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Suppose the economy is currently operating at potential output; an expansionary gap
may be caused by each of the following EXCEPT:
A. a positive demand shock.
B. a positive inflation shock.
C. an increase in government spending.
D. an increase in the inflation rate.
Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By
noon, the buffet is picked over, and by 12:30, there are very few popular items left. The
garbage bins, though, are full of food.
Refer to the information given above. If the cafeteria changed its policy so that students
had to pay for each item chosen, students would:
A. continue to make the same selections as before, but waste less.
B. select only the most expensive items in the buffet.
C. experience shortages earlier in the day.
D. make food selections so that the marginal benefit was no less than the price of the
item.
Holding all else constant, a decrease in the real interest rate on U.S. assets will ______
the demand for dollars in the foreign exchange market and ______ the equilibrium
Mexican peso/U.S. dollar exchange rate.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Suppose a treacherous stretch of road winds through Deadman's Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
The first light is estimated to reduce the fatality rate by ___ at a marginal cost of $__
per life saved.
A. 2; $3m
B. 3; $0
C. 1; $3m
D. .5; $4m
Accounting profits are:
A. equal to total revenues minus implicit costs.
B. the difference between total revenues and explicit costs.
C. equal to total revenues minus explicit and implicit costs.
D. less than economic profits.
Three different voters demand curves for a public park are shown on the graphs below.
For a 2-acre public park, the market reservation price is ___ per acre.
A. $6.
B. $8.
C. $14.
D. $26.
Grace and Will are moving to LA at the same time and both wish to find apartments to
rent. Grace is staying with her aunt while Will is at the Best Western motel. One can
predict that
A. Grace and Will will spend the same amount of time searching.
B. Will will search more than Grace.
C. Grace will search more than Will.
D. Will will have better information.
The labor force divided by the working age population equals the:
A. unemployment rate.
B. employment rate.
C. participation rate.
D. population rate.
Suppose market demand for bottled water in the U.S. is low enough that one firm could
supply all of the demand. Two firms enter the market and agree to charge a price above
the marginal cost of production. We can expect that:
A. they will make a considerably large profit.
B. they will work better than a cartel.
C. this agreement will collapse.
D. if one firm does not honor the agreement the other firm will sue for breach of
contract.
Refer to the figure above. At a price of $0.25, Mallory's quantity demanded is ______
and Rick's quantity demanded is _____.
A. 50, 40
B. 90, 80
C. 70, 80
D. 70, 60
The gold standard is an example of a ______ exchange rate system.
A. fixed
B. flexible
C. nominal
D. dollarized
Physical capital is:
A. the factories and machinery used to produce other goods and services.
B. the talents, training, and education of workers.
C. the financial resources available for investment.
D. the physical labor of workers.
The economy is in short-run equilibrium:
A. when the AD and AS curves intersect at potential output Y*.
B. when the AD and AS curves intersect at a level of real GDP that is above or below
Y*.
C. when the AD and AS curves become vertical.
D. at the peak of the business cycle.
Government health and safety regulations or anti-discrimination laws can reduce real
wages by:
A. decreasing the demand for labor.
B. decreasing the supply of labor.
C. reducing employer costs.
D. increasing worker productivity.
This graph illustrates the marginal costs and marginal benefits of acquiring information
before making a major purchase.
If the original curves are MB and MC, the equilibrium value and quantity of
information about this product are
A. V2, I2.
B. V3, I2.
C. V1, I1.
D. V3, I1.
The M1 measure of money consists of the sum of:
A. currency, checking deposits, and travelers' checks.
B. currency and travelers' checks.
C. currency, checking deposits, and savings deposits.
D. checking deposits and travelers' checks.
In the last two decades of the twentieth century, the number of people with jobs in the
United States:
A. declined more rapidly than the over-sixteen population.
B. declined more slowly than the over-sixteen population.
C. remained approximately constant.
D. grew more rapidly than the over-sixteen population.
When real output increases, planned aggregate expenditures increase because:
A. autonomous expenditures increase.
B. autonomous expenditures decrease.
C. induced expenditures increase.
D. induced expenditures decrease.
Data for an economy shows that the unemployment rate is 6%, the participation rate 60
percent, and 200 million people 16 years or older are not in the labor force. How many
people are unemployed this economy?
A. 12.0 million
B. 18.0 million
C. 28.8 million
D. 43.2 million
Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby
river. While the firm benefits from dumping waste into the river, the waste reduces the
fish and bird reproduction. This causes damage to local fishermen and bird watchers. At
a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird
watchers will not suffer any damage. The relevant gains (in thousands of dollars) and
losses for the three parties are listed below.
Refer to the information given above. The daily cost (in thousands of dollars) of the
filter to Erie Textiles is _______, and the daily net benefit (in thousands of dollars) of
the filter to the fishermen and bird watchers is _______.
