Which of the following statements is true for both General Motors and a locally owned
restaurant?
A. Both are perfect competitors.
B. Both confront perfectly elastic demand for their products.
C. Neither firm is able to influence the price of their products.
D. Both seek to maximize profits.
Alex just got a new car. Because Alex obtained full coverage insurance, according to
the concept of _____, Alex will _____
A. moral hazard; find the safest place to park his car.
B. statistical discrimination; no longer worry about the street gangs that hang out in his
neighborhood.
C. adverse selection; drive less cautiously.
D. moral hazard; spend less time searching for a safe parking spot than if he had no
insurance.
A banking panic is an episode in which:
A. depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to
withdraw deposits from the banking system.
B. commercial banks, fearing Federal Reserve sanctions, unwillingly participate in
open-market operations.
C. commercial banks, concerned about high interest rates, rush to borrow at the Federal
Reserve discount rate.
D. depositors, afraid of increasing interest rates, attempt to engage in discount-window
borrowing at the Federal Reserve.
If the Central Bank of Macroland puts an additional 1,000 units of currency into the
economy, the public deposits all currency into the banking system, and banks have a
desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans
totaling ______ and the money supply will increase by _______.
A. $1,000; $1,000
B. $9,000; $9,000
C. $9,000; $10,000
D. $1,000; $9,000
Refer to the figure above. Based on the figure, when PAE = 400 + 0.5Y, short-run
equilibrium output equals:
A. 1,200.
B. 400.
C. 600.
D. 800.
Refer to the figure above. If this restaurant makes 75 salads in one hour, how many
pizzas can it also make in that same hour, assuming efficient production?
A. 0
B. 10
C. 20
D. 30
A property-rights solution to the problem of the poaching of elephants for their ivory
would be to:
A. assign the property rights of the elephant herds to specific tribes.
B. increase enforcement efforts against poachers.
C. ban the importation of ivory.
D. tax ivory products.
Based on the figure, if a union contract requires that workers be paid $25 per hour, there
will be ______ unemployed workers.
A. 9
B. 12
C. 21
D. 31
If the official CPI inflation rate is 4%, the “true” rate of inflation may be closer to
______ according to the findings of the Boskin Commission.
A. -4%
B. 0%
C. 2%
D. 6%
When the seller possesses more information than the buyer,
A. the buyer is always exploited.
B. the buyer never buys.
C. sellers of better than average quality used goods will have difficulty getting their
price.
D. sellers of lower than average quality used goods will have difficulty getting their
price.
If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound
annual rate of interest, then after 50 years your deposit would be worth approximately:
A. $2,800
B. $18,420
C. $46,050
D. $250,750
To say that an individual possesses an absolute advantage in the production of software
means that individual:
A. has a lower opportunity cost of producing software.
B. can produce more and/or higher quality software in a given amount of time.
C. was the first to create the software.
D. charges the lowest price for software.
Suppose that the total production of an economy consists of 4 oranges and 10 candy
bars, each orange sells for $0.25, and each candy bar sells for $0.50. What is the market
value of production in this economy?
A. $0.75
B. $1.00
C. $5.00
D. $6.00
Growth of real GDP per person is totally determined by the growth of average:
A. labor productivity and the proportion of the population employed.
B. labor productivity and the proportion of the population in the labor force.
C. labor force participation and the share of income going to capital.
D. labor force participation and the share of the population employed.
The end of a recession is called the:
A. trough.
B. expansion.
C. peak.
D. boom.
In a certain economy, the components of planned spending are given by:
C = 500 + 0.8(Y – T) – 300r
Ip = 200 – 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, what would be the impact on
short-run equilibrium output of a one-percentage-point increase in the real interest rate,
assuming that the multiplier is equal to 5?
A. Short-run equilibrium output would increase by 35 units.
B. Short-run equilibrium output would decrease by 700 units.
C. Short-run equilibrium output would decrease by 35 units.
D. Short-run equilibrium output would decrease by 7 units.
A trade deficit occurs when:
A. exports exceed imports.
B. imports exceed exports.
C. tariffs exceed quotas.
D. quotas exceed tariffs.
Dent n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last
month are shown in this table:
For Joe, the opportunity cost of selling a truck is:
A. 9 fewer cars sold.
B. 1 fewer cars sold.
C. 4 fewer cars sold.
D. 1/3 car not sold.
The statement, “If a deal is too good to be true, it probably is not true” is most closely
related to which principle?
