A legal system that provides secure private property rights and unbiased enforcement of
contracts
a. is unnecessary for the smooth operation of markets.
b. reduces the efficiency of markets.
c. enhances the efficiency of markets.
d. makes it easier for sellers to cheat or defraud consumers.
The imposition of price ceilings on a market often results in
a. an increase in investment in the industry.
b. a persistent surplus in the market.
c. an increase in expenditures in the black-market.
d. lower prices being offered on the black market.
Supply-side economic policies are best viewed as
a. a short-run countercyclical tool.
b. a long-run strategy to promote economic growth.
c. a strategy for the control of long-run inflation.
d. a stabilization tool to smooth the ups and downs of the business cycle.
Which of the following is most likely to cause the productivity of labor to increase?
a. higher money wages.
b. an increase in the proportion of the workforce that belongs to a labor union.
c. more flexible working hours and improved retirement plans.
d. a higher rate of investment in human and nonhuman capital.
The theory that stock prices reflect all available information and that the future
movement of stock prices is unpredictable is called the
a. random walk theory.
b. inefficient market theory.
c. technical analysis theory.
d. charting theory.
When expansionary monetary policy pushes real interest rates to an artificial low, the
Austrian view of the business cycle predicts this will lead to
a. an increase in aggregate demand and a lengthy expansion in real output.
b. a recession, followed by a strong and lengthy expansion in real output.
c. malinvestment during an economic boom, followed by a recession.
d. malinvestment during a temporary recession, followed by a strong and lengthy
economic boom.
Which of the following countries have liberalized their economies and substantially
improved their economic freedom rating since 1990?
a. Argentina and Brazil
b. Zimbabwe and the Republic of Congo.
c. Estonia and India
d. Italy and France
Your friend notices that U.S. auto production and U.S. population growth have moved
together over several decades. He reasons that one way to slow population growth is for
the government to order the auto makers to cut back on production. You gently point
out to him that he
a. is correct only when the economy is in a recession
b. has mistakenly inferred causation from observed correlation
c. has ignored secondary effects
d. has committed the fallacy of composition
e. is correct only when the United States enjoys economic growth
Figure 15-1
As shown in Figure 15-1, the degree of unequal income distribution is measured by the
area between the
a. Lorenz curve and the horizontal axis.
b. Lorenz curve and the vertical axis.
c. Perfect equality line and the origin.
d. Perfect equality line and the Lorenz curve.
Which of the following about costs is always true?
a. When marginal costs are less than average total costs, average total costs will be
decreasing.
b. When average fixed costs are falling, marginal costs must be less than average fixed
costs.
c. When average fixed costs are rising, marginal costs must be greater than average total
costs.
d. When marginal costs are greater than average total costs, average total costs will be
decreasing.
The bundling of mortgages together and the issuing of securities for their financing
made it possible for investment banks to
a. reduce their exposure to risk in the event that the overall mortgage default rate rose.
b. reduce the amount of capital required to back these bundled securities.
c. build up large reserves so they would be able to meet their obligations even if the
mortgage default rate rose substantially.
d. quickly access funds to meet short-term debt obligations.
When an economy is operating below its potential capacity, Keynesian economists
argue that
a. taxes should be raised if the government is currently running a budget deficit.
b. taxes should be lowered but only if the government is running a budget surplus.
c. the government should cut taxes and/or increase expenditures in order to stimulate
aggregate demand.
d. both a and b are correct.
e. all of the above are correct.
Suppose that Japanese and Chinese workers are equally productive, but Japanese
workers receive a higher wage than Chinese workers. Then, refusing to hire Chinese
workers would
a. increase the firm’s costs.
b. decrease the firm’s costs.
c. increase the firm’s profits.
d. decrease the firm’s profits.
e. do both a and d.
Which of the following compose the reserves of a commercial bank?
a. demand deposits and time deposits
b. vault cash and deposits of the bank with the Federal Reserve
c. U.S. securities and stock equity
d. cash and U.S. securities
If skilled labor costs three times as much as unskilled labor, a profit-maximizing firm
will vary the quantity of each type of labor used until the
a. amount of unskilled labor used is three times the quantity of skilled labor used.
b. amount of unskilled labor used is one-third the quantity of skilled labor used.
c. marginal product of skilled labor is one-third that of unskilled labor.
d. marginal product of skilled labor is three times as great as that of unskilled labor.
Which of the following best expresses the central idea of countercyclical fiscal policy?
a. Planned deficits are experienced during economic booms and planned surpluses
during economic recessions.
b. The balanced-budget approach is the proper criterion for determining annual budget
policy.
c. Actual deficits should equal actual surpluses during a period of deflation.
d. Deficits are planned during economic recessions, and surpluses are utilized to
restrain inflationary booms.
If the government increases its spending, which of the following would tend to reduce
the size of the multiplier?
a. higher taxes for the finance of the additional spending
b. higher interest rates as the result of additional borrowing to finance the spending
c. the flow of the spending into sectors where the unemployment rate is low
d. all of the above
The crowding-out effect indicates that budget deficits
a. will stimulate aggregate demand and, therefore, exert a strong impact on output and
employment.
b. will lead to additional borrowing and higher interest rates that will reduce the level of
private spending.
c. are highly appropriate when the threat of inflation is present.
d. are highly appropriate when the threat of recession is present.
