Which of the following tends to reduce bank failures as the result of bank runs by
depositors?
a. The Federal Deposit Insurance Corporation
b. The Federal Open Market Operations Committee
c. The comptroller of the currency
d. The Senate Banking Committee
A competitive car wash currently hires 4 workers, who together can wash 80 cars per
day. The market price of car washes is $5 per wash, and the price of workers is $60 per
day. The car wash should hire a fifth worker if it would increase total production to at
least
a. 92 cars per day.
b. 100 cars per day.
c. 104 cars per day.
d. 110 cars per day.
Market allocation and the political process differ in that
a. competition is present in the market sector but not in the political sector.
b. scarcity is a constraint in the market sector but not the political sector.
c. there is a one-to-one link between payment for and receipt of a good in the market
sector, but this is often not true in the political sector.
d. in the political sector, voters have a strong incentive to acquire information that will
help them make better decisions, but in the market sector, consumers do not have much
incentive to acquire information.
A tariff can be defined simply as a
a. tax on imports.
b. tax on exports.
c. legal limit on imports.
d. legal limit on exports.
The view that individuals weigh all available evidence when they formulate their
expectations about economic events (including information concerning the probable
effects of current and future economic policy) is called
a. the adaptive expectations hypothesis.
b. the permanent income hypothesis.
c. the rational expectations hypothesis.
d. the Phillips curve.
As market price increases, in the short run, a profit-maximizing firm in a price-taker
market will expand output along its
a. marginal cost curve.
b. average total cost curve.
c. average variable cost curve.
d. market demand curve.
Which of the following factors explains why managers of government agencies (the
public sector) have little incentive to operate efficiently?
a. It is relatively easy for voters to detect operational inefficiency in the public sector
and do something to correct it.
b. Public-sector managers face fierce competition.
c. Public-sector managers have no fear of losses and bankruptcy when operational
efficiency is not achieved.
d. All of the above explain why government agencies have little incentive to be
efficient.
Which of the following is always true in competitive price-taker markets?
a. There are more sellers than buyers.
b. Barriers to entry into the market are low.
c. The products of firms in the industry are differentiated.
d. The firms never earn economic profit.
Which of the following propositions would a proponent of supply-side economics be
most likely to stress?
a. Because they expand government revenues, higher marginal tax rates will lead to a
reduction in the budget deficit and to lower interest rates.
b. Because they encourage investors to undertake low-productivity projects with
substantial tax-avoidance benefits, higher marginal tax rates promote economic
inefficiency.
c. Because they do not consume resources directly, income redistribution payments will
exert little impact on real aggregate supply.
d. The primary impact of a tax reduction on aggregate supply will stem from the
influence of the tax change on the size of the budget deficit or surplus.
The Keynesian model provided an explanation for
a. the prolonged unemployment of the 1930s.
b. the double-digit inflation rates of the 1970s.
c. the high unemployment rates of the 1970s.
d. the high inflation rates of the 1930s.
The immediate effect of a member bank’s sale of U.S. government securities to the Fed
is
a. an increase in that bank’s required reserves.
b. a decrease in that bank’s required reserves.
c. an increase in that bank’s excess reserves.
d. a decrease in that bank’s excess reserves.
Last year the Jones family earned $40,000. This year their income is $42,000. In an
economy with an inflation rate of 10 percent, which of the following is correct?
a. The Jones’ nominal income and real income have both fallen.
b. The Jones’ nominal income and real income have both risen.
c. The Jones’ nominal income has increased and their real income has fallen.
d. The Jones’ nominal income has decreased and their real income has risen.
Which of the following is most important for long-run growth and a healthy economy?
a. a low rate of household savings and a high rate of consumption
b. a high rate of both savings and consumption
c. a high rate of government expenditures financed by borrowing
d. high tax rates and budget surpluses
When per capita real GDP is increasing, real output is growing
a. more rapidly than prices.
b. more rapidly than population.
c. less rapidly than prices.
d. less rapidly than population.
A rational decision maker takes an action if and only if
a. the marginal benefit of the action exceeds the marginal cost of the action.
b. the marginal cost of the action exceeds the marginal benefit of the action.
c. the marginal cost of the action is zero.
d. the opportunity cost of the action is zero.
An automobile manufacturing plant opens in Alabama, and its owner, all of the
workers, and all raw materials are from Japan. How would the purchase of an
automobile from this plant change U.S. GDP and GNP?
a. It would increase GNP and GDP.
b. It would increase GNP and leave GDP unchanged.
c. It would increase GDP and leave GNP unchanged.
d. It would leave both GDP and GNP unchanged.
Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is
$14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC
is $15. What is his AFC when output is 20 pairs of shoes per day?
a. $5
b. $7
c. $8
d. $15
The law of demand refers to the
a. inverse relationship between the price of a good and the willingness of consumers to
buy it.
b. price increase that results from an increase in demand for a good of limited supply.
c. inverse relationship between the price of a good and the quantity offered for sale.
d. increase in the quantity of a good available when its price increases.
