If your firm’s production function has constant returns to scale, then if you double all
your inputs, your firm’s output will
a. double and productivity will rise.
b. double but productivity will not change.
c. more than double and productivity will rise.
d. more then double but productivity will not change.
According to the long-run Phillips curve, in the long run monetary policy influences
a. inflation but not the unemployment rate; this is consistent with classical theory.
b. inflation but not the unemployment rate; this is inconsistent with classical theory.
c. the unemployment rate but not inflation; this is consistent with classical theory.
d. the unemployment rate but not inflation; this is inconsistent with classical theory.
The price index that measures the cost of a basket of goods and services bought by
firms is called the
a. industrial price index.
b. producer price index.
c. core price index.
d. GDP deflator.
Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1. With trade, total surplus in the Scotland wool market amounts to
a. 312.5.
b. 367.0.
c. 467.5.
d. 495.0.
Figure 14-1. The figure shows a utility function.
Refer to Figure 14-1. What is measured along the vertical axis?
a. risk aversion
b. marginal utility
c. utility
d. the number of units of a good that can be purchased
Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. If Hosne must work 0.5 hour to make each purse, then her
production possibilities frontier is based on how many hours of work?
a. 2 hours
b. 5 hours
c. 20 hours
d. 50 hours
When quantity demanded decreases at every possible price, the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the
same curve.
d. not shifted; rather, the demand curve has become flatter.
An increase in government spending
a. increases the interest rate and so investment spending increases.
b. increases the interest rate and so investment spending decreases.
c. decreases the interest rate and so increases investment spending increases.
d. decreases the interest rate and so investment spending decreases.
Net capital outflow equals
a. the purchase of foreign assets by domestic residents.
b. the purchase of domestic assets by foreign residents.
c. the purchase of domestic assets by foreign residents – the purchase of foreign assets
by domestic residents
d. the purchase of foreign assets by domestic residents – the purchase of domestic assets
by foreign residents
In the short run, open-market sales
a. increase the price level and real GDP.
b. decrease the price level and real GDP.
c. increases the price level and decreases real GDP.
d. decreases the price level and increases real GDP.
In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he
earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real
terms, Professor Plum’s salary was highest in
a. 1970 and lowest in 1980.
b. 1970 and lowest in 1990.
c. 1980 and lowest in 1970.
d. 1980 and lowest in 1990.
In the last half of 1999, the U.S. unemployment rate was about 4 percent. Historical
experience suggests that this is
a. above the natural rate, so real GDP growth was likely low.
b. above the natural rate, so real GDP growth was likely high.
c. below the natural rate, so real GDP growth was likely low.
d. below the natural rate, so real GDP growth was likely high.
Total surplus in a market will increase when the government
a. imposes a tax on that market.
b. imposes a binding price floor on that market.
c. removes a binding price ceiling from that market.
d. None of the above is correct.
Other things equal, the demand for a good tends to be more inelastic, the
a. fewer the available substitutes.
b. longer the time period considered.
c. more the good is considered a luxury good.
d. more narrowly defined is the market for the good.
The deadweight loss from a tax
a. does not vary in amount when the price elasticity of demand changes.
b. does not vary in amount when the amount of the tax per unit changes.
c. is larger, the larger is the amount of the tax per unit.
d. is smaller, the larger is the amount of the tax per unit.
In communism, central planners decide which of the following?
a. what goods and services will be produced
b. how much will be produced
c. who produced and consumed the goods and services
d. All of the above are correct.
Figure 13-3. The figure shows two demand-for-loanable-funds curves and two
supply-of-loanable-funds curves.
Refer to Figure 13-3. Which of the following movements shows the effects of the
government going from a budget deficit to a budget surplus?
a. a movement from Point A to Point B
b. a movement from Point B to Point A
c. a movement from Point A to Point F
d. a movement from Point C to Point B
Figure 3-11
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 3-11. If the production possibilities frontier shown is for 240 hours of
production, then how long does it take Bonovia to make one pound of cheese?
a. 3/5 hour
b. 3/4 hour
c. 4/3 hours
d. 5/3 hours
Figure 9-6
Refer to Figure 9-6. With trade and without a tariff,
a. the domestic price is equal to the world price.
b. carnations are sold at $8 in this market.
c. there is a shortage of 400 carnations in this market.
d. this country imports 200 carnations.
Ben bakes bread and Shawna knits sweaters. Ben and Shawna both like to eat bread and
wear sweaters. In which of the following cases is it impossible for both Ben and
Shawna to benefit from trade?
a. Ben cannot knit sweaters and Shawna cannot bake bread.
b. Ben is better than Shawna at baking bread and Shawna is better than Ben at knitting
sweaters.
c. Ben is better than Shawna at baking bread and at knitting sweaters.
d. Both Ben and Shawna can benefit from trade in all of the above cases.
If Japan goes from a small budget deficit to a large budget deficit, it will reduce
a. private saving and so shift the supply of loanable funds left.
b. investment and so shift the demand for loanable funds left.
c. public saving and so shift the supply of loanable funds left.
d. None of the above is correct.
Economists view normative statements as
a. prescriptive, making a claim about how the world ought to be.
b. descriptive, making a claim about how the world is.
c. statements about the normal condition of the world.
d. pessimistic, putting the worst possible interpretation on things.
