A likely reason for this clustering of car
dealers is that:
A. the dealers are better able to form a cartel.
B. each dealer is attempting to locate closest to the customers.
C. there is a social norm in that city that dealers follow in choosing location.
D. each dealer sells a different brand of car, so they are not competitors and do not have
to be concerned about the other dealers’ locations.
The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a
class of items (e.g., chicken) is that:
A. there are fewer substitutes for Tyson chicken than for chicken generally.
B. it takes a lot of time to adjust to a substitute brand of chicken.
C. the share of income spent on “chicken” is larger than spent on “Tyson Chicken”.
D. there are fewer substitutes for chicken generally than for Tyson chicken.
Curly just graduated from State U and has three job offers: teaching at a prestigious
private high school nine months a year with summers off, working forty hours a week at
a bank in a small city, and working more than sixty hours a week for a high-powered
investment firm in New York. The annual salary for each of these offers is probably:
A. lowest at the investment firm, in the middle at the bank, and highest at the high
school.
B. lowest at the bank, in the middle at the investment firm, and highest at the high
school.
C. lowest at the high school, in the middle at the investment firm, and highest at the
bank.
D. lowest at the high school, in the middle at the bank, and highest at the investment
firm.
When an American buys stock in a French company, from the perspective of the United
States, this is a(n):
A. import.
B. export.
C. capital outflow.
D. capital inflow.
Psychological factors that may influence the saving rate are ______ and _______.
A. the real interest rate; the demonstration effect
B. self-control problems; the demonstration effect
C. capital gains; the real interest rate
D. the desire to leave a bequest; capital gains
Starting from long-run equilibrium, a negative inflation shock results in a short-run
equilibrium with ___ inflation and ____ output.
A. higher; higher
B. higher; lower
C. higher; potential
D. lower; lower
According to the principle of diminishing returns to labor, if the amount of capital and
other inputs are held constant, employing additional workers:
A. increases output at an increasing rate.
B. increases output at a constant rate.
C. increases output at a decreasing rate.
D. decreases output at an increasing rate
Consider the labor market below. Suppose the government passes a minimum wage
requiring employers to pay at least $8.00 per hour.
After the imposition of the minimum wage, employment will equal ______
person-hours per day.
A. 2,000
B. 4,000
C. 6,000
D. 8,000
If a gamble has an expected value of zero, then it is termed a(n):
A. better-than-fair gamble.
B. unfair gamble.
C. zero gamble.
D. fair gamble.
Suppose the price of gold is initially 300 U.S. dollars per ounce in New York and 450
Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold,
the nominal exchange rate is ______ Canadian dollars per U.S. dollar. If Canada
experiences inflation, such that the price of gold rises to 510 Canadian dollars per
ounce, but the U.S. does not experience any inflation, the nominal exchange rate would
be ______ Canadian dollars per U.S. dollar.
A. 0.59; 0.67
B. 0.67; 0.59
C. 1.70; 1.50
D. 1.50; 1.70
Relative to a monopolist charging a single price to all consumers, price discrimination
______ total economic surplus.
A. has no effect on
B. sometimes increases and sometimes decreases
C. decreases
D. increases
If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV
set, then the:
A. supply of labor to the XYZ-TV Company increases.
B. supply of labor to the XYZ-TV Company decreases.
C. demand for labor by the XYZ-TV Company increases.
D. demand for labor by the XYZ-TV Company decreases.
In Macroland, potential output equals $100 trillion and the natural rate of
unemployment is 4 percent. If the actual unemployment rate is 3 percent, then real GDP
equals:
A. $97 trillion.
B. $98 trillion.
C. $101 trillion.
D. $102 trillion.
Suppose the figure below shows Luke’s demand curve for check-ups along with the
supply curve for check-ups.
If Luke had first-dollar medical insurance, then he would choose to have _____
check-ups a year.
A. 5
B. 2
C. 3
D. 4
Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays
annual compound interest, and you do not withdraw from the account until your
retirement at the age of 65, 44 years later. How much more will be in your account if
the interest rate is 6 percent rather than 4 percent?
A. $880
B. $2,390
C. $5,617
D. $7,369
Suppose Sarah owns a small company that makes wedding cakes. The table below
shows how Sarah’s total cost varies depending on the number of wedding cakes she
makes each day.
The marginal cost if the 4th wedding cake per day is ______.
A. $100
B. $120
C. $300
D. $400
Refer to the table below. Suppose all firms in this industry have identical costs to this
firm and are producing 15 units of output. One can predict that
A. new firms will enter the industry.
B. old firms will exit the industry.
C. firms will attempt to lower their implicit costs.
D. price must rise.
Refer to the figure below.
Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate
expenditure is ______ output, and firms will ______ production in response.
A. less than; decrease
B. greater than; decrease
C. equal to; not change
D. less than; increase
Suppose that in most car collisions between cars of unequal size, the smaller car
sustains the most damage and its occupants suffer the most injury. In answering the
following question, assume that, on average, smaller cars generate less air pollution
than larger cars and that every person in the economy drives at least one car. As the
average size of cars increases, an individual’s incentive to buy a smaller car:
A. increases in order to prevent injury to others.
B. increases to offset the external cost of air pollution.
C. decreases because of the increased risk of injury in a collision.
D. remains the same because car purchases depend on individual preferences.
Real GDP per person in both Alpha and Omega is equal to $2,000. Over the next 100
years, real GDP per person grows at a 1.5 percent annual rate in Alpha and at a 2.5
percent annual rate in Omega. After 100 years, real GDP per person in Alpha is ______
smaller than real GDP per person in Omega.
A. $2,000
B. $5,410
C. $8,864
D. $14,763
Refer to the figure below. For demand curve D1, what is the price elasticity of demand
when P = 12?\
A. 12
B. 6
C. 4
D. 3
Refer to the table below. An output level of 15 units, this firm’s accounting profit is
______, and its economic profit is ______.
A. $6; $63
B. $12; $6
C. $6; $12
D. $63; $6
When actual output equals potential output, there is ______ output gap and the inflation
rate will ____.
A. an expansionary; exceed the expected rate of inflation
B. an expansionary; be lower than the expected rate of inflation
C. no; be equal to the expected rate of inflation
D. a recessionary; exceed the expected rate of inflation
The data below describe the economy of Econland:
Public saving in Econland equals:
A. -5
B. 5
C. 16
D. 17
In a market with barriers to entry:
A. firms will earn zero economic profit in the long run.
B. economic profit will not fall to zero in the long run.
C. prices will direct productive resources toward underserved markets.
D. the implications of Adam Smith’s theory of the invisible hand can be expected to
hold.
Suppose that the total production of an economy consists of 4 oranges and 10 candy
bars, each orange sells for $0.25, and each candy bar sells for $0.50. What is the market
value of production in this economy?
A. $0.75
B. $1.00
C. $5.00
D. $6.00
If a natural monopoly decreases the quantity of output it produces, then:
A. its average cost will decrease.
B. its average cost will increase.
C. it will have to decrease its price.
D. its profit will increase.
For people with very low incomes, the Earned Income Tax Credit operates like a(n):
A. tax on wages.
B. lump sum transfer.
C. wage subsidy.
D. in-kind transfer.
In Macroland, autonomous consumption equals 100, the marginal propensity to
consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50,
government purchases are fixed at 150, and net exports are fixed at 20. The slope of the
expenditure line is:
A. 0.25.
B. 0.75.
C. 290.
D. 320.