Imagine two countries, Bruceland and Davidia. Bruceland is producing everything at a
lower absolute cost than Davidia. If the two countries trade what is the reason?
The Kennedy administration endorsed substantial tax cuts because:
A) tax rates were very high, compared to tax rates today.
B) the economy was considered to be below its full employment level.
C) the unemployment rate was considered to be above its natural rate.
D) all of the above
Table 3.1
Table 3.1 illustrates Willy and Blythe’s hourly production for apples and carrots. From
the table, we can conclude that:
A) Willy should specialize in carrots and trade for apples.
B) Willy should specialize in apples and trade for carrots.
C) Blithe should specialize in both goods.
D) Willy should specialize in both goods.
A possible reason a nation might impose a protectionist policy such as a tariff is to:
A) help firms establish a world monopoly in a particular market.
B) increase the level of imports.
C) encourage specialization in the good in which the nation has a comparative
advantage.
D) increase the welfare of domestic consumers.
The majority of spending in the category of government purchases comes from
A) the federal government.
B) state and local governments.
C) transfer payments.
D) military spending.
Figure 7.1 Please refer to Figure 7.1. The production function that passes through
points A and B exhibits:
A) diminishing returns to labor.
B) diminishing returns to labor and capital.
C) diminishing returns to capital.
D) no diminishing returns.
An increase in the demand for labor will ________ wages and ________ employment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Suppose that Bob had $500 in travelers checks unused from his trip to Italy and he
decides to deposit the checks to his savings account. This transaction will:
A) decrease M1 and keep M2 unchanged.
B) increase M1 and M2.
C) decrease M1 and M2.
D) keep M1 unchanged and increase M2.
Suppose that the government debt is $100 million at the beginning of the year. If the
government collects $45 million in taxes and incurs $50 million in expenditures this
year, then the government is experiencing a ________ and the debt will be ________ at
the end of the year.
A) deficit, $105 million
B) surplus, $95 million
C) deficit, $95 million
D) surplus, $105 million
The quantity equation
A) determines foreign exchange rates.
B) describes the amount of required reserves held in banks.
C) links money, velocity, prices, and real output.
D) links money supply and interest rates.
If a firm increases its capital stock, real wages will likely ________ and the equilibrium
quantity of labor will likely ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Not including transactions from the underground economy will tend to ________ GDP,
and not including environmental changes caused by pollution will tend to ________
GDP.
A) overvalue; undervalue
B) undervalue; overvalue
C) overvalue; overvalue
D) undervalue; undervalue
Which of the following did not cause the budget deficit to grow larger since 2001?
A) the war in Iraq
B) the fast growing economy since 2003
C) the tax cuts in 2001 and 2003
D) the larger in unemployment benefit claims in 2003
Recall Application 1, “The Black Death and the Living Standards in Old England,” to
answer the following questions:
According to the application, the higher real wages in England during the 1350s
through the 1550s was caused by:
A) the bubonic plague.
B) the Industrial Revolution.
C) the Spanish inquisition.
D) Columbus’ discovery of America.
Recall Application 5, “Honeybees and the Price of Ice Cream,” to answer the following
questions:
Using supply and demand analysis, if the “colony collapse disorder (CCD)” of honey
bees caused a leftward shift of the supply curve for ice cream, then which of the
following must be true?
A) The equilibrium price of ice cream increased and the equilibrium quantity decreased.
B) The equilibrium price of ice cream decreased and the equilibrium quantity
decreased.
C) The equilibrium price of ice cream increased and the equilibrium quantity increased.
D) The equilibrium price of ice cream decreased and the equilibrium quantity increased.
When the quantity of labor supplied is equal to the quantity of labor demanded at the
equilibrium wage rate,
A) there is a lack of unemployment.
B) the economy operates at full-employment output.
C) frictional unemployment is zero.
D) the economy is at a peak point during an inflationary period.