If equilibrium is present in the foreign exchange market and a nation is experiencing a
trade deficit,
a. the nation must be experiencing a net capital inflow.
b. the nation must be experiencing a net capital outflow.
c. the nation’s inflation rate must increase.
d. the nation’s interest rate must increase.
Which of the following would most likely increase the demand for televisions?
a. a decrease in the price of televisions
b. a decline in consumer income
c. a decrease in the price of home stereo systems, a substitute for televisions
d. a decrease in the price of DVD players, a product that is complementary with
televisions
When firms in a price-taker market are temporarily able to charge prices that exceed
their production costs,
a. the firms will earn long-run economic profit.
b. additional firms will be attracted into the market until price falls to the level of
per-unit production cost.
c. the firms will earn short-run economic profits that will be offset by long-run
economic losses.
d. the existing firms must be colluding or rigging the market, otherwise, they would be
unable to charge such high prices.
During the second half of 2008, the Fed approximately doubled the reserves of the
commercial banking system. As a result, the M1 money supply
a. fell sharply, because the banks used the excess reserves to extend additional loans.
b. also approximately doubled.
c. was unchanged, because bank reserves will not affect the M1 money supply.
d. increased, but by a much smaller amount, because the banks used only a small
portion of their excess reserves to extend additional loans.
Which of the following is most important if the living standards of people residing in a
country are going to improve?
a. growth of population
b. growth of per capita GDP
c. growth of the money supply
d. growth of government expenditures as a share of GDP
The primary value of real GDP is its ability to measure year to year changes in
a. real output.
b. income inequality.
c. real social welfare.
d. the general level of prices.
The opportunity cost of going to college is
a. the total spent on food, clothing, books, transportation, tuition, lodging, and other
expenses.
b. the value of the best opportunity a student gives up to attend college.
c. zero for students who are fortunate enough to have all of their college expenses paid
by someone else.
d. zero, since a college education will allow a student to earn a larger income after
graduation.
The crowding-out effect stresses that
a. an increase in government expenditures will stimulate aggregate demand and,
thereby, help to prevent recessions.
b. an increase in taxes will restrain aggregate demand and, thereby, help to control
inflation.
c. additional government borrowing to finance a larger deficit will increase the demand
for loanable funds, causing real interest rates to rise.
d. a budget deficit is a highly effective tool with which to combat recessions.
e. both a and d are correct.
Democracy tends to best promote freedom when there is
a. unrestrained executive and legislative majority power.
b. constitutional protection of private property rights.
c. a large and centralized government sector.
d. all of the above.
Because of price controls in the former Soviet Union, people often waited in long lines
for food and other necessities. Modern economic theory would indicate that, relative to
price rationing, waiting in line is
a. just as efficient.
b. less efficient because the time spent waiting in line imposes an opportunity cost on
the buyer that does not generate revenue for the seller.
c. more efficient since waiting in line reduces the transaction costs of purchasing goods.
d. more efficient since waiting in line reduces the cost of the goods to the consumer.
Use the figure below to answer the following question(s).
Figure 4-10
Figure 4-10 shows the market for a good before and after an excise tax is imposed.
What does the triangular area C represent?
a. the deadweight loss accompanying the tax
b. the tax revenue derived from sellers
c. the tax revenue derived from buyers
d. the total tax revenue generated by the tax
Which of the following was a contributing factor to the instability of 2002 to 2008?
a. ideal weather from 2002 to 2006, followed by a severe drought in 2007 and 2008
b. falling housing prices leading to an expansion, followed by rising housing prices
leading to a sharp economic downturn
c. an increase in housing prices leading to an expansion, followed by a collapse in
housing prices and a sharp economic downturn
d. falling stock prices leading to an expansion, followed by rising stock prices leading
to a sharp economic downturn
In the United States, water purchases from the government
a. always cover the costs of water delivery.
b. are often subsidized for the user of water.
c. are not subsidized, because that would be inefficient.
d. almost never occur.
A real estate salesperson sells a house in 2011 that was built in 1994. How does this
transaction get counted in the GDP statistics?
a. The price of the house and the real estate salesperson’s commission are both included
in 2011’s GDP.
b. Neither the price of the house or the commission is included in 2011’s GDP.
c. The real estate salesperson’s commission but not the price of the house is included in
2011’s GDP.
d. The price of the house would be included in both 1994’s GDP and the GDP for 2011.
If the United States imposes an import quota on clothing, U.S. imports
a. increase, exports increase, and U.S. net exports are unchanged.
b. increase, exports decrease, and U.S. net exports increase.
c. decrease, exports increase, and U.S. net exports decrease.
d. decrease, exports decrease, and U.S. net exports are unchanged.