In a market, to find the total amount supplied at a particular price, we must
a. sum the quantities that individual firms are willing and able to supply at that price.
b. calculate the average of the quantities that individual firms are willing and able to
supply at that price.
c. sum the costs that individual firms incur to supply the product at that price.
d. account for all determinants of demand.
A construction company has built 30 houses so far this year at a total cost to the
company of $7.5 million. If the company builds a 31st house, its total cost will increase
to $7.76 million. Which of the following statements is correct?
a. For the first 30 houses, the average cost per house was $250,000.
b. The marginal cost of the 31st house, if it is built, will be $260,000.
c. If the company can experience a marginal benefit of $275,000 by building the 31st
house, then the company should build it.
d. All of the above are correct.
It once took 90 percent of our population to grow our food. It now takes only 3 percent
of the population to grow our food. Which of the following statements is true?
a. This loss of jobs has been detrimental to our economy.
b. The government should provide subsidies to encourage more people to become
farmers.
c. This reduction in the number of farmers explains the increase in the price of food.
d. This is progress because freed-up labor that is used to produce other goods.
If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could
make a profit by
a. buying bananas in Honduras and selling them in Guatemala, which would tend to
raise the price of bananas in Honduras.
b. buying bananas in Honduras and selling them in Guatemala, which would tend to
raise the price of bananas in Guatemala.
c. buying bananas in Guatemala and selling them in Honduras, which would tend to
raise the price of bananas in Guatemala.
d. buying bananas in Guatemala and selling them in Honduras, which would tend to
raise the price of bananas in Honduras.
Figure 5-16
Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply
between point A and point B?
a. 0.58
b. 0.71
c. 1.06
d. 1.4
Adam Smith asserted that a person should never attempt to make at home
a. what it will cost him more to make than to buy.
b. any good in which that person does not have an absolute advantage.
c. any luxury good.
d. any necessity.
If goods A and B are complements, then an increase in the price of good A will result in
a. more of good A being sold.
b. more of good B being sold.
c. less of good B being sold.
d. no difference in the quantity sold of either good.
Unions
a. and firms paying wages above equilibrium to improve worker effort both create
frictional unemployment.
b. creates frictional unemployment, while firms paying wages above equilibrium to
improve worker effort creates structural unemployment.
c. creates structural unemployment, while firms paying wages above equilibrium to
improve worker effort creates frictional unemployment.
d. and firms paying wages above equilibrium to improve worker effort both create
structural unemployment.
Which of the following entities actually executes open-market operations?
a. the Board of Governors
b. the New York Federal Reserve Bank
c. the Federal Open Market Committee
d. the Open Market Committees of the regional Federal Reserve Banks
Table 3-18
Chris and Tony’s Production Opportunities
Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour
days. Which of the following prices would result in a mutually advantageous trade
between Chris and Tony?
a. 1 lb. of tomatoes for 23 jars of sauce
b. 1 lb. of tomatoes for 27 jars of sauce
c. 1 lb. of tomatoes for 33 jars of sauce
d. .Both a and b are correct.
As a result of a decrease in price,
a. new buyers enter the market, increasing consumer surplus.
b. new buyers enter the market, decreasing consumer surplus.
c. existing buyers exit the market, increasing consumer surplus.
d. existing buyers exit the market, decreasing consumer surplus.
Normative statements are
a. prescriptive, whereas positive statements are descriptive.
b. descriptive, whereas positive statements are prescriptive.
c. backward-looking, whereas positive statements are forward-looking.
d. forward-looking, whereas positive statements are backward-looking.
In the circular-flow diagram, payments for labor, land, and capital flow from firms to
households through the markets for the factors of production.
In the 1970s and 1980s the U.S. dollar depreciated against the German mark and
appreciated against the Italian lira because U.S. inflation was lower than in Germany
but higher than in Italy.
If the wage is kept above the equilibrium level for any reason, the result is
unemployment.
The short-run Phillips curve indicates that expansionary monetary policy will
temporarily raise the unemployment rate above its natural rate.
In the long run, the natural rate of unemployment depends primarily on the growth rate
of the money supply.
If the U.S. purchases more assets from foreign countries then foreign countries
purchase from it, the U.S. has a positive net capital outflow.
List the three major problems in using the CPI as a measure of the cost of living.
Managed mutual funds usually outperform mutual funds that are supposed to follow
some stock index.
An increase in the price of a product and an increase in the number of sellers in the
market affect the supply curve in the same general way.
Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to
pay is $70.
If a country’s net exports fall, then its net capital outflow falls by the same amount.
Most spells of unemployment are short, and most unemployment observed at any given
time is short-term.
The slope of a line is equal to the change in the x-variable divided by the change in the
y-variable.
Consumer surplus is the amount a buyer is willing to pay for a good minus the amount
the buyer actually has to pay for it.
An economy can produce at any point on or inside its production possibilities frontier,
but it cannot produce at points outside its production possibilities frontier.
If the current year CPI is 90, then the price level has decreased 10 percent since the
base year.
Unpaid stay-at-home fathers are included in the Bureau of Labor Statistics’
“unemployed” category.
If the central bank increased the money supply in response to a decrease in short-run
aggregate supply, unemployment would return towards its natural rate, but prices would
rise even more.