A major contribution to economic growth comes from
a. increases in the labor-output ratio.
b. a growing proportion of youths and unskilled people in the labor force.
c. runaway inflation.
d. expansions in the level of government regulation.
e. expenditures on research and development.
The sum of coins, currency, and checkable deposits is called
a. national income.
b. nominal GDP.
c. fractional reserves.
d. M1.
e. cash.
In the diagram
a. the tax rate is regressive over all incomes.
b. the dollar amount of tax liability falls as income rises.
c. all family incomes of less than $5,000 before taxes are raised to $5,000 with the
negative tax payment.
d. families with incomes of $3,000 receive a $1,000 payment.
e. the amounts of negative and positive taxes balance out so the government will just
break even.
Shown in this diagram are demand and supply conditions for a competitive industry.
If external diseconomies exist in an industry, the
a. market price is too high and should be reduced.
b. industry is producing a public good.
c. socially optimal output level is below the equilibrium output level.
d. industry is perfectly competitive.
e. industry demand curve should be increased and the industry should be subsidized.
During the 1980s, environmentalists
a. were pleased with the Reagan administration’s environmental policy.
b. argued for the elimination of the EPA.
c. argued for reduced water and air quality standards as being economically more
desirable.
d. accused the Reagan administration of emasculating the EPA.
e. raised large amounts of money to donate to pollution abatement programs.
The greater the ________, the greater the extent to which the banking system can
expand the money supply.
a. legal reserve requirements
b. amount of reserves the public removes from the banking system in form of cash
c. willingness of banks to hold excess reserves
d. reciprocal of the required ratio of reserves to deposits
e. number of independent banks in the system
The possible outcomes of a two-firm nonrepeated promotional campaign are
summarized as follows:
According to the information given, it would be best for firm B to
a. concentrate on local radio spots regardless of the promotional campaign chosen by
firm A.
b. concentrate on mailbox flyers regardless of the promotion campaign chosen by firm
A.
c. match A’s strategy; that is, if A chooses radio advertising, B should do the same.
d. choose the opposite strategy from firm A; that is, if A chooses radio, B should choose
mailbox flyers.
e. allocate one-half of its promotional budget to local radio advertising and one-half to
mailbox flyers.
Inflation caused by increases in total intended spending is called
a. cost-push inflation.
b. the wage price spiral.
c. the crowding-out effect.
d. supply-side accommodation.
e. demand-side inflation.
Which of the following strategies did the government generally call on to enforce its
incomes policies in the 1960s?
a. government contracts to those who cooperated
b. tax penalties for noncompliance
c. fines
d. criminal charges
e. antitrust action by the Department of Justice
A decrease in the value of exports minus imports will
a. lower equilibrium GDP.
b. lead to a decline in net investment.
c. lead to a decline in the 45-degree line.
d. shift the total intended spending line upward.
e. lower the value of the multiplier.
Social Security and payroll taxes are typically considered to be
a. invisible.
b. indirect.
c. regressive.
d. redundant.
e. equitable.
To Marx, profits were
a. a reward for risk bearing.
b. a measure of capital’s productive activity.
c. a social dividend arising from the capitalist’s efficiency.
d. a measure of the surplus value created by capital.
e. that part of labor’s productivity the capitalist retains.
Expressing GDP in constant dollars is an attempt to adjust for changes in
a. the money supply.
b. population.
c. the unemployment rate.
d. quality improvements.
e. prices.
A basic assumption of the new classical macroeconomists is that
a. fluctuations in aggregate demand are impossible in the short run.
b. MQ is identical to real GDP.
c. output is inversely related to the tax rate.
d. markets work efficiently.
e. most unemployment is involuntary.
Monetary policy seems to be of little use during a depression because
a. even though money is made available, there is no way to ensure it will be spent.
b. increases in the money supply raise interest rates and choke off investment.
c. people do not save when incomes are low.
d. if more money is created, it goes to pay taxes.
e. increases in money lead to inflation.
The following questions are based on the following information: The country has a
fractional-reserve banking system, required reserves are 12.5 percent of demand
deposits, each bank initially has reserves exactly equal to the required amount, each
wants to maintain this equality, and no person withdraws cash from the banking system.
At this point the two banks together have created additional demand deposits of
a. $8,750.
b. $10,000.
c. $17,500.
d. $70,000.
e. $80,000.
A consumer is in equilibrium when
a. total utility can be increased only by reallocating his or her money income.
b. the marginal utility for each commodity consumed is equal.
c. all of his or her income has been spent on goods and services.
d. any other allocation of his or her income among the commodities consumed leads
only to a reduction in total utility.
e. the total utility received from all commodities is the same.
In the United States regulated industries produce about ________ percent of our
national output.
a. 10
b. 25
c. 33
d. 50
e. 67
The following questions are based on the following diagram:
For this economy to produce 5 million units of consumer goods and 3 million units of
defense goods
a. resources must be used inefficiently.
b. the production possibilities curve must be pushed outward.
c. unemployment must grow.
d. income inequality must increase.
e. society’s resources must shrink.
