Which of the following is consistent with the implications of the economic guidepost
that information is costly to acquire?
a. Most people do not know the names of their legislators in the U.S. Congress, but
those same individuals are likely to know the names of all the cast members on a
popular TV show.
b. In considering purchases, people are more likely to purchase a consumer ratings
magazine that reviews new automobiles before buying a car, but are unlikely to
purchase a consumer ratings magazine that reviews pens and pencils before buying a
pen or pencil.
c. When shopping for something like a new calculator, people will generally not spend
the time to do price comparisons at all of the stores in town that sell calculators.
d. All of the above are consistent with the economic way of thinking.
Suppose Microsoft announces it is cutting the prices of some of its software titles
(mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues,
it must believe that the elasticity of demand for these products is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. perfectly inelastic.
The sum of the explicit and implicit costs incurred in the production process is called
a. fixed cost.
b. sunk cost.
c. marginal cost.
d. total cost.
When making income comparisons across countries, economists generally prefer to use
a. the exchange rate conversion method.
b. the consumer price index ratio method.
c. the purchasing power parity method.
d. the interest rate differential conversion method.
If debit cards become more widely used by consumers and businesses, which of the
following is most likely to happen?
a. Currency holdings will remain the same, but the M1 money supply will fall.
b. The amount of currency held by the public will increase.
c. Less money will be held as currency and more money will be held in bank accounts,
which will increase the reserves of banks unless the Fed takes offsetting actions.
d. The money supply will be unaffected because debit card expenditures are considered
the equivalent of cash.
If all persons had identical preferences and productivity factors (ability, skill level,
education, experience, etc.), the highest paying jobs would be the most
a. prestigious.
b. convenient.
c. undesirable.
d. easily learned.
Which of the following is an implication of the modern view of the Phillips curve?
a. Higher rates of inflation always lead to lower rates of unemployment.
b. Higher rates of inflation always lead to higher rates of unemployment.
c. If actual inflation exceeds the inflation rate anticipated by decision makers,
unemployment will temporarily fall below the natural rate.
d. If actual inflation exceeds the inflation rate anticipated by decision makers,
unemployment will temporarily rise above the natural rate.
Answer the following questions:
Which of the following helped transform the budget deficits of the early 1990s into
surpluses later in the decade?
a. Rapid growth in the number of persons moving into the retirement phase of life
during the 1990s
b. A reduction in defense expenditures following the end of the Cold War
c. A 1997 increase in the tax rate imposed on income derived from capital gains
d. A reduction in Social Security and health-care benefits during the 1990s
A practice whereby a seller charges different prices to different consumers of the same
product or service is called
a. price discrimination.
b. oligopolistic pricing.
c. stay-out pricing.
d. monopolistic pricing.
Opportunity cost is defined
a. only in terms of money spent
b. as the value of all alternatives not chosen
c. as the value of the best alternative not chosen
d. as the difference between the benefits from a choice and the benefits from the next
best alternative
e. as the difference between the benefits from a choice and the costs of that choice
The tournament pay explanation is useful in an attempt to explain why
a. some corporate executives earn amounts higher than their marginal revenue product.
b. very few people actually earn the minimum wage.
c. political entrepreneurs can generate campaign contributions from businesses outside
of their districts.
d. people with only a high school education earn less than those with college degrees.
When total revenue minus total economic cost is greater than zero, the firm is
a. earning higher than normal profits.
b. earning the normal profit rate.
c. making economic losses.
d. earning economic profit but accounting losses.
If the per capita income of a country is growing at 3.5 percent per year, approximately
how long will it take for that income to double?
a. 20 years
b. 25 years
c. 35 years
d. 70 years
As unemployment rose during 1930 through 1932 and the economy plunged into the
Great Depression, policy makers
a. reduced tax rates and increased the money supply.
b. increased tax rates and reduced the money supply.
c. increased both tax rates and the money supply.
d. reduced both the tax rates and the money supply.
If the price of tickets to Disney World increases 10 percent, and as a result, attendance
falls by 15 percent, the demand for the tickets is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. indeterminate.
If an economic action generates more costs than benefits, the action
a. by definition increases the nation’s economic welfare.
b. should not be undertaken from an efficiency standpoint.
c. should be subsidized by the government in order to make sure that it is undertaken.
d. is desirable from a public welfare standpoint even though many individuals will be
harmed.
Most economists believe the severity and duration of the Great Depression was
primarily the result of
a. the large budget deficits of the federal government.
b. the reduction in tariffs and the influx of foreign imports during the early 1930s.
c. the excessive use of credit cards.
d. a sharp contraction in the money supply.
