“Rate averaging” is only possible if
a. the firm is protected from price competition and new entry.
b. the firm is protected from losses resulting from unsuccessful innovation.
c. the firm can choose the level of service it wishes to provide.
d. “cream skimming” is permitted.
Which of the following is true?
a. A bondholder owes money to a corporation.
b. A corporation owes money to a bondholder.
c. A bondholder owns part of a corporation.
d. A bondholder votes on company management.
Rent-seeking activity by firms
a. often wastes economic resources.
b. increases economic efficiency.
c. continues even when an industry is in long-run competitive equilibrium.
d. increases the total amount of economic rent available.
An example of “cream skimming” is when:
a. a firm charges the same price to all consumers, even though costs for some are higher
b. a firm offers a reduced price to the best-paying customers of their competitors
c. a firm offers a reduction in price on a package sale of two items
d. none of these
If the U.S. economy is experiencing falling price levels, the
a. expenditure schedule will shift downward.
b. expenditure schedule will shift upward.
c. slope of the expenditure schedule increases.
d. slope of the expenditure schedule decreases.
A bank would be considered insolvent when the value of its liabilities exceed its
a. assets.
b. required reserves.
c. actual reserves.
d. net worth.
The principal innovation that increases the safety of bank deposits is
a. computerized accounting systems.
b. credit cards.
c. automatic teller machines.
d. deposit insurance.
Figure 4-21
At price P3 in Figure 4-21, what will tend to happen?
a. There will be a shortage, and the price will fall.
b. There will be a shortage, and the price will rise.
c. There will be a surplus, and the price will rise.
d. There will be a surplus, and the price will fall.
e. Equilibrium will occur in the market.
The key difference between monopolistic competition and perfect competition is that in
monopolistic competition the tangency of
a. AC and the demand curve occurs along the negatively sloped part of AC.
b. the demand curve and AC occurs at the minimum point of the AC curve.
c. AC and the demand curve occurs along the positively sloped part of AC.
d. MC and MR at the optimum output.
An increase in the U.S. price level relative to the price level of other countries would
a. increase U.S. net exports and increase aggregate demand.
b. increase U.S. net exports and increase aggregate supply.
c. reduce U.S. net exports and reduce aggregate demand.
d. reduce U.S. net exports and increase aggregate demand.
The amount of money held in checking accounts is significantly greater than money in
the form of currency.
a. True
b. False
In terms of innovation and growth, the U.S. economic system has far exceeded the
achievements of any other type of economy, even in ancient history.
a. True
b. False
A corporation is legally owned by its
a. chief executive officer.
b. board of directors.
c. bondholders.
d. stockholders.
A “liberal” would most likely argue in favor of
a. tax increases when fiscal stimulus is necessary, and spending cuts when fiscal
restraint is necessary.
b. tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is
necessary.
c. tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is
necessary.
d. spending increases when fiscal expansion is necessary, and tax increases when fiscal
restraint is necessary.
A progressive income tax system can be defined as one in which
a. the government uses taxes paid by the wealthy to fund programs for the poor.
b. an individual pays more dollars in taxes when his income rises.
c. the marginal tax rate rises over time.
d. the average tax rate is higher for individuals with higher incomes.
The increased level of excess reserves that many banks held in 2008 made traditional
monetary policy less effective.
a. True
b. False
A report on the dangers of cholesterol would likely shift the demand curve for beef
downward and to the left.
a. True
b. False
Many economists describe the 2007-2009 period in the United States as being a
condition of a(n)
a. deflationary gap.
b. recessionary gap.
c. inflationary gap.
d. reflationary gap.
