Economic theory shows that the current account deficit is always equal to the capital
account surplus. This means that
a. the federal budget must always be in balance.
b. when a country exports more goods and services than it imports, it also imports
assets equal to the difference.
c. current account deficits should be avoided.
d. trade deficits tend to be eliminated automatically.
On June 3, 2005, it cost 1.22 U.S. dollars to buy one euro. How many euros did it take
to buy one U.S. dollar?
a. 0.82 euros
b. 0.88 euros
c. 1.22 euros
d. 88 euros
The technique called input-output analysis was invented by
a. Adam Smith.
b. Milton Friedman.
c. Wassily Leontief.
d. Mountifort Longfield.
In most rich countries, adult citizens typically have a
a. primary education.
b. secondary education.
c. higher education.
d. graduate-level education.
A 50 percent tax on the profits of a monopolist will
a. be totally shifted to the consumer.
b. raise price and lower quantity.
c. cause no change in profit-maximizing price and quantity.
d. change price but not quantity.
Since a monopoly faces a downward-sloping demand curve,
a. then, as Adam Smith wrote, “the price of monopoly is upon every occasion the
highest which can be got.”
b. price always exceeds average revenue.
c. marginal revenue increases as output increases.
d. the monopolist is a price maker.
A bank run involves a large flow of money
a. into bank depositors’ accounts.
b. into checking and savings accounts.
c. out of depositors’ accounts.
d. out of individuals’ cash reserves into money market funds.
The tax cuts of 2008 and 2009 reduced the disposable income of U.S. consumers.
a. True
b. False
Many large universities rent out parts of their campuses to conference groups during the
summer because such groups cause little damage, require little staff attention, and bring
in large amounts of income. A university’s decision to rent its campus to a conference
group is most clearly based on
a. the idea that price and quantity selection is a single decision.
b. the principle of decreasing returns to scale.
c. marginal analysis.
d. average cost considerations.
On a world scale, how populous is the U.S. economy?
a. first
b. second
c. third
d. fourth
e. fifth
What is the shape of the AS in the short run and the long run?
a. AS is relatively flat in both the short and long run.
b. AS is relatively flat in the short run, but steeper in the long run.
c. AS is relatively steep in both the short and long run.
d. AS is relatively steep in the short run, but flatter in the long run.
If a firm shuts down, its
a. fixed costs remain unchanged.
b. revenue will fall to zero.
c. short-run variable costs will fall to zero.
d. All of the above are correct.
A perfectly competitive firm will not operate where MC = MR but at MC = AC.
a. True
b. False
Exhibit 4-1
The following are the equations for the supply and demand curves in the market for
weezils:
Demand: Qd = 20 − 2P
Supply: Qs = 5 + 3P
where Qd is the quantity demanded, Qs is the quantity supplied, and P is the price per
weezil in dollars.
Refer to Exhibit 4-1. If the government imposes a price floor of $4 a weezil, how many
weezils will be sold?
a. 5
b. 10
c. 12
d. 14
Multinational businesses produce and sell goods around the world.
a. True
b. False
Regarding poverty in U.S. society, it is correct to say that:
a. Poverty affects a relatively small number of Americans.
b. Poverty results from a failure to work hard.
c. Most of the poor live in inner cities.
d. None of these statements is true.
A firm that charges a very low price would be practicing predatory pricing if
a. the price allowed only a small profit.
b. the price would only be profitable if it succeeded in driving a rival out of the market.
c. the price allowed profits that were positive but below those earned by other firms.
d. it only offered the low price to its rivals’ customers.
The existence of an inflationary gap would tend to benefit most
a. bankers.
b. retired persons.
c. unemployed workers.
d. stock owners.
The allocation of resources is efficient under an idealized free market system.
a. True
b. False
The crowding-out effect is more likely to dominate the crowding-in effect when
investment is relatively
a. insensitive to interest rates and to GDP.
b. insensitive to interest rates but sensitive to GDP.
c. sensitive to interest rates and to GDP.
d. sensitive to interest rates and insensitive to GDP.
Which of the following would cause a decrease in the demand for U.S. dollars?
a. an economic boom in the United States
b. an economic boom in Europe
c. increased vacations in the United States by Europeans
d. a recession in Europe
When the Fed sells a government security to the public, how does it usually receive
payment for the security?
a. by accepting checks on bank accounts
b. by drawing money out of circulation
c. by decreasing member bank profits not distributed by the Fed
d. by decreasing reserves in bank accounts at the Fed
The corporate income tax is the single largest source of revenue for the federal
government.
a. True
b. False
The differences between a competitive market and a monopoly include all of these
except:
a. excess profits would be competed away in a competitive market, but persist in a
monopolistic market
b. a competitive market would work toward production of the quantity consumers seek,
while a monopolistic market may restrict output to raise short term prices
c. a competitive market’s cost curves will shift with the market, while a monopoly’s cost
curves will remain stable
d. a competitive market would work toward production of the quantity consumers seek,
while a monopolistic market may restrict output to raise long term prices
The real cost of a decision is the opportunity cost measured in the commodities forgone.
a. True
b. False
Which of the following would not be classified as capital formation?
a. buying shares of stock
b. building a new warehouse
c. purchasing new construction equipment
d. All would be considered capital formation.
Which of the following environmental approaches is most appropriate when
surveillance and enforcement is impractical?
a. direct controls
b. emissions tax
c. volunteerism
d. tradable emission permits
If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of
producing the gallon of milk is $1.50, then
a. the value of the resources used up in producing one more gallon of milk would be $1
less than the money value of the additional gallon to consumers.
b. society could be made better off by expanding the output of milk.
c. resources are not being used most efficiently.
d. All of the above are true.
An increase in the U.S. price level will
a. increase the slope of the expenditure schedule.
b. decrease the slope of the expenditure schedule.
c. shift the expenditure schedule upward.
d. shift the expenditure schedule downward.
If financial news broadcasts reported that inflation was likely to rise significantly next
year, what would most likely happen to the velocity of circulation?
a. It will decrease.
b. It will increase.
c. It will remain constant.
d. Velocity is unrelated to inflation.
The total burden of a tax is the
a. absolute number of dollars an individual pays.
b. percentage of income a person pays.
c. number of dollars a person must be given after taxation to make him as well off as he
was before taxation.
d. revenue lost to loopholes.