A. $400; $310
B. $310; $200
C. $200; $75
D. $200; $235
Suppose that a new drug has been approved to treat a life-threatening disease. Demand
for that drug is shown on the graph below. Prior to approval of this drug, the only
treatment for this condition was non-prescription pain relief. Demand for one brand of
non-prescription pain reliever is also shown on the graph below.
Refer to the figure above. At a price of $15, price elasticity of demand for the new drug
is _______ price elasticity of demand for an over-the-counter pain reliever.
A. greater than
B. less than
C. the same as
D. the reciprocal of
If, in a particular market, all unexploited opportunities have been realized, one can
conclude that:
A. government regulation has proven successful.
B. the market is in equilibrium.
C. demanders are unable to find adequate amounts of the good.
D. excess demand is present.
The rise in average living standards experienced by most industrialized countries:
A. has been continuous over the course of human history.
B. was more rapid before 1870 than after 1870.
C. has been more rapid since 1950 than before 1950.
D. has resulted primarily from an increase in population worldwide.
Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means:
A. all producers who want to sell coffee earn a profit.
B. all potential producers not producing coffee require less than $5 to produce coffee.
C. all consumers who want to buy coffee are satisfied.
D. all potential consumers not buying coffee value a pound of coffee at less than $5.
Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would
prefer to see a comedy while Lee would prefer to see a documentary. One documentary
and one comedy are showing at the local cinema. The benefit they receive from seeing
the films either together or separately are shown in the payoff matrix. Both Jordan and
Lee know the information contained in the payoff matrix. They purchase their tickets
simultaneously, ignorant of the other's choice.
Refer to the figure above. This game has __________ Nash equilibrium(s).
A. 0
B. 1
C. 2
D. 4
Inflation inertia is the result of the behavior of ____ and the existence of ______.
A. the central bank; automatic stabilizers
B. real and nominal interest rates; an output gap
C. autonomous aggregate demand; the Fed's policy reaction function
D. inflation expectations; long-term wage and price contracts
Chris was the business manager for a real estate firm earning an annual salary of
$40,000. Then Chris decided to become a consultant. Chris hired an administrative
assistant at $15,000 per year and rents office space (utilities included) for $3,000 per
month. Chris earned $100,000 in total revenue the first year as a consultant.
Chris's accounting profit is _______ and Chris's economic profit is _______.
A. $100,000; $64,000
B. $64,000; $49,000
C. $49,000; $9,000
D. $9,000; 0
Assume that this graph illustrates a perfectly competitive labor market.
According to this graph, ____ worker hours would be performed on a volunteer
(unpaid) basis.
A. 0
B. 50
C. 100
D. 250
Large developed countries can produce more of practically everything than can small,
less developed countries. Which of the following statements is true?
A. The large country has no incentive to trade with the smaller country.
B. It would be impossible for the smaller country to have a comparative advantage in
making any products that the larger country wants to buy.
C. Trade will benefit both countries if each country has a comparative advantage in a
traded product.
D. Trade between the countries is more likely to benefit the small country and harm the
larger country.
The Fed cannot achieve a negative real interest rate if the inflation rate is zero or
negative because:
A. the nominal interest rate cannot fall below zero.
B. inflation doves will not permit a negative real interest rate.
C. zero or negative values of inflation cannot be accurately measured.
D. inflationary expectations are not anchored when the inflation rate is zero.
Capital goods are treated as ______ goods and, therefore, are ______ GDP.
A. final; included in
B. final; excluded from
C. intermediate; included in
D. intermediate; excluded from
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals
10, and potential output (Y*) equals 9,000, then government purchases must ______ to
eliminate any output gap.
A. increase by 100
B. decrease by 100
C. increase by 1,000
D. decrease by 1,000
Your economics professor has announced the following grading policy: For each exam,
the highest score in the class will be entered as a 100%; all other scores will be entered
as the percent of that top score. For example, if the highest test score is 50 out of 100, it
will be counted as a perfect paper, and exams with a score of 40 out of 100 will be
entered as an 80%. The final grade for the course will be determined using these
adjusted percentages, with 90% and above an A, 80% and above a B, 70% and above a
C, and below 70%, not passing.
Refer to the information given above. The students all get together and decide not to
study for the next exam because if nobody does extremely well, they will all do okay.
This plan:
A. requires everyone to follow their dominant strategy.
B. will be stable because there are no incentives to deviate.
C. will be unstable because there is an incentive to break the agreement.
D. is a commitment device, and thus stable.
Refer to the figure above. Assume the market is originally at point W. Movement to
point Y is a combination of:
A. an increase in quantity supplied and an increase in demand.
B. an increase in supply and an increase in demand.
C. an increase in supply and an increase in quantity demanded.
D. a decrease in supply and an increase in quantity demanded.
