1) As long as government officials have to be elected, they are always held accounted
for their policy decisions and choices.
2) The “hedonic treadmill” of prospect theory suggests that if people’s incomes rise and
stay at the new higher level, then their feelings of satisfaction also rise and stay at the
new higher level.
3) Suppose that a competitive firm finds that in its short-run equilibrium situation, its
marginal cost is higher than its average total cost. If things are not expected to change
and there are constant returns to scale, then the firm will exit the industry in the long
run.
4) When prices are inflexible, the economy will respond to demand shocks through
short run changes in output and unemployment.
5) A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is
associated with each inflation rate.
6) The demand for cocaine among addicts is relatively elastic.
7) When there is demand-pull inflation, people’s total spending in the economy will be
falling.
8) The Food, Conservation, and Energy Act of 2008 provides farm subsidies in the form
of direct payments, countercyclical payments and marketing loans to farmers.
9) In the short run, output increases with the price level, but not in the long run.
10) Pork-barrel politics is a very good illustration of the “clear benefits, hidden costs”
perspective of politicians.
11) As technologies improve, the costs of producing alternatives will likely fall,
reducing the cost of replacing oil.
12) Approximately what portion of health care spending in the U.S. is paid by the
patients (out-of-pocket)?
A.17 percent
B.33 percent
C.54 percent
D.70 percent
13) One major component of money supply M1 is part of a bank’s:
A.Assets
B.Reserves
C.Liabilities
D.Net worth
14) The appreciation of the U.S. dollar relative to the British pound would make a
vacation trip to:
A.The United States less expensive for the British
B.London less expensive for Americans
C.London more expensive for Americans
D.The United States of equal value for the British as a vacation trip to London for
Americans
15) The American Medical Association, a physicians’ union, is a good example of a(n):
A.Demand-enhancing union
B.Craft union
C.Inclusive union
D.Industrial union
16)
Refer to the given data. At the $200 level of disposable income:
A.the marginal propensity to save is 2½ percent.
B.dissaving is $5.
C.the average propensity to save is .20.
D.the average propensity to consume is .80.
17) Which of the following would not shift the aggregate demand curve? Changes in:
A.Productivity rates
B.Foreign-exchange rates
C.Real interest rates
D.Income tax rates
18) Since actual budget deficits surpassed 10 percent of GDP in 2009:
A.fiscal policy has become contractionary.
B.the deficits as a percentage of GDP have fallen, but fiscal policy has remained
expansionary.
C.deficits as a percentage of GDP have continued to rise.
D.deficits as a percentage of GDP have remained constant but risen in dollar amounts.
19) The table below shows the marginal-utility schedules for goods A and B for a
hypothetical consumer. The price of good A is $1 and the price of good B is $2. The
income of the consumer is $8.
Refer to the above table. If the price of B falls to $1, while the price of A and the
consumer’s income stay the same, what would be the utility-maximizing combination of
goods A and B?
A.5 A and 3 B
B.4 A and 4 B
C.3 A and 5 B
D.2 A and 6 B
20) The table shows the consumption schedule for a hypothetical economy. All figures
are in billions of dollars.
Refer to the above table. If planned investments were fixed at $16, taxes were zero,
government purchases of goods and services were zero, and net exports were zero, then
equilibrium real GDP would be $630 initially. If government purchases were then raised
from $0 to $10, and lump-sum taxes also increased from $0 to $10, other things
constant, then the equilibrium real GDP would become:
A.$660
B.$630
C.$640
D.$650
21) If the consumption schedule is linear, then the:
A.saving schedule will also be linear.
B.MPS will decline as income rises.
C.MPC will decline as income rises.
D.APC will be constant at all levels of income.
22) When firms in an industry reach an agreement to fix prices, divide up market share,
or otherwise restrict competition, they are practicing the strategy of:
A.Interindustry competition
B.Limit pricing
C.Price leadership
D.Collusion
23) Behavioral economists suggest that brand-loyalty, which can be a source of
monopoly power for the producer, may be explained by consumers’ tendency to have
the:
A.Anchoring effect
B.Mental accounting effect
C.Status quo bias
D.Confirmation bias
24) Consider the currency market for British pounds and U.S. dollars. An increase in
the demand for British pounds results in:
A.An appreciation of the pound and a depreciation of the dollar
B.A depreciation of the pound and a depreciation of the dollar
C.An appreciation of the pound and an appreciation of the dollar
D.A depreciation of the pound and an appreciation of the dollar
25) The crowding of women, African-Americans, and certain ethnic groups into less
desirable, lower-paying occupations is:
A.Employment discrimination
B.Human capital discrimination
C.Statistical discrimination
D.Occupational segregation
26) Which of the following is an example of voter failure?
A.Voters support adding stop lights that would increase congestion and travel costs
without increasing safety or convenience.
B.Government officials ignore voter calls for regulations that would reduce negative
externalities and enhance efficiency.
C.Voters wanting greater highway safety are unable to express their preferences on how
to achieve it because the voting system doesn’t allow it.
D.Voters wanting more government services are divided on what services they most
prefer, leaving government officials to determine what is best.
27)
Refer to the above diagram for the milk market. There would be a shortage of milk
whenever the price is:
A.Higher than $1.50 per gallon
B.Higher than $2.00 per gallon
C.Lower than $1.50 per gallon
D.Lower than $2.00 per gallon
28) If the economy diverges from its full-employment output, new classical economics
would suggest that:
A.A change in the velocity of money would be all that is needed to return it to its
full-employment output
B.An improvement in insider-outsider relationships is all that is needed to return it to its
full-employment output
C.An efficiency wage in the economy would return it to its full-employment output
D.Internal mechanisms within the economy would automatically return it to its
full-employment output
29) Identify the three major factors that can cause a shift in aggregate supply.
30) What does international trade do to a nation’s domestic production possibilities?
31) What does it mean when someone says that the U.S. dollar has depreciated or the
U.S. dollar has appreciated? Give an example of each case using the euro and the U.S.
dollar.
32) In a market system entrepreneurs or the managers they hire must deal with risk.
Discuss the incentives of these individuals when dealing with risk, relative to those of a
central planner in a command economy.
33) What are four general sources that contribute to uninsurable risk?