The ability-to-pay principle of taxation:
A. has been declared unconstitutional because it deprives individuals of property
without due process of law.
B. suggests that people should pay taxes in proportion to the benefits they derive from
public goods and services.
C. suggests that the tax burden should vary directly with people’s income and wealth.
D. suggests that the tax burden should vary inversely with people’s income and wealth.
Which of the following is not considered a consumption expenditure?
A. Purchases of services.
B. Purchases of houses.
C. Purchases of nondurable goods.
D. Purchases of durable goods.
A price-discriminating pure monopolist will attempt to charge each buyer (or group of
buyers):
A. different prices to compensate for differences in the characteristics of the product.
B. the same price if per-unit cost is constant for each unit of the product.
C. the price that equals the buyer’s marginal cost.
D. the maximum price each would be willing to pay.
Increased government spending for investments such as highways or harbors financed
by increasing the public debt would most likely:
A. crowd out future public investment.
B. reduce the economy’s future productive capacity.
C. increase the amount of public capital stock in the future.
D. increase the amount of private capital stock in the future.
Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2,
and AD3 labels indicate the level of investment spending associated with each curve.
All figures are in billions. The economy is at point X on the investment demand curve.
Given these conditions, what policy should the Fed pursue to achieve a noninflationary
full-employment level of real GDP (Qf)?
A. Decrease aggregate demand from AD1 to AD2.
B. Increase the money supply from $75 to $150 billion.
C. Increase interest rates from 4 to 8 percent.
D. Make no change in monetary policy.
Refer to the above graph. The ratchet effect would suggest that:
A. if AD1 moves to AD2, the new equilibrium would be at b.
B. if AD1 moves to AD2, the new equilibrium would be at c.
C. if AD2 moves to AD1, the new equilibrium would be at a.
D. if AD2 moves to AD1, the new equilibrium would be at b.
In response to a cost-reducing technological breakthrough in the production of its
product, a profit-maximizing monopolist will normally:
A. increase price and decrease production.
B. not change its level of output or price.
C. decrease the price it charges for its product.
D. increase its output and practice price discrimination.
The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We
can conclude that:
A. 1 yen = 280 Swiss francs.
B. 1 yen = 14 Swiss francs.
C. 1 Swiss franc = 28 yen.
D. 1 Swiss franc = 14 yen.
The influential book written by Adam Smith was:
A. Capitalism and Freedom.
B. The Affluent Society.
C. The Age of the Economist.
D. The Wealth of Nations.
A major concern with the Social Security trust fund is that:
A. surpluses for Social Security are too large.
B. the federal government buys too many government securities.
C. costs for administering the fund are greater than the current revenue.
D. the fund will be insufficient to cover obligations in one or two decades.
A public good:
A.generally results in substantial spillover costs.
B.can never be provided by a nongovernmental organization.
C.cannot be provided to one person without making it available to others too.
D.costs essentially nothing to produce and thus is provided by the government at zero
price.
When a nation has a comparative advantage in producing a product, then in comparison
with any other nation it can produce that product:
A. at a lower average total cost.
B. at a lower domestic opportunity cost.
C. with less capital.
D. with less labor.
When total product is increasing at a decreasing rate, marginal product is:
A. positive and increasing.
B. positive and decreasing.
C. constant.
D. negative.
On a production possibilities curve, the optimal or best combination of output for any
society:
A. is at a point near the top of the curve.
B. is at the precise midpoint of the curve.
C. is at a point near the bottom of the curve.
D. depends upon the preferences of society.
Assume the price of a product rises from $2 to $3 and the quantity demanded of the
product decreases from 600 to 400. The price elasticity of demand coefficient, using the
midpoint formula, is:
A. 0.40.
B. 1.00.
C. 1.60.
D. 2.10.
In the above diagram the range of diminishing marginal returns is:
A. 0Q3.
B. 0Q2.
C. Q1Q2.
D. Q1Q3.
Mutual interdependence would tend to limit control over price in which market model?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
A government economist states that “[t]he collection of personal income tax revenues
automatically falls during a recession.” This statement best describes how the
progressive income tax system:
A. increases crowding out in the economy.
B. decreases real interest rates in the economy.
C. offsets the timing problem for fiscal policy.
D. serves as an automatic stabilizer for the economy.
The following economy produces two products.
