Refer to the above diagram, in which Qf is the full-employment output. If the
economy’s current aggregate demand curve is AD0, it is experiencing:
A. a positive GDP gap.
B. a negative GDP gap.
C. inflation.
D. an adverse supply shock.
In the short run the individual competitive firm’s supply curve is the segment of the:
A. average variable cost curve lying below the marginal cost curve.
B. marginal cost curve lying above the average variable cost curve.
C. marginal revenue curve lying below the demand curve.
D. marginal cost curve lying between the average total cost and average variable cost
curves.
A basic assumption used in most economic theories is that:
A. what is true for a part of the whole must also be true for the whole.
B. as price decreases, quantity demanded will decrease.
C. whatever goes up must come down.
D. all other things remain the same.
Assume the owners of the only gambling casino in Wisconsin spend large sums of
money lobbying state government officials to protect their gambling monopoly.
Economists refer to these expenditures as:
A. rent-seeking.
B. socially optimal pricing.
C. perfect price discrimination.
D. diseconomies of scale in production.
Why is the demand for labor referred to as a “derived” demand?
A. It stems from the drive to minimize production costs to achieve economic efficiency.
B. It is based on the demand for the output labor produces.
C. It results from decreases in the supply of labor.
D. It arises from the shortages in labor markets.
There is an asset demand for money primarily because of which function of money?
A. Legal tender.
B. Store of value.
C. Measure of value.
D. Medium of exchange.
Since its inception in 1996, the Temporary Assistance for Needy Families (TANF)
program has:
A. increased, rather than reduced, the number of people on welfare.
B. reduced the number of people on welfare by more than one-half.
C. aided the poor by automatically increasing welfare payments when inflation occurs.
D. greatly increased the unemployment rate.
Suppose the world economy is composed of just two countries: A and B. Each can
produce steel or chemicals but at different levels of economic efficiency. The domestic
production possibilities curves are shown in the graphs below
Refer to the above graphs and information. The opportunity costs of producing steel and
chemicals in the two countries are:
A. increasing in each nation.
B. decreasing in each nation.
C. the same in each nation.
D. different across nations.
If Congress passed new laws significantly increasing the regulation of business, this
action would tend to:
A. increase per-unit production costs and shift the aggregate supply curve to the left.
B. increase per-unit production costs and shift the aggregate supply curve to the right.
C. increase per-unit production costs and shift the aggregate demand curve to the left.
D. decrease per-unit production costs and shift the aggregate supply curve to the left.
Refer to the above graph. It shows a firm that buys its inputs and sells its output in
competitive markets. If the firm develops a new technology that increases labor
productivity, the equilibrium level of employment for this firm is expected to be:
A. L0.
B. zero.
C. lower than L0.
D. higher than L0.
Refer to the above graph for a firm in pure competition. Line B is horizontal because:
A. total revenue is greater than marginal revenue.
B. marginal revenue is greater than total revenue.
C. the firm has a perfectly inelastic demand curve.
D. the firm has a perfectly elastic demand curve.
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4
billion worth of government securities. If the securities are purchased from the public,
this action has the potential to increase bank lending by a maximum of:
A. $4 billion, but only by $1 billion if the securities are purchased directly from
commercial banks.
B. $4 billion, but by $16 billion if the securities are purchased directly from commercial
banks.
C. $12 billion, and also by $16 billion if the securities are purchased directly from
commercial banks.
D. $20 billion, and also by $20 billion if the securities are purchased directly from
commercial banks.
The variety of products and product features that consumers may choose from in
monopolistically competitive industries:
A. at least partially offsets the economic inefficiencies of this market structure.
B. leads to an optimal allocation of resources in the market structure.
C. guarantees that firms produce at full-capacity output levels.
D. makes the demand curves facing firms in these industries more elastic.
Under a guaranteed minimum annual income plan, if the minimum income level is
$5000 with a benefit-reduction rate of 50 percent, and if a family had earnings of
$4000, it would receive annual transfer payments of:
A. $1000.
B. $3000.
C. $5000.
D. $7000.
The family is guaranteed an income of $5000. If the family made $4000, it would have
50 percent of the earned income (i.e., $4000 * 0.50 = $2000) taken away. The annual
transfer payment is $5000 – $2000 = $3000.