Which of the following will be most likely to dampen the expansionary effects of an
increase in government spending financed by borrowing?
a. The budget deficit will cause business decision makers to become more optimistic.
b. The increase in demand for loanable funds as the result of borrowing will cause
interest rates to rise and private investment to fall.
c. The increase in government spending will cause the money supply to expand, thereby
causing an inflationary boom.
d. The additional borrowing will cause the central bank to buy more bonds, which will
reduce aggregate demand.
Suppose the minimum average total cost (ATC) of a firm competing in a competitive
price-taker market was $1.00 per unit and that the firm’s minimum average variable cost
(AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm
would
a. shut down immediately.
b. produce where MR = MC in the short run.
c. shut down in the long run but remain in business in the short run.
d. do both b and c.
The basic difference between macroeconomics and microeconomics is that
a. macroeconomics is concerned with the forest (aggregate markets), while
microeconomics is concerned with the individual trees (subcomponents).
b. macroeconomics is concerned with policy decisions, while microeconomics applies
only to theory.
c. microeconomics is concerned with the forest (aggregate markets), while
macroeconomics is concerned with the trees (subcomponents).
d. opportunity cost is applicable to macroeconomics, and the fallacy of composition
relates to microeconomics.
Which of the following would cause the demand for mathematicians to increase?
a. a decrease in the productivity of mathematicians.
b. an increase in the wage of mathematicians.
c. an increase in the productivity of mathematicians.
d. an increase in the productivity of physicists.
At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6,
Tyrone buys 8 units. Which of the following is correct about Tyrone’s behavior?
a. Tyrone’s demand has decreased.
b. Tyrone’s demand has increased.
c. Tyrone’s quantity demanded has decreased, and his demand has not changed.
d. Tyrone’s quantity demanded has increased, and his demand has increased.
e. Tyrone’s demand has increased, and his quantity demanded has decreased.
The government enforces property rights by
a. requiring property owners to pay property taxes.
b. providing police and courts.
c. forcing people to own property.
d. providing public parks and recreation facilities.
If the real interest rate in the domestic loanable funds market increases,
a. firms will have an added incentive to undertake investment projects.
b. households will save less.
c. the net inflow of foreign capital will tend to increase.
d. it will be cheaper to purchase goods and services now rather than in the future.
What percentage of the total government expenditures of the United States is
undertaken at the federal level?
a. approximately 20 percent
b. approximately 40 percent
c. approximately 60 percent
d. approximately 80 percent
Modern Phillips curve analysis indicates that if people
a. underestimate inflation, actual unemployment will be below the natural rate.
b. overestimate inflation, actual unemployment will be below the natural rate.
c. accurately estimate inflation, actual unemployment will be less than the natural rate.
d. accurately estimate inflation, actual unemployment will be below the natural rate.
If the United States experiences an economic boom, how will this affect the foreign
exchange value of the U.S. dollar?
a. It will fall because other nations would be forced to raise their interest rates.
b. It will fall because the United States will import more goods and services, leading to
an increased demand for foreign currencies.
c. It will rise because U.S. GDP would be rising faster than other countries.
d. It will rise because the Fed will have to lower U.S. interest rates.
e. It will rise because the United States will import more goods and services, leading to
an increased demand for foreign currencies.
Figure 4-21
Refer to Figure 4-21. The price received by sellers after the tax is imposed is
a. $18.
b. $14.
c. $12.
d. $8.
Which of the following is true?
a. Monetary policy influences long-term real interest rates more than short-term interest
rates.
b. Short-term interest rates are primarily determined by real factors and the expected
inflation.
c. A shift to a more expansionary monetary policy will tend to raise short-term interest
rates.
d. A shift to expansionary monetary policy that increases the fear of future inflation will
tend to increase long-term interest rates.
The new classical view argues that an increase in government debt will cause people to
a. increase their current saving so they will be better able to pay the higher future taxes
implied by the increase in the debt.
b. increase their current consumption since the substitution of debt for taxes makes
them wealthier.
c. shift their savings to foreign banks where they will be more secure.
d. do all of the above.
Assume the reserve requirement is 10 percent. First National Bank has vault cash and
deposits with the Fed of $30 million, loans and securities of $60 million, and checking
deposits of $300 million. First National is in a position to make
a. no additional loans.
b. $5 million of additional loans.
c. $10 million of additional loans.
d. $15 million of additional loans.
How would a decrease in lumber prices influence the home construction market?
a. The demand for newly constructed homes will increase.
b. The demand for newly constructed homes will decrease.
c. The supply of newly constructed homes will increase.
d. The supply of newly constructed homes will decrease.
Suppose there was a sharp reduction in stock prices and a sharp increase in the world
price of crude oil. Within the framework of the AD/AS model, how would these two
changes influence the U.S. economy?
a. The lower stock prices would increase SRAS, and the higher crude oil prices would
reduce AD; as a result, there would be downward pressure on the general level of
prices.
b. The lower stock prices would reduce SRAS, and the higher crude oil prices would
increase AD; as a result, there would be upward pressure on the general level of prices.
c. The lower stock prices would increase AD, and the higher crude oil prices would
increase SRAS; as a result, output would tend to increase.
d. The lower stock prices would reduce AD, and the higher crude oil prices would
reduce SRAS; as a result, output would tend to decline.