Economists disagree on most economic issues facing an economy.
a. True
b. False
When income rises, total expenditures remain constant.
a. True
b. False
In hindsight, mortgage-backed securities implied very limited risk because the
underlying mortgages were spread across different geographic areas.
a. True
b. False
In the allocation of resources between present and future
a. the market works imperfectly.
b. the market works perfectly.
c. centrally planned economies are more efficient than market economies.
d. the invisible hand guarantees efficiency in market economies.
If expectations are “rational,” can the Fed control unemployment?
a. Yes, provided it announces policy in advance.
b. Yes, if it affects the aggregate demand curve.
c. No, because aggregate supply is vertical even in the short run.
d. No, because only fiscal policy can affect unemployment.
Under perfect competition, firms are relatively ignorant of the actions of their
competitors.
a. True
b. False
The more inelastic the demand for a product, the larger the share of the tax that will be
paid by consumers.
a. True
b. False
A superior level of technology is an important reason the productivity of workers in rich
countries is high.
a. True
b. False
A freely floating exchange rate brings some risks to people who are actively engaged in
foreign trade.
a. True
b. False
In the last decade, spending on education has been slowing.
a. True
b. False
When the price of a good is below its equilibrium level under perfect competition,
a. consumers would benefit from an expansion of output.
b. some consumers are earning larger consumer’s surpluses than they would in
equilibrium.
c. the market is not operating at maximum efficiency.
d. All of the above are correct.
Income effect of lower wages implies
a. workers prefer leisure to work.
b. an increase in the productivity of labor.
c. a fall in the demand for labor.
d. workers would want to work more.
Foreign trade will have no impact on real GDP when
a. exports exceed imports.
b. exports equal imports.
c. imports exceed exports.
d. exports equal zero.
Which of the following goods will have the most elastic demand at any time?
a. coffee
b. gasoline
c. restaurant meals
d. insulin
In comparison to commodity money, paper money
a. is not portable.
b. has no intrinsic value.
c. is not divisible.
d. cannot be stored.
e. All of the above are correct.
Marginal physical product can tell a producer
a. at what point to stop adding inputs to the production process.
b. how much profit will be made at each level of production.
c. how much the last input added to the total amount of revenue.
d. how much the last input added to the total amount of production.
A corporation is often financed through stocks and bonds.
a. True
b. False
The market level of rent
a. is entirely determined by the demand side.
b. is determined by its elastic supply.
c. is difficult to determine because of shifts on the supply side.
d. generally settles at levels below any rent controls favored politically.
The creation of new bank reserves could lead to a multiple increase in the money
supply.
a. True
b. False
As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an
amount greater than
a. 20 percent of the bank’s reserves.
b. $1,000,000.
c. $250,000.
d. an infinite amount; there is no limit.
If a poor country can “catch up” to a rich country, its productivity rises more rapidly
than the productivity of the rich country.
a. True
b. False
In 2012, what percentage of total income in the U.S. was earned by the richest fifth of
all U.S. households?
a. 20%
b. 30%
c. 40%
d. 50%
In the 1960s and early 1970s, many economists and policy makers thought the Phillips
curve was
a. interesting, but had no theory behind it.
b. invalid and of no use to policy makers.
c. of no interest in making macroeconomic policy.
d. a “menu” of possible choices available to policy makers.
If the U.S. government runs a budget deficit (G − T), that deficit must be financed by an
excess of
a. T over G.
b. C over T plus G.
c. investment by American businesses and individuals.
d. S over I by American businesses and individuals, or by borrowing from foreigners.
An increase in market demand will cause an increase in industry output in the long run
because
a. new firms enter the industry.
b. new firms enter the industry and all firms increase their output.
c. all firms decrease their output but more new firms enter.
d. no firms enter but the existing firms increase their output.
Tariffs are different from quotas because they
a. increase government revenue.
b. increase profits.
c. increase the quantity traded.
d. place all the burden on foreigners.
Which of the following is true?
a. A stockholder owns part of the corporation.
b. A stockholder has loaned money to the corporation.
c. A stockholder is owed money by the corporation.
d. A stockholder must be consulted on all major decisions.
The coordination task of dividing products among consumers is a problem of
a. output selection.
b. production planning.
c. distribution.
d. market segmentation.
Scarcity
a. necessitates choice among consumer goods.
b. of income renders purchase decisions interdependent.
c. affects all consumer decisions.
d. may involve forgoing the pleasure of one good in order to enjoy another.
e. All of the above answers are correct.
Balance of payments deficits arise whenever the exchange rate is set at an artificially
high level.
a. True
b. False
Differentiate between the short run and the long run.
Explain how short-run and long-run equilibrium in monopolistic competition differ. Use
graphs to illustrate your answer. Be sure that your graphs are completely and correctly
labeled.
It was once common for people to have servants who helped with the cooking and
cleaning. Use the cost disease of the personal services dilemma to explain why these
services have declined, even though one would expect an increased use in this age of
the two-worker household.
Where does equilibrium occur in an income expenditure diagram? What would be the
effect if production is at either on the left or right side of the equilibrium point?
Here is an excerpt form an editorial praising capitalism in The Economist: “It is
competition that delivers choice, holds prices down, encourages invention and service,
and (through all these things) delivers economic growth.” To what type of competition
does the writer refer? Is it the sort of competition that economists study? Explain.
What has been the trend in eliminating poverty since 1960?
“OPEC is exploiting the United States by selling us oil at inflated prices.” Agree or
disagree.
Why do economists abstract, and is it appropriate?
Graph typical total, average, and marginal cost curves and explain how their shapes are
influenced by the law of diminishing returns. Graph TC on a separate graph, AC and
MC on a second graph.
Discuss the historic increases and decreases in unionism in the United States and how it
affects current labor relations today.
Why might the money price for something be higher than the opportunity cost? Why
might it be lower? Give an example of each to illustrate your answer.
During the 1992 presidential campaign, H. Ross Perot made much of the various
“special interests” which lobby in Washington, D.C. How might an economist view
this? Which specific market breakdown may occur if there is lobbying? Relate your
answer to the study of monopoly and oligopoly.
To own a taxicab in New York City, you must own a medallion. New York City
regulates the number of official cabs by limiting the number of medallions. Explain
why the New York cab industry is not competitive by reviewing the four conditions
necessary for competition. NYC violates which one?
What is an optimal decision?
Briefly review the history of antitrust legislation in the United States.
If a firm that emits a form of pollution is also a monopolist, is the firm more likely to be
allocatively efficient? Explain.