Suppose a commercial banking system has $240,000 of outstanding checkable deposits
and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can
expand the supply of money by a maximum of:
A. $75,000.
B. $25,000.
C. $5000.
D. $100,000.
If country A has a higher opportunity cost of producing good X than country B, then
country:
A. B should impose a tariff on the exports of product X.
B. B has a comparative advantage in the production of product X.
C. A should impose a tariff on the imports of product X.
D. A has a comparative advantage in the production of product X.
One of the provisions of the Temporary Assistance for Needy Families funds was to:
A. guarantee cash assistance for poor families.
B. set a five-year lifelong limit on welfare benefits.
C. get the federal government to pay more of the cost of welfare.
D. make welfare benefits more equitable among those receiving them.
The simple circular flow model shows that workers, entrepreneurs, and the owners of
land and capital offer their services through:
A. product markets.
B. resource markets.
C. employment agencies.
D. business firms.
Suppose that Jane earns $10,000 in year 1 and $100,000 in year 2, while Jim earns
$100,000 in year 1 and $10,000 in year 2. Is there income equality for the two
individuals?
A. The annual data indicate equality, but the two-year data indicate inequality.
B. The annual data indicate inequality, but the two-year data indicate equality.
C. Both the annual and the two-year data indicate equality.
D. Both the annual and the two-year data indicate inequality.
If Federal Reserve officials attempt to pull the economy out of a recession when the
price level is relatively stable, the policies they would most likely use would be to:
A. buy government securities and increase the discount rate.
B. sell government securities and decrease the discount rate.
C. buy government securities and decrease the discount rate.
D. sell government securities and increase the discount rate.
In the following question you are asked to determine, other things equal, the effects of a
given change in a determinant of demand or supply for product X upon (1) the demand
(D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium
quantity (Q) of X.
If X is an inferior good, a decrease in income will:
A. decrease D, decrease P, and decrease Q.
B. decrease D, decrease P, and increase Q.
C. increase S, decrease P, and increase Q.
D. increase D, increase P, and increase Q.
Other things equal, the stock of capital inherited by future generations is likely to be
smaller when government spending:
A. increases during a period of recession, rather than prosperity.
B. is primarily for capital-type goods.
C. is financed by borrowing.
D. is financed by taxation.
Suppose that when the price of good X changes from $5 to $10, the demand for good Y
changes from 110 to 100, then the cross-elasticity of demand is:
A. -0.09 and the goods are complements.
B. 1.44 and the goods are complements.
C. 1.44 and the goods are substitutes.
D. -0.143 and the goods are complements.
Which cause-and-effect chain would best explain the reason for a crowding-out effect?
An expansionary fiscal policy:
A. increases interest rates that decrease private investment spending.
B. decreases interest rates that increase private investment spending.
C. increases interest rates that increase private investment spending.
D. decreases interest rates that decrease private investment spending.
Which is a valid counterargument to the call for higher tariffs to save U.S. jobs?
A. U.S. firms and workers must be protected from the weak labor laws in nations where
wages are low.
B. All nations cannot simultaneously succeed in restricting imports while maintaining
exports.
C. Strategic trade policy calls for unequal treatment of all trading nations so that they
have incentive to compete.
D. They are needed to protect U.S. workers from unemployment and underemployment.
Monopolistic competition is characterized by excess capacity because:
A. firms are always profitable in the long run.
B. firms charge a price that is less than marginal cost.
C. firms produce at an output level less than the least-cost output.
D. the demand for a product is perfectly elastic in this type of industry.
If actual reserves in the banking system are $8000, checkable deposits are $70,000, and
the legal reserve ratio is 10 percent, then excess reserves are:
A. zero.
B. $1000.
C. $2000.
D. $500.
If the annual inflation rate is 5 percent a year, about how many years will it take for the
price level to double?
A. 10 years
B. 12 years
C. 14 years
D. 16 years
An increase in the public debt will:
A. increase incentives to work and bear risk.
B. increase the inequality in the distribution of income.
C. decrease the U.S. debt held by citizens and institutions in foreign nations.
D. decrease the potential for higher taxation in the United States.
Which would shift the aggregate demand curve? A change in:
A. input prices.
B. net export spending.
C. the prices of imported resources.
D. the legal-institutional environment.