1) The modern view of technological advance is that it is an external force to which the
economy adjusts.
2) An expansionary monetary policy will shift the Security Market Line down.
3) The equation of exchange indicates that an increase in money supply will always
lead only to inflation.
4) A corporation is a type of business firm where the debt of the firm is considered its
owners’ personal responsibility.
5) Advertising increases the costs of firms and could be manipulative, therefore it does
not really have a positive economic effect.
6) The amount of required reserves that a bank must hold is computed as a certain
fraction of the bank’s assets.
7) The U.S. government has been increasing the portion of its budget and its spending
on R&D activities, for the nation’s long-term growth.
8) From 1995 until the start of the recession in 2007, the U.S. economy grew at the
same rate as the economy of Japan.
9) The monopolistically competitive seller maximizes profits by equating price and
marginal cost.
10) If the prices of goods and services were flexible, then the economy could always
produce at its optimal capacity.
11) There is unanimous agreement that economic growth is both desirable and
sustainable.
12) If the economy’s actual GDP is greater than its potential GDP, then there is high
unemployment in that economy.
13) A normal good would have a positive price-elasticity of demand.
14) Explain the relationship between the aggregate expenditures model in graph (A)
below and the aggregate demand-aggregate supply model in graph (B) below where
aggregate demand is shifting while the price level remains constant.
(A) (B)
15) Adverse aggregate-supply shocks or stagflation would cause a:
A.Movement up along a stable Phillips Curve
B.Movement down along a stable Phillips Curve
C.Shift of the Phillips Curve to the left
D.Shift of the Phillips Curve to the right
16) Henry George claimed that land-rent taxes would not impair economic efficiency
because:
A.They do not result in a change in the amount of land available
B.Landowners are, as a group, financially secure and able to pay the taxes
C.The supply of land is infinitely elastic
D.Rents represent a small part of income paid to American resource suppliers, so taxes
on wages and salaries are more disruptive
17) Use the following list to answer the question about the money supply.
Items
1. Money market mutual funds held by individuals
2. Savings deposits, including money market deposit accounts
3. Money market mutual funds held by businesses
4. Currency held by the public
5. Small time deposits
6. Checkable deposits
Refer to the list above. The M2 money supply is composed of items:
A.1, 2, 3, 4, 5, and 6
B.1, 2, 4, 5, and 6
C.1, 2, 4, and 6
D.2, 4, 5, and 6
18) We would expect a cartel to achieve:
A.both allocative efficiency and productive efficiency.
B.allocative efficiency but not productive efficiency.
C.productive efficiency but not allocative efficiency.
D.neither allocative efficiency nor productive efficiency.
19) The figures in the table below are for a single commercial bank. All figures are in
thousands of dollars.
Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000
is drawn and cleared in favor of another bank, then the bank above will end up with
excess reserves of:
A.$8,000
B.$12,000
C.$13,000
D.$18,000
20) John Maynard Keynes expressed his ideas about the macroeconomy and attacked
classical economics in his book, The:
A.Affluent Society
B.Wealth of Nations
C.Theory and Practice of Economics in Capitalism
D.General Theory of Employment, Interest, and Money
21) As part of its zero interest rate policy (ZIRP), the Federal Reserve:
A.cut the reserve ratio to zero percent on all checkable and saving deposit accounts.
B.lowered the discount rate to zero to 0.25 percent.
C.lowered the interest rate paid on reserves held at the Fed to zero percent.
D.used open-market operations to keep the federal funds rate between zero and 0.25
percent.
22)
Refer to the figure. Assuming this market is representative of the economy as a whole, a
negative demand shock will most likely:
A.cause inflation.
B.increase unemployment.
C.lower prices but leave output unaffected.
D. reduce both prices and output.
23) The short-run Phillips Curve intersects the long-run Phillips Curve at the:
A.Nominal rate of interest
B.Current rate of inflation
C.Real interest rate
D.Natural rate of unemployment
24)
25) Which of the following best explains why unemployment rises significantly during
a recession?
A.Wages are sticky both upward and downward.
B.Wages are flexible both upward and downward.
C.Wages are flexible upward but sticky downward.
D.Wages are sticky upward but flexible downward.
26) Nonexcludability describes a condition where:
A.one person’s consumption of a good does not prevent consumption of the good by
others.
B.there is no effective way to keep people from using a good once it comes into being.
C.sellers can withhold the benefits of a good from those unwilling to pay for it.
D.there is no potential for free-riding behavior.
27) Investors diversify portfolios:
A.because diversified portfolios pay the highest rates of return.
B.because diversified portfolios are guaranteed not to lose money.
C.to reduce the risk of losing their investment.
D.to guarantee minimum returns on their investment.
28)
Refer to the diagram where the numerical data show profits in millions of dollars. Beta’s
profits are shown in the northeast corner and Alpha’s profits in the southwest corner of
each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by:
A.also adopting a high-price policy.
B.adopting a low-price policy.
C.adopting a low-price policy, but only if Beta agrees to do the same.
D.engaging in nonprice competition only.
29) If a product has a short-run elasticity of supply equal to zero, then an increase in the
demand for the product will:
A.Have no effect on price or quantity sold
B.Increase price and leave quantity sold unchanged
C.Increase price and reduce the quantity sold to zero
D.Leave the price unchanged and reduce the quantity sold
30) Economist Jones defines an increase in supply as a decrease in the prices needed to
ensure various amounts of a good being offered for sale. Economist Brown defines an
increase in supply as an increase in the amounts that producers will offer at various
possible prices. Economist Cole defines an increase in supply as an increase in the
amount firms will offer in the market which is caused by an increase in the price of the
product. Which, if any, of these is defining an increase in supply correctly? Explain.
31) How will an increase in income affect the budget line for two goods, all other things
equal?
32) What are two main reasons that actively managed funds perform poorly relative to
index funds?
33) What is the equation for Real GDP in terms of labor? Explain the factors that go
into each component.
34) Answer the following question on the basis of the following diagram which shows
the effects of a union-negotiated wage level Wu on a portion of a labor market which
now has two sectors: union and nonunion.
What is the loss of output that will occur as a result of the establishment of wage rate
Wu in the union sector and Ws in the nonunion sector? Explain. (At Wa the wage rates
are the same in each sector.)
35) Is the problem of coordination common to all economies? Explain how the problem
is met in a market economy and how coordination was dealt with in a command
economy.
36) What is meant by the “economizing problem”?