The political popularity of a tariff on imported goods that compete with products of a
well-established domestic industry is
a. surprising since one would expect the political power of consumers to override the
interests of even a well-established domestic industry.
b. surprising since one would expect the economic harm resulting from tariffs to be well
understood by voters.
c. not surprising since such a tariff would generally benefit an easily recognized interest
group at the expense of uninformed, uninterested consumers.
d. not surprising since the tariff enables domestic producers and consumers to gain at
the expense of foreigners.
Which of the following is a characteristic of a competitive price-taker market?
a. Profit maximizing firms in the market will expand output until price equals average
variable cost.
b. The market demand curve for the product is a horizontal line.
c. There are many firms in the market, each producing a small share of total market
output.
d. The product produced by each of the firms is differentiated.
Other things equal, the demand for a good tends to be more inelastic when
a. there are fewer available substitutes.
b. a longer time period is considered.
c. the good is considered a luxury good.
d. the market for the good is more narrowly defined.
The short-run impact of an unanticipated shift to a more restrictive monetary policy is
most likely to be a reduction in
a. prices, while real output is unaffected.
b. the rate of unemployment.
c. real output.
d. the size of the budget deficit.
Which one of the following groups has a below-average incidence of poverty?
a. divorced or separated persons
b. African Americans and other minorities
c. families headed by a female
d. persons between the ages of 35 and 54
Which of the following would most likely cause both a decrease in the price of plasma
screen TVs and a decrease in the number sold?
a. an increase in the supply of plasma screen TVs
b. an increase in the demand for plasma screen TVs
c. a decrease in the supply of plasma screen TVs
d. a decrease in the demand for plasma screen TVs
Figure 3-15
Refer to Figure 3-15. Which area represents the increase in producer surplus when the
price rises from P1 to P2?
a. BCE
b. ACF
c. ABED
d. AFEB
When economists say that market equilibrium is consistent with economic efficiency,
they mean
a. the total gains from trade (the combined area of producer and consumer surplus) are
smaller than potentially could be the case at a different price and quantity.
b. all units creating more benefit than cost have been produced.
c. some units have been produced that cost more than the benefits they create.
d. consumers and producers have made decisions without properly taking into account
the market price.
Which of the following would increase the supply of laptop computers?
a. higher wage rates for the workers that produce laptop computers
b. a technological improvement that lowers the cost of producing laptop computers
c. an increase in the price of computer chips used to produce laptop computers
d. all of the above
If the supply of a good is relatively inelastic, this means that the quantity supplied of the
good is
a. not very sensitive to the price of the good.
b. highly sensitive to the price of the good.
c. unrelated to the price of the good.
d. none of the above.
A price floor that sets the price of a good above market equilibrium will cause
a. a decrease in quantity demanded of the good.
b. an increase in quantity supplied of the good.
c. a surplus of the good.
d. all of the above.
During the 1980s, the top marginal tax rate on personal income was reduced from 70
percent to less than 40 percent and it has remained below 40 percent since that time. In
recent years, the share of the personal income tax collected from the top one-half of one
percent of earners has
a. fallen sharply from the level of years prior to 1981.
b. increased sharply during the Clinton administration, but declined substantially during
the administration of George W. Bush.
c. been virtually unchanged from the level of years prior to 1981.
d. increased substantially from the level of years prior to 1981.
This year, Tyrone earned a total of $9,000. As a result, he received $9,000 less in
government transfers. Therefore, his implicit marginal tax rate is
a. zero.
b. 25 percent.
c. 50 percent.
d. 100 percent.
The rate of return that owners of capital must receive in order to induce them to
continue supplying the capital is often referred to as
a. accounting profit.
b. the normal or market rate of return.
c. economic profit.
d. the accounting rate of return.
As short-term interest rates began to rise in 2005, which one of the following mortgage
loan categories experienced the largest increase in default and foreclosure rates?
a. fixed rate mortgages to prime borrowers
b. fixed rate mortgages to sub-prime borrowers
c. adjustable rate mortgages extended to both prime and sub-prime borrowers
d. adjustable rate mortgages to sub-prime borrowers only; the default and foreclosure
rates of these loans extended to prime borrowers declined
Other things being equal, an increase in the rate of interest causes
a. an upward movement along the demand for money curve.
b. a downward movement along the demand for money curve.
c. a rightward shift of the demand for money curve.
d. a leftward shift of the demand for money curve.
