When foreigners are making more “investments” in a country than the residents of the
country are making abroad, which of the following is most likely to occur?
a. Inflation.
b. Rapid growth of the money supply.
c. A balance of trade deficit.
d. A negative net investment rate.
Assume that DeShawn is a single parent who is in poverty. He receives food stamps and
Medicaid. For every $100 that he earns, DeShawn loses $35 of his food stamp benefits
and $20 in his Medicaid benefits. Also, DeShawn’s income is taxed at a rate of 10
percent. Then, Peter’s effective marginal tax rate is
a. 45 percent.
b. 55 percent.
c. 65 percent.
d. 70 percent.
Automobile companies typically make some of the parts for cars (for example, the body
and engine) but not others (for example, the tires). Under what conditions would you
expect an automobile manufacturer to be most likely to buy inputs from other
companies?
a. when the specifications (size, style, etc.) of the inputs change frequently
b. when the inputs being produced have little value
c. when market prices have not been established for the inputs
d. when it is relatively easy to measure the quantity and quality of the input
Entrepreneurial judgment requires
a. the ability to use perfect information about the suture to your advantage.
b. the ability to discover new approaches or solutions to complex problems.
c. the use of government regulations to prevent competition
d. that a firm make a profit.
Which of the following contributed to the weak recovery from the 2008-2009
recession?
a. the restrictive monetary policy followed by the Fed
b. constant policy changes that created uncertainty and thereby retarded private
business investment
c. sharp reductions in federal spending that were designed to achieve a balanced federal
budget
d. failure to run budget deficits that were large enough to exert an impact on aggregate
demand
When a customer deposits $100 into a checking account, the effect is to
a. increase the bank’s liabilities.
b. decrease the bank’s liabilities.
c. increase the bank’s assets.
d. decrease the bank’s assets.
e. increase both the bank’s liabilities and its assets.
Direct income transfers account for approximately what percentage of total government
spending?
a. 10 percent
b. 30 percent
c. 50 percent
d. 60 percent
When an employer pays the cost of educating a worker, it is likely that the employer
a. is demonstrating altruistic motives.
b. is pursuing some objective other than profit-maximization.
c. hopes to recapture its investment in the form of increased labor productivity.
d. receives reimbursement from the government for the cost of the education.
Use the figure to answer the following question(s).
Figure 10-10
Given the cost and demand conditions depicted in Figure 10-10 for the competitive
price-searcher firm, what is the price that the firm should charge if it wants to maximize
its profit?
a. 20
b. 30
c. 40
d. 50
Figure 17-8
Refer to Figure 17-8. With trade, the price of wagons in this country is
a. $8, with 70 wagons being produced in this country, 20 of which are exported.
b. $8, with 90 wagons being produced in this country, 50 of which are exported.
c. $5, with 40 wagons being produced in this country and another 30 wagons being
imported.
d. $5, with 40 wagons being produced in this country and another 50 wagons being
imported.
Darius lent Alejandro $1,000 for one year with the understanding that Alejandro would
repay $1,070. If the actual inflation rate was 7 percent, what was the real rate of interest
Darius received?
a. 14 percent
b. 7 percent
c. 4 percent
d. 0 percent
e. 7 percent
Oligopolistic agreements on price tend to be unstable because
a. although the monopoly price is the best price for all firms, oligopolists are unaware
of this and thus charge prices that are lower than the price that could be charged by a
monopolists, therefore, decreasing social welfare.
b. although the monopoly price maximizes the joint profits of the firms, a secret price
cut by any individual firm will increase the profits of that firm; hence, collusive
agreements tend to break down.
c. the demand for the products of oligopolistic industries is inherently unstable relative
to the demand for the products of non-oligopolistic industries because demand for
products in oligopolistic industries are dependent on changes in consumer tastes and
preferences.
d. firms in oligopolistic industries have more concern for consumers than do firms in
competitive industries.
Suppose antitheft auto alarms are produced in a price-taker market that is initially in
long-run equilibrium. It is estimated that only 23 percent of all autos have alarms. Due
to rising auto theft, Congress mandates alarms in every vehicle. Assume complete
compliance. If the industry is an increasing cost industry, price will
a. increase in both the short run and long run.
b. decrease in both the short run and long run.
c. increase in the short run but not in the long run.
d. decrease in the short run but not in the long run.
Which of the following is true?
a. Women are more highly unionized than men.
b. A higher percent of white workers belong to unions than do African-American
workers.
c. The proportion of government employees belonging to a union is substantially higher
than the proportion of private-sector workers who are union members.
d. There is little difference in incidence of unionization among occupational categories.
Which of the following is the primary source of rapid growth in the real earnings of
workers?
a. strong unions
b. government regulation of labor markets
c. rapid growth in worker productivity
d. increases in the minimum wage
Which of the following attributes of trade explain why it is important for economic
prosperity?
a. Trade moves goods from people who value them less to people who value them
more.
b. Trade makes it possible to produce a larger output as a result of lower per unit costs
that often accompany large-scale production.
c. Trade makes it possible to produce a larger output as a result of gains from division
of labor and specialization.
d. All of the above.
The increase of sub-prime (including Alt-A) loans as a share of the total from
2001-2005 was an important contributing factor to the economic crisis of 2008 because
a. these loans initially reduced the demand for housing.
b. these loans initially reduced housing prices.
c. the default and foreclosure rates on these loans are several times higher than
conventional loans to prime borrowers.
d. the default and foreclosure rates on these loans are considerably lower than
conventional loans to prime borrowers.
