The consequences of an economic change that are not immediately identifiable but are
felt only with the passage of time are known in economics as
a. opportunity costs.
b. utility curves.
c. secondary effects.
d. comparative advantages.
An increase in the real interest rate will
a. increase the inflationary premium.
b. decrease the inflationary premium.
c. increase the price of current consumption relative to future consumption.
d. decrease the price of current consumption relative to future consumption.
What is the difference between the federal budget deficit and the national debt?
a. The budget deficit is the amount by which expenditures exceed revenues in a
particular year, while the national debt is the cumulative effect of all past budget
deficits and surpluses.
b. The budget deficit is the cumulative effect of all prior national debts.
c. The national debt includes all outstanding bonds, while the budget deficit excludes
bonds held by government agencies.
d. This is a trick question because there is no difference between the budget deficit and
the national debt.
Which of the following is true?
a. With time, most of those with low incomes at a point in time move up the income
ladder only to be replaced by others who are youthful, inexperienced, or the victim of
current misfortune.
b. Recent studies indicate that there is virtually no relationship between the relative
income position of grandparents and their grandchildren.
c. Both a and b are true.
d. Neither a nor b is true.
An import quota on a product protects domestic industries by
a. reducing the foreign supply to the domestic market and, thereby, raising the domestic
price.
b. increasing the foreign supply to the domestic market and, thereby, lowering the
domestic price.
c. increasing the domestic demand for the product and, thereby, increasing its price.
d. providing the incentive for domestic producers to improve the efficiency of their
operation and, thereby, reduce their per-unit costs of production.
A 10-cent-per-box tax on producers of cigars will
a. shift the firm’s ATC and MC curves upward by the full amount of the tax.
b. induce the firm to produce less but will not shift the firm’s MC curve.
c. shift the firm’s ATC and MC curves downward by the full amount of the tax.
d. shift the MC curve upward but will not cause any shift in the ATC curve.
As the price paid to a resource increases,
a. the supply of that resource will increase in the resource market.
b. the supply of that resource will decrease in the resource market.
c. resources will shift from other resource markets to this one.
d. resources will shift from this resource market to others.
e. resource usage will be unaffected.
Suppose the federal excise tax rate on gasoline is increased by 50 percent. Which of the
following is the most likely impact on the tax revenue derived from the federal gas tax?
a. Tax revenues will increase by less than 50 percent.
b. Tax revenues will increase by 50 percent.
c. Tax revenues will increase by more than 50 percent.
d. The revenue from the gasoline tax will go to zero.
When the Fed unexpectedly increases the money supply, it will cause an increase in
aggregate demand because
a. lower interest rates will stimulate business investment and consumer purchases.
b. real interest rates will fall, causing the dollar to depreciate and net exports to rise.
c. lower interest rates will cause the value of assets (for example, stocks) to rise.
d. all of the above are correct.
Window cleaners that work the top floors of high-rise office buildings are, on average,
paid approximately 30 percent more an hour than those that clean windows on the
bottom floor. This is an example of
a. employment discrimination.
b. non-pecuniary job benefits.
c. irrational wage compensation.
d. compensating wage differentials.
During 1982-1997, stock prices increased substantially. Which of the following helped
to boost stock prices during this period?
a. higher interest rates and rapid growth of corporate profits
b. lower interest rates and rapid growth of corporate profits
c. higher interest rates and slow growth of corporate profits
d. lower interest rates and slow growth of corporate profits
Which of the following would most likely cause the price of wheat to decline?
a. an increase in the production costs of corn, a substitute for wheat
b. a decrease in the price of soybeans, a substitute for wheat
c. an increase in the price of fertilizer, a resource used to produce wheat
d. a sandwich craze among Americans, causing increased demand for whole-wheat
bread
Money is used as a unit of account. This means
a. money cannot store value for use in the future.
b. money is used to measure the exchange value and costs of goods, services, assets and
resources.
c. money has little or no intrinsic value.
d. money is dependent on the quantity of gold held by the Federal Reserve.
Which one of the following events will leave GDP unchanged?
a. You pay $500 to repair your car damaged in an accident.
b. You buy a new domestic car to replace one that was stolen.
c. You lose $500 playing blackjack with friends.
d. You work extra hours this month to help make up for the money you lost playing
blackjack.
Economics is primarily the study of
a. how to make money in the stock market.
b. how to operate a business successfully.
c. the allocation of scarce resources in an effort to satisfy wants that are virtually
unlimited.
d. the methods business firms use to reduce their costs of production.
