A successful trademark is one that becomes a generic name for a product, for example,
“Kleenex” has become a generic term for tissues.
If inflation is unanticipated, no redistribution of income can occur.
An increase in government spending will force an appreciation of the dollar, which
causes net exports to fall.
A surplus occurs when the actual selling price is above the market equilibrium price.
The larger the MPC, the smaller the value of the multiplier.
Housing is the largest component of the U.S. CPI market basket.
In a fixed exchange rate system, speculation regarding an expected revaluation or
devaluation of a currency makes it more difficult to maintain the existing exchange rate.
If a country produces only two goods, it is possible to have a comparative advantage in
the production of both those goods.
An open market purchase of Treasury securities by the Federal Reserve causes the
reserves of banks to rise.
An inferior good is a good for which the quantity demanded increases as the price
decreases, holding everything else constant.
When voluntary exchange takes place, only one party gains from the exchange.
In the short run, even if a monopoly’s total revenue does not cover its variable costs, it
should continue to produce because ultimately in the long run, the monopoly will start
earning profits.
Financial markets and financial intermediaries comprise the financial system.
For a natural monopoly, the marginal cost of producing an additional unit of its product
is relatively small.
A private good is
A) a good that is rivalrous and nonexcludable.
B) a good that is nonrivalrous and nonexcludable.
C) a good that is rivalrous and excludable.
D) a good that is nonrivalrous and excludable.
If the CPI changes from 125 to 120 between 2012 and 2013, how did prices change
between 2012 and 2013?
A) Prices increased by 5%.
B) Prices decreased by 5%
C) Prices increased by 25%.
D) Prices decreased by 4%.
Figure 15-15
Figure 15-15 shows the cost and demand curves for the Erickson Power Company. If
the government regulates Erickson Power Company so that the firm can earn a normal
profit, the price would be set at ________ and the output level is ________.
A) P1, Q4
B) P2, Q3
C) P2, Q2
D) P3, Q2
One criticism of the Fed’s quantitative easing policy is that low interest rates ________
the return to saving. One key reason people save is to finance their retirement. Retired
people typically favor low-risk investments, such as bank certificates of deposit or
Treasury bonds. But with the interest rates on these assets reduced to historically low
levels, many retired people were forced to either ________ their spending or buy riskier
investments.
A) increase; increase
B) reduce; decrease
C) increase; decrease
D) reduce; increase
The level of real GDP in the long run is called
A) potential GDP.
B) short-run GDP.
C) frictional GDP.
D) low-capacity GDP.
Recent estimates put the size of the underground economy in the United States at
________ of measured GDP.
A) 2 percent
B) 8 percent
C) 13 percent
D) over 50 percent
If the United States is a “net lender” abroad, ________. (Assume that the capital
account is zero and net transfers are zero.)
A) the United States must be exporting less than it is importing
B) net capital flows must be positive
C) domestic saving is greater than domestic investment
D) net foreign investment must be negative
A profit maximizing monopoly’s price is
A) the same as the price that would prevail if the industry was perfectly competitive.
B) less than the price that would prevail if the industry was perfectly competitive.
C) greater than the price that would prevail if the industry was perfectly competitive.
D) not consistently related to price that would prevail if the market was perfectly
competitive.
Which of the following describes a situation in which the person is hurt by inflation?
A) a retiree whose pension is adjusted for inflation
B) a person who borrows money during a period when inflation is under-predicted
C) a person who lends money during a period when inflation is over-predicted
D) a person paid a fixed income during an inflationary period
If actual inflation is greater than expected inflation, what is the relationship between the
actual real wage and the expected real wage?
A) The actual real wage will be lower than the expected real wage.
B) The actual real wage will be higher than the expected real wage.
C) The actual real wage will be equal to the expected real wage.
D) The relationship between the actual real wage and the expected real wage cannot be
predicted.
Which of the following demonstrates the endowment effect?
A) Whelan inherits a cottage in Cape Cod from his grandfather and is unwilling to sell
it for sentimental reasons.
B) Robert Pattinson commands a premium in the movie industry because he is endowed
with dashing looks.
C) Isabella was not willing to part with her “Robert Pattinson” poster although she was
offered $100 for it, a sum greater than what it costs to purchase another such poster.
D) If you received a good as a gift, you are less likely to attach a monetary value to the
good.