Which of the following best explains why the monopolist’s marginal revenue is less
than the sales price?
a. To sell more units, the monopolist must reduce price on all units sold.
b. As the monopolist expands output, the average total cost will decline.
c. The monopolist charges each consumer the highest possible price.
d. When a firm has a monopoly, consumers have no choice other than to pay the price
set by the monopolist.
In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory
is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants
cannot be privately owned but are protected by the government. Which of the following
is true regarding the change in the elephant populations since 1979 in these countries?
a. In Zimbabwe and Botswana, elephants are near the verge of extinction, while in
Kenya, the population of elephants is growing rapidly.
b. There has been a similar decline in the population of elephants in all of these
countries.
c. There has been a similar increase in the population of elephants in all of these
countries.
d. In Zimbabwe and Botswana, elephant populations have more than doubled, while in
Kenya, the population of elephants has fallen to less than one-third of its previous level.
A 10 percent increase in the price of butter reduces butter consumption by about 5
percent. The increase causes households to
a. spend more on butter.
b. spend less on butter.
c. spend the same amount on butter.
d. consume more goods like bread that are complements of butter.
Which of the following is true?
a. All types of environmental problems can be solved merely by the enforcement of
individual property rights.
b. Environmental regulation cannot improve environmental quality.
c. Income levels exert little impact on the demand for environmental quality.
d. Markets often result in outcomes that are inefficient when it is difficult to assign and
enforce property rights.
Under the adaptive expectations theory, people persistently
a. underestimate inflation when it is slowing down.
b. overestimate inflation when it is accelerating.
c. underestimate inflation when it is accelerating.
d. adapt to the prevailing inflation rate quickly.
In the balance of payments accounts, a net importer of capital is a nation that
a. sells more goods in foreign countries than it imports.
b. must be running a trade surplus.
c. sells more assets to individuals in other countries than the assets it buys from them.
d. buys more assets from individuals in other countries than the assets it sells to them.
For a certain firm, the 100th unit of output that the firm produces has marginal revenue
equal to $10 and a marginal cost of $7. It follows that
a. the production of the 100th unit of output increases the firm’s profit by $3.
b. the production of the 100th unit of output increases the firm’s average total cost by
$7.
c. the firm’s profit-maximizing level of output is less than 100 units.
d. the production of the 110th unit of output must increase the firm’s profit by less than
$3.
Which of the following is a valid concern about the national debt for a country whose
debt is held entirely by its citizens?
a. The welfare of future generations will be directly related to the per capita size of the
national debt that they inherit.
b. Growth of the national debt will eventually lead to the bankruptcy of the government.
c. When the debt comes due, future generations may be unable to pay it off.
d. If the increases in the national debt reduce private expenditures on capital formation,
future generations may have lower incomes because they will inherit a smaller stock of
capital.
Because the United States has a flexible exchange rate system, one would expect that
a. U.S. exports and imports would be in balance.
b. the U.S. current account would be in balance.
c. U.S. exports to China would be in balance with U.S. imports from China.
d. all of the above are true.
e. none of the above are true.
The Laffer curve illustrates the relationship between
a. supply and demand.
b. tax rates and tax revenues.
c. opportunity cost and inflation.
d. tax liability and taxable income.
Why do airlines often charge students and vacationers a lower price than business
travelers?
a. It is cheaper to provide airline service to students and vacationers than to business
travelers.
b. The demand of business travelers is generally more elastic than the demand of
students and vacationers.
c. The demand of students and vacationers is generally more elastic than the demand of
business travelers.
d. Airlines prefer to deal with students and vacationers rather than business travelers.
Use the figure to answer the following question(s).
Figure 8-2
The average variable cost (AVC) and average total cost (ATC) for a firm are indicated
in Figure 8-2. If the marginal cost curve were constructed, at what output would it cross
the AVC curve?
a. 10
b. 15
c. 20
d. 25
In the loanable funds market, the price that borrowers must pay for earlier availability is
the
a. inflation rate.
b. wage rate.
c. interest rate.
d. exchange rate.
If fiscal policy is going to exert a stabilizing impact on the economy, it must be
a. instituted by the Federal Reserve system.
b. expansionary during an economic boom but restrictive during a recession.
c. timed correctly.
d. passed by a three-fifths majority in Congress.
The schedule of total costs for a chair-manufacturing firm is presented in the table
below. If the market price of chairs is $100, which of the output levels should this
price-taker firm produce in order to maximize profit?
a. 10
b. 20
c. 30
d. 40
Historically, the excess reserves of banks have been ________ relative to checkable
deposits, but during the crisis of 2008 the excess reserves of banks ________. (Fill in
the blanks)
a. large; declined sharply
b. small; fell sharply
c. small; increased sharply
d. large; increased sharply
A nation that protects its workers from unemployment by limiting the use (by
employers) of technological improvements will
a. grow more rapidly because the rate of unemployment will be lower.
b. grow more rapidly because investors prefer a stable business environment rather than
the uncertainties that accompany technological change.
c. grow less rapidly because technological change is an important factor contributing to
the growth of output.
d. grow just as much as nations that adopt more rapidly technological improvements.
Which of the following scenarios would serve to decrease the demand for unskilled
labor in our country?
a. increased productivity gains among the unskilled laborers.
b. increased demand for goods produced by unskilled labor.
c. increased international trade with countries where unskilled labor is more plentiful.
d. increased supply of migrant workers.