Refer to the above table. In moving from possibility A to F, the cost of a unit of steel in
terms of a unit of wheat:
A. increases.
B. decreases.
C. remains constant.
D. increases from A to B, and decreases from B to F.
A monopoly is most likely to emerge and be sustained when:
A. output demand is relatively elastic.
B. firms have U-shaped average total cost curves.
C. fixed capital costs are small relative to total costs.
D. economies of scale are large relative to market demand.
Which does not necessarily apply to a pure monopoly?
A. The product the firm produces must have no close substitutes.
B. The firm must be the sole producer of a product.
C. The firm must earn economic profits.
D. Entry must be blocked.
Refer to the above graph, which shows an aggregate demand curve for a hypothetical
economy. If the price level is 200, the quantity of real GDP demanded is:
A. $500 billion.
B. $600 billion.
C. $700 billion.
D. $800 billion.
Given the annual rate of inflation, the “Rule of 70” allows one to:
A. determine whether the inflation is demand-pull or cost-push.
B. calculate the accompanying rate of unemployment.
C. determine when the value of a real asset will approach zero.
D. calculate the number of years required for the price level to double.
If two jobs (X and Y) are similar, and there is an increase in the nonmonetary benefits
of job X, with no change in the nonmonetary benefits of job Y, we would expect:
A. differences in money wages between jobs X and Y.
B. wages to be higher for job X than for job Y.
C. workers to move to job X until money wages are the same for both jobs.
D. workers to move to job Y until money wages are the same for both jobs.
Which would be considered an investment according to economists?
A. The buying of shares of Janus mutual funds.
B. The purchase of a new machine by Ford.
C. The purchase of stock in MacDonald’s.
D. The selling of IBM corporate bonds.
Which of the following are contractionary fiscal policies?
A. Increased taxation and increased government spending
B. Increased taxation and decreased government spending
C. Decreased taxation and no change in government spending
D. No change in taxation and increased government spending
Over half of U.S. consumer expenditures are for what?
A. Housing.
B. Services.
C. Nondurable goods.
D. Durable goods.
Other things being equal, a labor union will find it harder to get a wage increase for its
members the:
A. less elastic is the demand for the product labor produces.
B. easier it is to substitute other resources for labor.
C. greater the amount of unionization in the industry.
D. less elastic is the demand for labor.
Suppose that real domestic output in an economy is 300 units, the quantity of inputs is
50, and the price of each input is $9. The per-unit cost of production is:
A. $0.67.
B. $1.50.
C. $33.33.
D. $55.00.
A consumer’s weekly income is $300 and the consumer buys 5 bars of chocolate per
week. When income increases to $330, the consumer buys 6 bars per week. The income
elasticity of demand for chocolate by this consumer is about:
A. 0.
B. 0.5.
C. 1.
D. 2.
Refer to the above graph. If the interest rate was 5 percent and the money supply
increased by $100 billion, the new interest rate would be:
A. 1 percent.
B. 2 percent.
C. 3 percent.
D. 4 percent.
A potential negative effect of advertising for society is that it can:
A. be the major cause of price wars among firms in the industry.
B. reduce mutual interdependence and increase competition.
C. be self-canceling and contribute to economic inefficiency.
D. lower barriers to entry and undermine profits in the industry.
Marginal revenue product is the increase in:
A. total revenue from a decrease in the price of the product.
B. marginal revenue from a decrease in the price of the product.
C. marginal revenue from the use of an additional unit of a resource.
D. total revenue from the use of an additional unit of a resource.
A government is considering undertaking one or more construction projects. The
estimated marginal cost and benefit of each project are given in the table.
Refer to the above table and information. What is the net benefit of project 2?
A.$1 million
B.$2 million
C.$3 million
D.$5 million