A. The low-hanging fruit principle
B. The no-cash-on-the-table principle
C. The cost-benefit principle
D. The diminishing marginal returns principle
Evidence from work hours and marginal tax rates in different countries suggests that
A. higher marginal tax rates encourage more work hours.
B. lower marginal tax rates encourage more work hours.
C. marginal tax rates are not related to work hours.
D. higher average tax rates encourage more work hours.
As the number or quality of available resources improves, ______ shifts to the _____.
A. aggregate demand; left
B. aggregate demand; right
C. aggregate supply; left
D. aggregate supply; right
The U.S. trade deficit has been mainly caused by:
A. production of inferior goods in the U.S.
B. unfair trade restrictions imposed by other countries on imports.
C. a low rate of national saving.
D. cheap labor in other countries.
Which of the following is an example of an investment in physical capital?
A. A firm trains workers to operate new machinery.
B. A firm pays for workers to take college classes.
C. A chemical firm employs chemists to develop new chemicals.
D. A firm purchases new equipment for a manufacturing process.
If the price is $2.00 in both locations, the price elasticity of demand for a candy bar at
an airport is likely to be _________ the price elasticity of demand for a candy bar in a
grocery store.
A. less than
B. equal to
C. greater than
D. the reciprocal of
Josie has an undergraduate degree in economics and has been working as a utility rate
analyst at the local electricity utility. If she continues on her present career path, the
present value of her lifetime earnings is $250,000. If she takes two years off and gets an
MS degree in economics, the present value of her lifetime earnings is $275,000. The
annual cost of an MS degree in economics is $15,000 and the interest rate is 8%.
The discounted (present value) benefit of Josie’s benefits to getting a graduate degree is
_______.
A. $275,000
B. $250,000
C. $25,000
D. -$5,000
Which of the following directly follows from the No Cash on the Table Principle?
A. In a transaction, the parties will negotiate over prices until neither one earns any
surplus.
B. For a transaction to occur, the buyer’s reservation price must be greater than the
seller’s reservation price.
C. For a transaction to occur, the buyer’s reservation price must be less than the seller’s
reservation price.
D. Efficiency requires that the buyer’s surplus equal the seller’s surplus.
Excess demand in a market is evidence of:
A. Pareto efficiency.
B. the opportunity for surplus-enhancing trades.
C. an economic pie that is too small.
D. equilibrium.
As disposable income increases, consumption:
A. increases.
B. decreases.
C. may either increase or decrease depending on the wealth effect.
D. may either increase or decrease depending on the mpc.
Suppose you notice that more and more people are driving gas-guzzling cars. Since you
drive an economy car, their increased demand for gas:
A. does not affect you.
B. causes companies to charge a lower price, thus benefiting you.
C. causes the price you pay for gas to increase.
D. does not change the price you pay, but reduces the quantity of gas supplied.
Pat works for a landscape contractor, generating gross revenues of $50 per hour.
Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to
work for $15 per hour. Assume that the labor market is perfectly competitive.
The difference between the net revenue generated by Pat and Pat’s reservation price will
eventually
A. be captured by Pat in the form of rent.
B. be captured by Pat’s employer in the form of profit.
C. cause wages in the landscape market to fall to $15.
D. be split evenly between Pat and the landscape company.
If the Federal Reserve sets a target nominal interest rate, it can:
A. independently set a target money supply.
B. only set a money supply target that is consistent with the target nominal interest rate
target.
C. achieve this target with any arbitrary supply of money.
D. shift the money demand curve to the right.
Patents and copyrights, which confer market power, exist to:
A. protect the consumer from imitations.
B. ensure excessive profits to the holders.
C. protect research, development and creative expression.
D. magnify the dominance of large firms.
When the coupon rate on newly-issued bonds increases from 5% to 6%, the prices of
existing bonds:
A. increase.
B. decrease.
C. remain unchanged.
D. increase only if the coupon rate is less than 6%.
One trend in labor markets is:
A. a decrease in average real wages in the United States and other industrial countries.
B. decreasing wage inequality in the United States.
C. weak rates of job creation in the United States since 1980.
D. a slowdown in real wage growth in the United States since 1973.