A monopolist faces the following demand and marginal cost data over the relevant
range of output.
If the firm wants to maximize profits, it should charge a price of
a. $2,750.
b. $3,200.
c. $3,875.
d. $5,000.
e. $7,250.
In general, tariffs, quotas, and other barriers to free trade
a. never make sense and are difficult to justify under any circumstances.
b. protect specific interests at the expense of an overall loss of consumer welfare.
c. create incentives for protected firms and industries to become more efficient and
productive.
d. are necessary if a country is to have a favorable balance of trade.
e. in the short run may hurt businesses but in the long run benefit a country as a whole.
The results of the Fed’s efforts to help member banks in 1931 illustrate the general
principle that
a. any action the Fed takes with regard to commercial banks causes an inevitable
reaction in the economy as a whole.
b. any action taken by the Fed to help member banks has a negative impact on the
economy as a whole.
c. actions taken by the Fed have far less impact on the overall economy than was once
believed.
d. keeping member banks solvent is, in the long run, the single best way to stimulate a
sluggish economy.
e. the nation’s monetary system should be tied to the gold standard.
The Phillips curve illustrates the relationship between
a. aggregate demand and aggregate supply.
b. the interest rate and the money supply.
c. the rate of inflation and the rate of unemployment.
d. investment and the interest rate.
e. disposable income and saving.
The major source of revenue for local governments is ________ taxes.
a. personal income
b. sales
c. property
d. inheritance
e. import
The basic difference between the market supply curve of an input and the supply curve
of an input to a single perfectly competitive firm is that
a. demand by a single firm can influence the input supply curve, but market demand
cannot influence market supply.
b. a single competitive firm always faces a backward-bending input supply curve,
whereas the market supply curve infrequently bends backward.
c. the input supply curve for a single firm is perfectly elastic, a condition rarely, if ever,
observed in a market supply curve.
d. the input supply curve for a perfectly competitive firm rises more rapidly than the
market supply curve.
e. There is no difference; the two supply curves are identical.
Banks make their profits mainly by
a. charging customers for their services.
b. earning more interest on loans than they pay out on deposits.
c. investing in the stock market.
d. foreclosing on mortgages and other overdue loans.
e. creating money to lend to households and businesses.
The amount of money one must pay for the use of $1 for one year is called
a. wage.
b. rent.
c. interest.
d. profit.
e. a loanable fund.
Runaway inflation
a. is less damaging to an economy than creeping inflation.
b. means that real income rises more rapidly than money income.
c. increases the value of money quickly and thoroughly.
d. results from rapidly escalating the amount of money being printed.
e. makes it less likely that people will engage in speculation.
Double counting takes place if GDP includes
a. sales of secondhand goods.
b. nonmarket transactions.
c. nonproductive transactions.
d. final goods measured in constant dollars.
e. the services performed by government officials.
The following questions are based on the following graph. The curves D and S
represent the market demand and supply curves for farm products in 19 The curves D1
and S1 represent the market demand and supply curves for farm products in It is
supposed that there were no support programs in either year.
The relatively large shift in the supply curve over the 40 years illustrates that
a. the quantity of food demanded does not vary much with the price of food because
food is a necessity.
b. consumption of food per capita faces natural limits and hence responds by only a
small amount to changes in per capita income.
c. farmers have only limited control over their outputs.
d. there has been rapid technological change in agriculture.
e. poor climatological conditions led to decreasing harvests.
The following questions are based on the following diagram:
Which of the following events would correct the condition shown?
a. an increase in the money supply by the government
b. a cut in government spending accompanied by a tax increase
c. a decrease in the price level through imposing wage and price controls
d. an increase in spending by the private sector
e. a decrease in potential output because of a natural disaster
The following questions are based on the following changes in the balance sheet of
Nowhere National Bank.
Assets Liabilities
a. Reserves No change Demand deposits $8,000
Loans and investments $8,000
Total $8,000 Total $8,000
b. Reserves $2,000 Demand deposits $10,000
Loans and investments $8,000
Total $10,000 Total $10,000
c. Reserves $10,000 Demand deposits $10,000
Loans and investments No change
Total $10,000 Total $10,000
d. Reserves “$8,000 Demand deposits “$8,000
Loans and investments No change
Total “$8,000 Total “$8,000
e. Reserves $10,000 Demand deposits No change
Loans and investments $10,000
Total $20,000 Total No change
Which letter best indicates the balance sheet of Nowhere National Bank at the instant a
new deposit is made?
a. a
b. b
c. c
d. d
e. e
If the perfectly competitive firm pictured is in long-run equilibrium, the price must be
a. 0P1.
b. 0P2.
c. 0P3.
d. 0P4.
e. 0P5.