Mercantilist policy is to do everything it can to promote exports and to discourage
imports.
a. True
b. False
To maximize sales revenue, an oligopoly will expand output until the price is zero.
a. True
b. False
In order to improve living standards for future generations, the economy must
a. sacrifice consumer goods today.
b. reduce its investment goods.
c. increase government spending.
d. reduce growth in the population.
A price cut will decrease the revenue a firm receives if the demand for its product is
a. elastic.
b. inelastic.
c. of unit elasticity.
d. straight elastic.
Figure 4-16
Assume that Figure 4-16 shows the supply of new houses. An improvement in the
technology for building houses will shift supply from
a. S1 to S2.
b. S2 to S1.
c. S3 to S2.
d. S3 to S1.
Define the following terms and explain their significance to the study of
macroeconomics:
a. fiscal policy
b. transfer payments
c. effect of income taxes on the multiplier
d. supply-side tax cuts
Government spending affects aggregate demand directly, and tax changes affect
aggregate demand indirectly. Therefore, changes in
a. taxes are ineffective in changing aggregate demand.
b. government spending affect aggregate demand more quickly than changes in taxes.
c. taxes are virtually useless as a stabilization tool.
d. government spending should be used with great caution.
The lessons of the Japanese recovery were most successfully repeated by
a. the Soviet Union.
b. Argentina and Brazil.
c. Taiwan, Singapore, and Hong Kong.
d. Bulgaria and Romania.
Because of their effect on interest rates:
a. capital flows weaken monetary policy but strenghen fiscal policy
b. capital flows strengthen monetary policy but weaken fiscal policy
c. the initial effects of a fiscal expansion on aggregate demand are strengthened
d. the initial effects of a monetary contraction are weakened
Fiscal policy consists of
a. taxes and interest rates.
b. government purchases and defense spending.
c. the money supply and taxes.
d. taxes and government spending.
An increase in the money supply should cause the expenditure schedule to shift upward.
a. True
b. False
A production possibilities frontier shows the combinations of various goods that should
be produced.
a. True
b. False
The aggregate supply curve is the relationship between the price level and the quantity
of real GDP purchased.
a. True
b. False
If Congress votes to increase government purchases and at the same time decrease
personal income taxes, they
a. have decided to balance the federal budget.
b. have voted for the proper policy to counteract a recessionary gap.
c. have voted for the proper policy to counteract an inflationary gap.
d. are trying to achieve a federal budget surplus.
If a firm’s average cost is declining, setting price equal to marginal cost will
a. maximize the firm’s profits.
b. minimize the firm’s losses.
c. guarantee that the firm will lose money.
d. help the firm earn the opportunity costs of its resources.
Capitalism is an economic system in which there is public ownership of the means of
production and resource allocation is determined through markets.
a. True
b. False
The supply curve for funds
a. is generally positively sloped.
b. depends upon people’s savings plans.
c. is a function of the interest rate.
d. All of the above are correct.
Given the slope of the aggregate demand curve, real GDP demanded will decrease
when
a. real income rises.
b. real income falls.
c. the price level falls.
d. the price level rises.
The U.S. Constitution prevents tariffs on trade between the individual states.
a. True
b. False
A firm should use marginal analysis when making a price-output decision.
a. True
b. False
Certain goods are related such that an increase in the price of one good decreases the
quantity demanded of the other. These goods are
a. complements.
b. substitutes.
c. luxury goods.
d. competing goods.
If a currency decreases in value in response to market forces, this process is known as
a. devaluation.
b. depreciation.
c. deflation.
d. degeneration.
The principal difference between income and money is that income is a ____ and
money is a ____.
a. schedule, curve
b. point, line
c. stock, flow
d. flow, stock
Antitrust laws prohibit undesirable business practices by firms holding monopoly
power.
a. True
b. False
The average hourly wage (excluding benefits) in the United States is currently
a. $7.50
b. $9.95
c. $15.00
d. $20.00
In a free market where a firm’s activity causes detrimental externalities,
a. marginal benefits will be less than marginal social costs.
b. smaller outputs than those that maximize profits will be socially desirable.
c. marginal social cost will be greater than marginal private cost.
d. All of the above are correct.
A monopsony is a market situation in which there is only one buyer.
a. True
b. False
“Assume that all individuals have perfect information about prices now and in the
future, that they have identical tastes, that all markets are competitive, and that there is
no government.” This statement is indicative of how economists
a. apply the law of supply and demand.
b. employ marginal analysis.
c. are prevented from getting correct answers.
d. abstract for analytic purposes.
e. use realistic assumptions to develop theory.
When the aggregate supply curve shifts adversely, what happens to the relationship
shown in the Phillips curve?
a. It is reinforced, and made more applicable for policy.
b. It is destroyed, and no longer applies for policy.
c. It is unchanged, although the curve becomes less steep.
d. It is unchanged, although the curve shifts inward and to the left.
The economy’s self-correcting mechanism
a. tends to push unemployment toward a specific point called the natural rate of
unemployment.
b. works better at correcting inflationary gaps than recessionary gaps.
c. cannot work if the Phillips curve is vertical.
d. ensures that the economy will not have to endure a long period of high
unemployment.
Carefully distinguish between an economic theory and economic model.
“If it were not for the law of diminishing marginal returns, the world’s wheat could be
grown in a flower pot.” Explain.
Explain the prisoner’s dilemma case in game theory and its relevance to the maximin
criterion.
List some of the problems that may arise when prices are controlled.
In the 1960s, the lyrics of a rock song asked, “Did you ever have to make up your mind
to say yes to one and leave the others behind?” What economic principle was
demonstrated in the song? Explain.
Describe the types of entry barriers which can exist and their importance to the study of
monopoly.
Assume that a firm has measured demand carefully and thinks that the following table
accurately displays this. The total cost has been measured and can be given as TC = 20
+ Q + Q2 where Q is the level of output. Complete the table and determine the
profit-maximizing level of output.
Several countries in the world have failed to “converge” with industrialized countries.
What does this mean about their economic growth rates? Explain why poorer countries
have failed to “catch up”, in terms of the pillars of economic growth. Are there any
special problems facing these countries?
Why is the demand curve for a monopolist downward sloping? How does this affect the
monopolist’s behavior?
What has happened to resource prices in the twentieth century and what do they reveal
about resource scarcity?
What does it mean to “monetize the deficit”? Why is it important in discussions of fiscal
policy? Use an appropriate diagram to illustrate your answer.
Explain what a “cap and trade” program is and how it works. Does the U.S. have a cap
and trade program? If so, is it successful?
Compared to a negative income tax, the federal personal income tax is thought of as a
way to promote greater equality. Why?
A firm sells in a competitive market in which price is $12. Its marginal cost is 6 + .25Q.
Determine the profit-maximizing level of output.
The following table shows the total physical product of labor. Compute the marginal
physical product of labor and the marginal revenue product of labor at output prices of
$10 per unit and $12 per unit. If labor costs $105 per unit, how much should the firm
hire at each price of output?
Discuss the criticisms leveled against the Aid to Families with Dependent Children
program.
What are the two critically important functions for corporate financing performed by
stock exchanges?