Airlines generally charge travelers willing to stay over Saturday night lower fares
because
a. these travelers have lower incomes, and therefore, the airlines would like to help
them.
b. it cost less to transport travelers willing to stay over a Saturday night.
c. the demand of these travelers is elastic, and therefore, the lower fares generate more
revenue.
d. the demand of these travelers is inelastic, and therefore, the lower fares generate
more revenue for the airlines.
The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
Refer to Figure 11-17. The marginal cost curve for a monopoly firm is depicted by
curve
a. A.
b. B.
c. C.
d. D.
Which statement represents most correctly the relationship between nominal GDP and
real GDP?
a. Nominal GDP measures base-year production using base-year prices, whereas real
GDP measures current production using current prices.
b. Nominal GDP measures current production using base-year prices, whereas real GDP
measures current production using current prices.
c. Nominal GDP measures current production using current prices, whereas real GDP
measures current production using base-year prices.
d. Nominal GDP measures current production using current prices, whereas real GDP
measures base-year production using base-year prices.
As more politically directed spending leads to more rent-seeking activity,
a. the spending will increase GDP, but only if it is directed toward productive activity.
b. the spending will decrease GDP, but only if it is directed toward unproductive
activity.
c. resources will be channeled toward unproductive activity and away from productive
activity.
d. resources will be channeled toward productive activity and away from unproductive
activity.
According to the rational expectations theory, expansionary monetary policy will
a. reduce inflation.
b. lead to inflation and the higher rate of inflation will be quickly anticipated.
c. reduce unemployment because people will generally underestimate the inflationary
side effects of the monetary expansion.
d. accelerate inflation in the short run, but in the long run the primary effect will be an
increase in employment.
Which of the following would generate a supply of euros in exchange for dollars?
a. American demand for European real estate.
b. European demand for U.S. government bonds.
c. Americans vacationing in Europe.
d. Purchase of French wines by U.S. importers.
Data on the distribution of income among individuals and families in the United States
indicate that
a. the power of labor unions and corporations is the major determinant of income
inequality.
b. the rich stay rich and the poor stay poor from one generation to another.
c. much of the inequality in annual income emanates from differences in education, age,
hours worked, and family size.
d. the difference in annual income emanating from ownership of capital assets is the
major source of economic inequality.
Which of the following would cause the poverty threshold income level for a given
family to increase by 20 percent from one year to another?
a. a 20 percent increase in the family’s income
b. a 20 percent decrease in the family’s income
c. a 20 percent increase in the general level of prices
d. a 20 percent increase in real national income
Cartel members have an incentive to cheat on cartel agreements because
a. the cartel cannot maximize profits.
b. the cartel price is the competitive price.
c. the demand curve for the firm is more elastic than the cartel’s demand curve.
d. the industry profit would be higher under competitive conditions.
Suppose the population (age 16 and over) of Madagascar is 200 million; 9 million are
unemployed, and 111 million hold jobs. Indicate the rate of unemployment and the
employment/population ratio of Madagascar.
a. The unemployment rate is 4.5 percent, and the employment/population ratio is 55.5
percent.
b. The unemployment rate is 7.5 percent, and the employment/population ratio is 60
percent.
c. The unemployment rate is 7.5 percent, and the employment/population ratio is 55.5
percent.
d. The unemployment rate is 8.1 percent, and the employment/population ratio is 60
percent.
Which of the following about unemployment is true?
a. The unemployment rates of the major European economies were substantially lower
than in the United States during the last decade.
b. High unemployment rates over lengthy time periods are indicative of structural and
regulatory factors that are exerting an adverse impact on the natural rate of
unemployment.
c. The natural rate of unemployment is unaffected by changes in the age composition of
the labor force (for example, an increase in the relative number of youthful workers).
d. Institutional changes such as an increase in the minimum wage may increase cyclical
unemployment but will not affect the natural rate of unemployment.
The payments made to the beneficiaries of the Social Security program are financed by
a. insurance premiums previously paid into the system by the beneficiaries.
b. current receipts derived from the Social Security payroll tax.
c. income derived from funds that were previously invested in stocks and bonds.
d. governmental savings accounts based on the amount of funds the recipient previously
paid into the system.
What is the best test of an economic theory?
a. the accuracy of the assumptions behind the theory
b. the ability of the theory to predict real-world events
c. the implications of the theory for current public policy
d. how much mathematical detail is behind the theory
If the economy is experiencing less than full-employment, the Keynesian model
recommends that the government
a. do nothing to stimulate the economy.
b. undertake expansionary fiscal policy to stimulate aggregate demand.
c. undertake expansionary fiscal policy to stimulate aggregate supply.
d. balance the budget to stimulate aggregate demand.