Historically, which of the following has had the highest average annual rate of return?
a. corporate bonds
b. money market mutual funds
c. corporate stocks
d. U.S. Treasury bonds
Which of the following was true of the actions of the Federal Reserve in response to the
recession of 2008?
a. The Fed shifted toward a highly restrictive monetary policy in 2008, which was a
major cause of the recession.
b. The Fed continued to focus only on price stability and therefore it expanded the
money supply at a slow and steady rate throughout the recession.
c. The Fed introduced several new procedures for the conduct of monetary policy and
substantially increased bank reserves as the recession worsened.
d. The Fed continued to purchase and sell only U.S. Treasury bonds when conducting
open market operations to control the money supply.
Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1
per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart,
the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is
a. zero.
b. 25 cents.
c. 75 cents.
d. $1.
In the United States, the money supply (M1) consists of
a. paper currency and coins.
b. coins, paper currency, demand deposits, other checkable deposits, and traveler’s
checks.
c. paper currency, coins, demand deposits, and savings deposits.
d. government bonds, currency, demand deposits, other checkable deposits, and
traveler’s checks.
Money is
a. whatever is generally accepted in exchange for goods and services.
b. an object to be consumed.
c. a highly illiquid asset.
d. widely used in a barter economy.
A student noted that the football team won by a larger margin when the third-string
played more minutes. Therefore, he recommended that the third-stringers become the
first team. His conclusion was probably erroneous because he
a. confused positive and normative analysis.
b. committed the fallacy of composition.
c. failed to recognize that association is not causation.
d. confused macroeconomics with microeconomics.
The net present value of $1,000 received in the future would
a. decline if the $1,000 were received sooner.
b. increase if the delivery date for the $1,000 were set farther into the future.
c. decrease if the interest rate fell.
d. decrease if the interest rate rose.
In which statement(s) are “demand” and “quantity demanded” used correctly?
(I) “An increase in the price of tea will reduce the quantity demanded of tea.”
(II) “An increase in the price of tea will reduce the demand for sugar used in tea.”
a. in both statements I and II
b. in statement I only
c. in statement II only
d. in neither statements I nor II
Within the framework of the AD-AS model, an increase in savings by households will
a. increase the supply of loanable funds and reduce interest rates.
b. be offset by a decrease in savings by businesses.
c. cause long-run fluctuations in the rate of consumption.
d. result in a decline in aggregate demand, output, and employment.
Income per person in the United States is approximately ____ that of Sierra Leone,
Malawi, and Niger, three of the world’s poorest countries.
a. the same as
b. double
c. ten times
d. fifty times
If Australian tourists visit Grand Canyon National Park, what is the effect in the foreign
exchange market?
a. It will increase demand for U.S. dollars.
b. It will decrease demand for U.S. dollars.
c. It will increase supply of U.S. dollars.
d. It will decrease supply of U.S. dollars.
Which of the following would most likely cause a nation’s currency to depreciate?
a. an increase in domestic real interest rates
b. an increase in exports coupled with a decline in imports
c. an increase in the nation’s inflation rate
d. a balance of trade surplus
When workers are unemployed due to a mismatch between their skills and the jobs
available, economists call this
a. cyclical unemployment.
b. frictional unemployment.
c. structural unemployment.
d. transitional unemployment.
Which of the following is, so far, the most utilized method to reduce emissions of
industrial pollution to politically chosen levels, while encouraging efficient choices by
polluters?
a. government pollution charges or taxes
b. non-tradable emission standards that cap allowable pollution for each emitter
c. cap and trade emission permits
d. regulations that would effectively prohibit all emissions
Use the table below to choose the correct answer.
For the income range illustrated, the tax shown here is
a. regressive.
b. proportional.
c. progressive.
d. progressive up to $20,000 but regressive beyond that.
If expected inflation is constant, then when the nominal interest rate falls, the real
interest rate
a. falls by more than the change in the nominal interest rate.
b. falls by the change in the nominal interest rate.
c. rises by the change in the nominal interest rate.
d. rises by more than the change in the nominal interest rate.
The actual rate of unemployment will generally
a. increase as an economy enters a recession.
b. decrease as an economy enters a recession.
c. fall below the natural rate of unemployment during a recession.
d. do both a and c.
The following table gives the average total cost of production for various levels of
output for a competitive price-taker firm
If the firm’s fixed cost of production is $3 and the market price is $10, how many units
should the firm produce to maximize its profit?
a. 1
b. 2
c. 3
d. 4
If a firm or a nation desires to maximize its output, each productive assignment should
be carried out by those persons who
a. have the highest opportunity cost.
b. have a comparative advantage in the productive activity.
c. can complete the productive activity most rapidly.
d. least enjoy performing the productive activity.
Figure 10-12
Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher
market that is
a. not in long-run equilibrium.
b. in long-run equilibrium.
c. producing its efficient scale of output.
d. earning a positive economic profit.