Figure 4-13
The drug BGH (bovine growth hormone) dramatically increases the milk output of
dairy cows. Farmers in Wisconsin, a big dairy state, vigorously oppose licensing the
drug, fearing that excess supply and a consumer reaction on the purity of food issue will
put many of them out of business. Which graph in Figure 4-13 best illustrates the
farmers’ fears?
a. 1
b. 2
c. 3
d. 4
In the last decade, health care spending in the U.S. nearly doubled.
a. True
b. False
What percentage of American workers now belong to labor unions?
a. less than 20 percent
b. about 40 percent
c. about 60 percent
d. more than 80 percent
Some economists believe that policy makers should avoid stabilization policy because
a. lags make the policy impact unpredictable.
b. no tax cut ever stimulated demand.
c. stabilization policies are rarely signed into law.
d. it never works.
Inheritance taxes tend to increase income inequality in the long run.
a. True
b. False
U.S. imports rise when income in the United States increases.
a. True
b. False
The unemployment rate that many economists believe represents full employment is
a. 0 percent.
b. 0-4 percent.
c. 4-6 percent.
d. 6-8 percent.
e. 8-10 percent
A country with an undervalued currency
a. will have a balance of payments deficit.
b. will accumulate reserves of foreign currencies.
c. will suffer losses of foreign reserves.
d. must intervene in the foreign exchange market to buy its own currency.
Liquidity refers to the ability of an asset to hold its value in periods of inflation.
a. True
b. False
The government regulates the banking industry by
a. conducting frequent audits and examinations.
b. limiting the kinds of assets that a bank may own.
c. limiting the quantity of some kinds of assets that a bank may own.
d. All of the above are correct.
Usury laws are designed to ensure that interest rates in the market do not exceed
acceptable norms.
a. True
b. False
The amount of goods and services the economy could produce if the labor force is fully
employed is called
a. nominal GDP.
b. real GDP.
c. actual GDP.
d. potential GDP.
The value of the deposit multiplier is 1 divided by the required reserve ratio.
a. True
b. False
If the international value of the dollar rises, the
a. aggregate demand curve will shift inward.
b. aggregate supply curve will shift outward.
c. U.S. price level will fall.
d. All of the above are correct.
If you must determine the long-run equilibrium output of a perfectly competitive firm
and you are permitted to see only one curve, which of the following curves is most
helpful?
a. demand
b. marginal cost
c. average cost
d. average fixed cost
Total profit is maximized
a. where the difference between total revenue and total cost is greatest.
b. at that output level where marginal revenue equals average cost.
c. where total revenue is at a maximum.
d. at the point where all variable costs are covered.
Monopolistic competition tends to lead firms to have wasted capacity. Why?
Explain how productivity growth has led to labor market realignment in the United
States.
Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases
from $20 to $17.50. How much will quantity demanded increase?
A nation’s citizens often dislike the economy’s distribution of income. Explain two
methods for creating a more equal distribution of income.
Why is the international financial system today often called a “nonsystem?”
Describe the origins of the Fed and the arguments about the independence of the Fed.
Corporate income is taxed twice-once in the form of corporate income tax and the
second time when the owner must pay income tax on dividends. What are the effects of
this double taxation?
Why are time series data unlikely to give an accurate estimate of demand?
Explain how the short-run industry supply curve for a perfectly competitive market is
derived.
Who gains if inflation turns out to be higher than expected: the lender or borrower?
What happens if inflation turns out to be lower than expected?
“The market has failed to provide enough rental housing in New York City. This
demonstrates another failure of free markets-they may lead to shortages of necessities.”
Explain why you agree or disagree.
Describe the U.S. Social Security system and explain how it is funded.
The phone network says it loses money on local calls, because the $20 average monthly
bill does not cover its average cost of $30. It estimates that $18 of costs are directly
related to local service, with $12 the share from overall expenses (overhead). Why
would the phone network be willing to operate if it is losing money?
For each pair of goods, explain which is more elastic: toothpicks vs. cars; electricity vs.
yachts; IBM computers vs. Apple computers.
List the reasons why the actual multiplier, which is estimated to be less than 2 for the
U.S. economy, is much less than what the oversimplified formula suggests.