A series of bank runs in a country should have no effect on M1 as money simply moves
from checking deposits to currency.
A price ceiling is a legally determined maximum price that sellers may charge.
An increase in the money supply is a discretionary fiscal policy which will increase
aggregate demand.
The dynamic aggregate demand and aggregate supply model accounts for the price
level rising every year.
An increase in government spending will result in an increase in the price level and an
increase in real GDP in the long run.
A rising price level decreases consumption by decreasing the real value of household
wealth.
The income tax system serves as an automatic stabilizer over the course of the business
cycle.
An increase in population results in an increase in demand.
The Federal Reserve could target both the money supply and the interest rate at the
same time if it controlled money demand along with money supply.
Today, the United States charges an average tariff rate of less than 1.5 percent.
If you invest $10,000 in a bond that earns 8% interest per year, how many years will it
take to double your money?
A) 1 year and 3 months
B) 2 years and 6 months
C) 8 years
D) 8 years and 9 months
In a market economy, who decides what goods and services will be produced?
A) only the producers
B) only consumers
C) consumers and producers
D) the government
A firm chooses its profit-maximizing quantity of capital by
A) comparing the marginal revenue product of capital with the rental price of capital.
B) comparing the price of capital with the price of labor.
C) examining the total cost of capital equipment.
D) determining the rate at which the firm can borrow funds to purchase plant and
equipment.
If speculators believe a currency is undervalued, their trades in international exchange
markets will
A) increase the surplus of the currency at the existing fixed exchange rate.
B) decrease the surplus of the currency at the existing fixed exchange rate.
C) decrease the shortage of the currency at the existing fixed exchange rate.
D) increase the shortage of the currency at the existing fixed exchange rate.
Starbucks started out small in 1971, but by 1993 Starbucks was a national chain and
had coffeehouses in 38 countries. A key to the company’s success was the realization by
executives that
A) there was a demand for coffeehouses where consumers could sit and drink
high-quality coffee.
B) coffee prices would have to be cut in order for Starbucks to compete with other
stores that sold coffee.
C) they had to keep their stores open longer hours to attract a large number of
customers.
D) their stores should be located close to other stores that sold similar products.
If the marginal cost of keeping a doctor’s office open one additional hour per day is
$200, then the doctor should keep the office open for one extra hour
A) only if the marginal benefit she receives is greater than $200 plus an acceptable
profit margin.
B) as long as the marginal benefit she receives is just equal to or greater than $200.
C) as long as the marginal cost does not rise.
D) until the marginal benefit she receives reaches zero.
Which of the following is a normative economic statement?
A) Rising global demand for diesel and heating oil has led to increases in the price of
crude oil.
B) With falling home prices and rising mortgage interest rates, the amount of
foreclosures has increased.
C) The federal government is considering raising the gasoline tax to promote the use of
public transportation.
D) Fashion designers should be allowed to copyright designs to promote innovation.
Inflation targeting refers to conducting ________ policy so as to commit the central
bank to achieving a ________.
A) fiscal; publicly announced level of inflation
B) fiscal; zero inflation rate
C) monetary; publicly announced level of inflation
D) monetary; zero inflation rate
The purchase by a foreign government of an airplane produced in the United States is
included in U.S.
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
Table 9-9 Output Per Hour of Work
Table 9-9 shows the output per hour of work for light bulbs and flash drives in Mexico
and in Canada.
Fill in the following table with the opportunity costs of producing light bulbs and flash
drives for Mexico and Canada.
If marginal product is greater than average product, then
A) average product must be decreasing.
B) marginal product must be decreasing.
C) marginal product must be increasing.
D) marginal product could either be increasing or decreasing.
The “Discount Department Stores” industry is highly concentrated. What does this
mean?
A) There are many large stores such as Wal-Mart, Target, Kohl’s, in this industry.
B) A few large stores account for a significant portion of industry sales.
C) There is cut-throat competition in this industry because there are no entry barriers.
D) The sales volume in this industry is consistently high.
According to Joseph Schumpeter, economic growth is achieved through
A) focusing only on making old products better rather than inventing new ones.
B) centralizing economic production.
C) a process termed “creative destruction.”
D) removing the entrepreneur from the production function.
If the government finances an increase in government purchases with an increase in
taxes, which of the following would you not expect to see?
A) an increase in the exchange rate
B) a decrease in the interest rate
C) an increase in aggregate demand
D) a decrease in net exports
Fiat money is generally issued by
A) private banks.
B) central banks.
C) brokerage firms.
D) major multinational corporations.
The ability of the Federal Reserve to use monetary policy to affect economic variables
such as real GDP ultimately depends upon its ability to affect
A) tax rates.
B) real interest rates.
C) nominal interest rates.
D) foreign exchange rates.
Labor productivity will increase if the ________ increases and ________.
A) quantity of capital per hour worked; technology improves
B) quantity of labor per unit of capital; technology improves
C) quantity of capital per hour worked; immigration increases while capital is fixed
D) quantity of labor per unit of capital; immigration increases while capital is fixed
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to
make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed
cost of $120 per day. Calculate Vipsana’s total cost per day when she produces 50 gyros
using two workers?
A) $100
B) $124.40
C) $220
D) $340
Figure 18-1
Area B+C+F+G represents
A) the portion of sales tax revenue borne by consumers.
B) the portion of sales tax revenue borne by producers.
C) the excess burden of the sales tax.
D) sales tax revenue collected by the government.
The level of output at which all economies of scale have been exhausted is known as
A) constant returns to scale.
B) minimum efficient scale.
C) the economically efficient output level.
D) optimal economic size.
Table 11-6
Alicia Gregory owns a foot massage business. She leases 4 computer-controlled
massage booths, for which she pays $125 per day. She cannot increase the number
machines she leases without giving the manufacturer 3 months notice. She can hire as
many workers as she wants at a cost of $75 per day per worker. These are the only two
inputs she uses in her business. Use this information to fill in the columns in the above
table.
You participate in a taste test for a new protein supplement called “Boost.” You are
given five consecutive one ounce vials of the supplement and after consuming each vial
you are asked to note your reaction. You consume the first vial and your response is:
“Hmmm, quite good!” After the second, you say, “Not bad at all.” After the third, you
note, “It’s alright.” and after the fourth you wince, “No more, the after-taste is getting to
me. I need water.” What economic principle does this scenario illustrate? Define the
principle.
How can tax simplification be beneficial to the economy?
Does the strength of each of the five competitive forces from Michael Porter’s model
remain constant over time? Briefly explain.
Explain why market power leads to a deadweight loss. Is the total deadweight loss from
market power in the United States large or small?
What is the Difference between a “change in demand” and a “change in quantity
demanded”?
What is the difference between scarcity and a shortage?
If you pay $3,000 in taxes on an income of $28,000, and $4,450 in taxes on an income
of $38,000, what is your marginal tax rate? Show your work.
In countries that have experienced hyperinflation, what role have large government
budget deficits played in causing the very high inflation rates?
(, and we get S = C + I + G – C – G. The consumption values cancel as does the level of
government spending, leaving S = I.