The public debt is the accumulation of all deficits and surpluses that have occurred
through time.
An expansionary monetary policy lowers the Federal funds rate, increases the money
supply, and lowers other interest rates.
The larger the number of firms in an industry and the less the extent of product
differentiation, the greater will be the elasticity of the individual seller’s demand curve.
There is substantial evidence that antitrust policy has been effective in identifying and
prosecuting price-fixing by businesses.
A nation will import a particular product if the world price is less than the domestic
price.
The Clean Air Act of 1990 sought to reduce acid rain by cutting emissions of sulfur
dioxide.
Hyperinflation may stimulate significant increases in real output in an economy.
The lower the benefit-reduction rate, the greater are the incentives to earn additional
income.
State and local governments’ fiscal policies typically reinforce the fiscal policy of the
federal government to counter recession and inflation.
Credit cards are considered to be part of the money supply.
In the U.S. economy, sole proprietorships account for over half the firms and over half
of total sales revenue.
If the percentage change in the quantity demanded is negative while the percentage
change in income is positive, the good is an inferior good.
The positive view of advertising suggests that it contributes to economic efficiency in
the economy.
When demand is price-elastic, an increase in price will lead to increased total consumer
spending for the product.
Surpluses drive market prices up; shortages drive them down.
Rivalry means that when one person buys and consumes a product, it is not available
for purchase and consumption by another person.
Social Security is financed by a payroll tax on employees and employers.
If the government sets a price floor above what would be the competitive market price
of a product, a shortage of the product will develop.
Discretionary fiscal policy is independent of Congress and based on the progressivity of
the tax system.
Federal deposit insurance is currently capped at $100,000 per account.
In a competitive market economy, firms and resource suppliers will seek to further their
own self-interest, but at the same time, as if guided by an “invisible hand,” they will
promote the public interest.
The value of money varies inversely with the price level.
The steel industry is an example of a homogeneous oligopoly.
A bond purchaser is lending money to a corporation.
A restrictive monetary policy lowers the Federal funds rate, increases the money supply,
and lowers other interest rates.
If the monetary authority wished to follow a restrictive money policy, it would buy
government securities in the open market.
If the legal price floor is set below the equilibrium price in a market, then a surplus will
develop in the market.
In an economy characterized by persistent inflation, nominal GDP will usually be
greater than real GDP.
The cyclically adjusted budget measures what the federal budget deficit or surplus
would be at full employment output with existing tax and spending decisions.
The equilibrium price level and equilibrium level of real GDP occur at the intersection
of the aggregate demand curve and the aggregate supply curve.
The carpenters’ union is an industrial union.
Defenders of growth say that it is the primary path to raising living standards.
In long-run equilibrium, a monopolistically competitive firm achieves optimal
productive efficiency but not optimal allocative efficiency.
Commercial banks increase the supply of money when they purchase either personal
IOUs or government bonds from businesses and households.
OPEC is a classic example of a kinked-demand curve oligopoly.
Recent government statistics indicate that about 20 percent of the nation lives in
poverty.
Annual design and model changes are a form of nonprice competition.
The asset demand for money varies directly with the interest rate.
Foreign individuals and institutions held about what percentage of the public debt in
2010?
A. 25 percent
B. 14 percent
C. 32 percent
D. 40 percent
Which is not one of the Four Fundamental Questions?
A. How will goods and services be produced?
B. How should the system promote progress?
C. Who is to receive the output of the system?
D. What goods and services should be produced by government?
The steel and automobile industries would be examples of which market model?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
Answer the question based on the following price and output data over a five-year
period for an economy that produces only one good. Assume that year 2 is the base
year.
If year 2 is the base year, the price index for year 3 is:
A. 120.
B. 125.
C. 133.
D. 150.
If the Board of Governors of the Federal Reserve System increases the legal reserve
ratio, this change will:
A. increase the excess reserves of member banks and thus increase the money supply.
B. increase the excess reserves of member banks and thus decrease the money supply.
C. decrease the excess reserves of member banks and thus decrease the money supply.
D. decrease the excess reserves of member banks and thus increase the money supply.
Which nation led the world in the volume of exports in 2009?
A. Britain
B. Japan
C. China
D. United States
Refer to the above supply and demand graph for a public good. Which one of the
following statements is correct?
A.The supply curve reflects the marginal cost and the demand curve reflects the
marginal benefit of this public good.
B.The demand curve reflects the marginal cost and the supply curve reflects the
marginal benefit of this public good.
C.There will be an overallocation of resources at output level Q1.
D.There will be an underallocation of resources at output level Q3.
The elasticity coefficients of demand are 2.6, 0.5, 1.4, and 0.18 for demand schedules
D1, D2, D3, and D4. A 2 percent price increase will result in an increase in total
revenues in the cases of:
A. D1 and D3.
B. D1 and D4.
C. D2 and D4.
D. D1, D2, and D3.
In the past few years the demand for donuts has greatly increased. This increase in
demand might best be explained by:
A. an increase in the cost of making donuts.
B. an increase in the price of coffee.
C. consumers expecting donut prices to fall.
D. a change in buyer tastes.
On the graph above, what is the profit-maximizing level of output for a pure
monopolist?
A. A
B. B
C. C
D. D
Which statement is an economic rationale for the law of increasing opportunity cost?
A. The economy is employing all of its available resources.
B. Many economic resources are better at producing one product than another.
C. In any economy, the state of technology is changing and resources are variable.
D. The economy is achieving productive efficiency by producing goods and services at
the least cost.