Cyclical unemployment is primarily caused by
a. a large proportion of youthful workers in the labor force.
b. fluctuations in aggregate demand.
c. a lack of training on the part of job seekers.
d. the failure of job seekers to search adequately for the available jobs.
Figure 4-22
Refer to Figure 4-22. The equilibrium price in the market before the tax is imposed is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
Suppose prices for new homes have risen and sales of new homes have also risen. We
can conclude that
a. the demand for new homes has risen.
b. the law of demand has been violated.
c. new firms have entered the construction industry.
d. construction firms must be facing higher costs.
The federal funds rate is the interest rate paid when
a. the Federal Reserve makes loans to member banks.
b. taxpayers pay overdue taxes.
c. one bank borrows reserves from another bank.
d. banks make loans to the federal government.
e. the federal debt is refinanced.
Refer to Table 13-2. If the Hometown Bank is holding $10,000 in excess reserves, then
the reserve requirement is
a. 2 percent.
b. 5 percent.
c. 7 percent.
d. 10 percent.
The benefit (or satisfaction) that an individual expects to derive from an activity is
called
a. opportunity cost.
b. utility.
c. marginal cost.
d. scarcity.
Within the AD/AS model, if an unanticipated reduction in aggregate demand results in
less than the full-employment rate of output,
a. the natural rate of unemployment will increase.
b. long-run aggregate supply will increase.
c. lower resource prices and declining interest rates will direct the economy back to full
employment.
d. higher resource prices and rising interest rates will direct the economy back to full
employment.
Government programs that automatically shift the government budget toward a deficit
during recessions and a surplus during recoveries are called
a. discretionary fiscal policy.
b. automatic stabilizers.
c. progressive taxation.
d. price deflators.
Olivia must decide whether or not to go to college. She can either continue to work as a
waitress and earn $22,000 per year or she can go to school and expect to earn $32,000
per year when she finishes. She should
a. continue to work as a waitress.
b. go to school, but only if she knows she can finish in four years.
c. go to school no matter what.
d. we cannot tell since there may be important nonmonetary considerations that Olivia
will take into account.
Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve
requirement is 10 percent, the currency holdings of the public are unchanged, and banks
have zero excess reserves both before and after the transaction, the total impact on the
money supply will be
a. an increase by $100,000.
b. an increase by $1,000,000.
c. a decrease by $100,000.
d. a decrease by $1,000,000.
Which of the following is an advantage of an indexed equity mutual fund relative to a
managed equity fund?
a. Indexed funds generally have better stock pickers.
b. Indexed funds engage in more detailed research.
c. Indexed funds have lower operating costs because they engage in less stock trading.
d. Indexed funds earn a significantly higher rate of return than a broad portfolio that
represents the entire stock market.
New classical economists believe that an increase in deficit financing by the
government will
a. reduce government spending.
b. increase consumption.
c. reduce future taxes.
d. increase savings.
Which of the following most clearly distinguishes between positive and normative
economics?
a. Positive economics is the study of what ought to be; normative economics is
concerned with the facts.
b. Positive economics is the study of the facts; normative economics is concerned with
what ought to be.
c. Positive economics is the study of supply and demand in narrowly defined markets
such as the market for shoes; normative economics focuses on highly aggregated
markets such as the market for all consumer products.
d. Positive economics is the study of goods that are scarce; normative economics is
concerned with goods that are not scarce.
The major overall purpose of the Federal Reserve System is to
a. keep the discount rate flexible.
b. insure the deposits of persons holding funds with banking institutions.
c. regulate the money supply and, thereby, provide a monetary climate that is in the best
interest of the economy.
d. regulate the levels of excess reserves held by member banking institutions.
Regulating “natural monopolies” according to the “rate of return” criterion is likely to
a. increase the monopolist’s incentive to minimize cost.
b. increase output compared to the situation where the firm is unregulated.
c. completely eliminate the “welfare loss” due to monopoly.
d. do all of the above
Which of the following is a positive economic statement?
a. Raising the federal minimum wage to $6.50 per hour will cause the rate of
unemployment to increase.
b. The United States spends too much on welfare.
c. Philosophy is not as interesting as economics.
d. Cold weather is much more enjoyable than warm weather.