What must balance on a balance sheet?
A) Total assets must equal total liabilities plus equity.
B) Revenues must equal costs.
C) Retained earnings plus dividends paid must equal earnings per share.
D) All of these must balance.
Which of the following is not an example of a derived demand?
A) Several of the animated films released between 1999 and 2001 failed to earn a
profit, which caused some companies to stop making these films, thereby decreasing
the demand for animators.
B) Seth Bullock, a personal-injury attorney, complains that he is earning far less now
than a few years ago largely because personal injury cases have been undercut by state
laws limiting class-action suits and payouts on damages.
C) Millicent Manning, the owner of a furniture store, is concerned that her sales have
fallen for the past six months. She attributes this to the downturn in the real estate
market.
D) As advancements in medical technology increase the safety and success of laser eye
surgery, the demand for opticians has decreased.
Table 4-8
Table 4-8 shows the demand and supply schedules for the low-skilled labor market in
the city of Westover.
If a minimum wage of $10.00 is mandated, there will be a
A) shortage of 20,000 units of labor.
B) surplus of 20,000 units of labor.
C) shortage of 40,000 units of labor.
D) surplus of 40,000 units of labor.
The experience of Paul Volcker’s fight against inflation during the late 1970s and early
1980s indicates that firms and workers may have
A) had adaptive expectations.
B) had rational expectations but didn’t trust Fed announcements.
C) preferred high unemployment to high inflation.
D) Both A and B are correct answers.
Figure 2-8 Figure 2-8 above shows the production possibilities frontier for Vidalia, a
nation that produces two goods, roses and orchids.
The linear production possibilities frontier in the figure indicates that
A) Vidalia has a comparative advantage in the production of orchids.
B) Vidalia has a comparative disadvantage in the production of roses.
C) the tradeoff between roses and orchids is constant.
D) it is progressively more expensive to produce orchids.
To combat a recession with discretionary fiscal policy, Congress and the president
should
A) decrease government spending to balance the budget.
B) decrease taxes to increase consumer disposable income.
C) lower interest rates and increase investment by increasing the money supply.
D) raise taxes on interest and dividends, but not on personal income.
If a firm decreases its plant size and finds that its long-run average costs have
decreased, then
A) its labor is more productive in a smaller plant.
B) its diseconomies of scale are less.
C) the firm should reduce its plant size even more.
D) the firm is now profitable.
According to the “wealth effect,” when the ________ falls, the ________ rises.
A) inflation rate; nominal value of household assets
B) unemployment rate; average level of household income
C) price level; the nominal value of household wealth
D) price level; the real value of household wealth
The 2005, 24 European Union nations established a cap-and-trade system which was
designed to
A) eliminate air pollution and greenhouse gases by the year 2020.
B) reduce carbon dioxide emissions.
C) provide fast growing developing countries with the technology to reduce their
carbon emissions.
D) remove all taxes from polluting industries.
How do firms raise external funds through indirect finance?
What is a production possibilities frontier? What do points along the frontier represent?
What do points inside and outside the frontier represent?
The marginal cost for Java Joe’s to produce its first cup of coffee is $0.75. Its marginal
cost to produce its second cup of coffee is $1.25. Its marginal cost increases by $0.50
for each additional cup of coffee it produces. Suppose the market price for coffee is
$2.25. Construct a graph showing the producer surplus for each cup of coffee Java Joe’s
will sell. How many cups of coffee will Java Joe’s sell? What is the value of the
producer surplus Java Joe’s receives for each cup of coffee it sells?
Give two reasons why GDP does not reflect total production in an economy.
Figure 14-6
Use the decision tree to determine whether Pizza Hut should deter Domino’s from
entering the market for pasta salad. Assume that each firm must earn a 25% return on
investment to break even. Explain Pizza Hut’s decision process.
Equilibrium in a perfectly competitive market results in the greatest amount of
economic surplus, or total benefit to society, from the production of a good. Why, then,
did Joseph Schumpeter argue that an economy may benefit more from firms that have
market power than from firms that are perfectly competitive?
Use a graph to show the effects of an expansionary monetary policy moving an
economy out of recession and to potential real GDP. Explain what happens to aggregate
demand, real GDP, and the price level.
How can changes over time of the average height of the people in a country help to
indicate the standard of living in a country?
What is the difference between a supply schedule and a supply curve?