Which is the most important function of the Federal Reserve System?
A. Setting reserve requirements.
B. Controlling the money supply.
C. Lending money to banks and thrifts.
D. Acting as the fiscal agent for the U.S. government.
Crowding out is a decrease in private investment caused by:
A. a contractionary fiscal policy.
B. an expansionary fiscal policy.
C. a cyclically adjusted budget deficit.
D. the political business cycle.
Capitalism is an economic system that:
A. produces more capital goods than consumer goods.
B. produces more consumer goods than capital goods.
C. is characterized by government control of markets.
D. gives private individuals and corporations the right to own productive resources.
Assume the economy faces high unemployment but stable prices. Which combination
of government policies is most likely to reduce unemployment?
A. The purchase of government securities in the open market and an increase in taxes.
B. The sale of government securities in the open market and a decrease in taxes.
C. The sale of government securities in the open market and a decrease in government
spending.
D. The purchase of government securities in the open market and an increase in
government spending.
Which is an example of a change in the price of another resource that decreases labor
demand?
A. A decline in the demand for computers in Europe reduces the demand for workers in
the domestic computer industry.
B. The rise of hair salons for both men and women reduces the demand for barbers.
C. A decrease in the educational skills of manufacturing workers decreases the demand
for such workers.
D. An increase in the price of chemical equipment increases the cost of producing
fertilizer, thus decreasing the demand for workers who make fertilizer.
Which is considered a strength of monetary policy compared to fiscal policy?
A. The ability to increase the budget deficit.
B. The ability to decrease the budget surplus.
C. Its protection from political pressure.
D. Its cyclical asymmetry.
The Federal Reserve System consists of which of the following?
A. Federal Open Market Committee and Office of Thrift Supervision.
B. Federal Deposit Insurance Corporation and Controller of the Currency.
C. U.S. Treasury Department and Bureau of Engraving and Printing.
D. Board of Governors and the 12 Federal Reserve Banks.
Unemployment that occurs when there is deficient demand for the goods and services
of an economy is called:
A. frictional unemployment.
B. cyclical unemployment.
C. structural unemployment.
D. natural unemployment.
How do workers typically express self-interest?
A. By minimizing the economic losses of other business firms.
B. By maximizing the economic profits of other business firms.
C. By seeking the highest price when purchasing a consumer product.
D. By seeking jobs with the best combination of wages and benefits.
The amount of real domestic output that will be purchased at each possible price level is
best shown by the:
A. aggregate supply curve.
B. aggregate demand curve.
C. aggregate expenditures model.
D. difference between real and nominal GDP.
Refer to the figure above. Which demand curve above is perfectly inelastic?
A. D2
B. D3
C. D4
D. D5
Refer to the graph above. Over the $5-$6 range, the elasticity of supply using the
midpoints formula is:
A. 0.22.
B. 0.88.
C. 1.00.
D. 1.22.
The difference between the 45-degree line and the Lorenz curve shows the:
A. inflationary gap.
B. recessionary gap.
C. number of households that are classified as being poor.
D. degree of income inequality.
Refer to the above data. When two workers are employed:
A. total product is 20.
B. total product is 18.
C. average product is 10.
D. total product cannot be determined from the information given.
Suppose that at prices of $5, $4, $3, $2, and $1 for product Z, the corresponding
quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following
would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these
prices?
A. improved technology for producing Z
B. an increase in the prices of the resources used to make Z
C. an increase in the excise tax on product Z
D. increases in the incomes of the buyers of Z
Refer to the above graph. If the supply of money was $200 billion, the interest rate
would be:
A. 1 percent.
B. 2 percent.
C. 3 percent.
D. 4 percent.
Refer to the above diagram. At output level Q average fixed cost:
A. is equal to EF.
B. is equal to QE.
C. is measured by both QF and ED.
D. cannot be determined from the information given.
Refer to the above graph of the representative firm in monopolistic competition. Excess
capacity for this firm would be calculated by:
A. D – 0.
B. E – C.
C. E – D.
D. D – C.
Which is not true of price discrimination?
A. It exists when price differences depend critically on different buyers’ evaluations of a
product.
B. Successful price discrimination will provide the firm with more profit than if it does
not discriminate.
C. Successful price discrimination implies that the producer can separate customers into
easily identifiable groups.
D. Successful price discrimination will generally result in a lower level of output than
would be the case under a single-price monopoly.
A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of
20 percent. What is the amount of required reserves?
A. $10,000
B. $50,000
C. $250,000
D. $1 million
An example of an intermediate good or service would be:
A. bricks bought by a homeowner for constructing a patio.
B. sacks of groceries bought by a dentist for his family.
C. a car bought by a stockbroker for commuting to work.
D. a desk bought by an accountant for her office.
Which is a feature of a purely competitive market?
A. There are price differences between firms producing the same product.
B. There are significant barriers to entry into the industry.
C. The industry’s demand curve is perfectly elastic.
D. Products are standardized or homogeneous.
A representative firm in monopolistic competition will tend to make economic profits:
A. in the short run and long run.
B. and losses in the short run and long run.
C. or losses in the short run, but the firm will break even in the long run.
D. or losses in the short run, but the firm will make economic profits in the long run.
Which would make an individual firm’s demand curve less elastic?
A. The purchase of more efficient machinery.
B. A reduction in the price of the firm’s product.
C. Increased brand loyalty toward the firm’s product.
D. A reduction in advertising expenditures by the firm.