Federal budget deficits generally grow during recessions because
a. both tax revenues and transfer payments decrease.
b. both tax revenues and transfer payments increase.
c. tax revenues decrease while transfer payments increase.
d. tax revenues increase while transfer payments decrease.
e. tax revenues decrease but transfer payments are unchanged.
Welfare data show that in the United States
a. most welfare recipients receive benefits only for a short time.
b. welfare encourages young women to have children.
c. children brought up on welfare tend to remain on welfare as adults.
d. having poor parents does not increase the chances of a child’s being on welfare as an
adult.
e. children of poor parents have a 50 percent chance of being middle-income adults.
Which of the following provides the fuel for growth and achievement of high income
levels?
a. gains from trade
b. entrepreneurial discovery
c. capital formation
d. all of the above
In an economy in which the skills, preferences, and motivations of workers vary widely,
equality of wage rates would
a. lead to shortages and surpluses of resources and the use of involuntary methods of
achieving work participation.
b. result in a variety of product prices, but overall GDP would be unaffected.
c. be efficient if the wages were fixed at a high enough level.
d. reduce the productive incentives of high-skill workers, an effect that would be offset
by the increased work effort of low-skill workers.
A progressive tax
a. is one that taxes those with higher incomes at a higher rate than those with lower
incomes.
b. takes a similar percentage in the form of taxes from those with higher incomes as it
does from those with lower incomes.
c. takes a higher percentage of income in the form of taxes from those with lower
incomes than from those with higher incomes.
d. is any tax in which the dollar amount of taxes paid increases with income.
Figure 4-24
Refer to Figure 4-24. The amount of tax revenue received by the government is equal to
the area
a. P3 A C P1.
b. A B C.
c. P2 D A P3.
d. P1 C D P2.
The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
Refer to Figure 11-17. The marginal revenue curve for a monopoly firm is depicted by
curve
a. A.
b. B.
c. C.
d. D.
Which of the following will increase economic freedom?
a. low rates of inflation and easy access to money that maintains its purchasing power
b. high tariff rates
c. government spending that comprises a large share of the economy
d. rapid and unpredictable inflation
If the general level of prices is higher than business decision makers anticipated when
they entered into long-term contracts for raw materials and other resources, which of
the following is most likely to occur?
a. a recession
b. output less than the economy’s long-run potential
c. a sharp reduction in imports
d. an unemployment rate that is less than the economy’s natural rate of unemployment
When government spending flows to areas where resources are already fully employed,
a. the additional spending will stimulate strong growth in those areas.
b. aggregate demand will place downward pressure on the general level of prices.
c. the coordination problem accompanying the composition of aggregate demand is
likely to improve.
d. the coordination problem accompanying the composition of aggregate demand is
likely to worsen.
When economists say the quantity supplied of a product has decreased, they mean the
a. supply curve has shifted to the left.
b. supply curve has shifted to the right.
c. price of the product has risen, and consequently, suppliers are producing more of it.
d. price of the product has fallen, and consequently, suppliers are producing less of it.
Since the 1970s, the percentage of women preparing for careers in professions has been
____, while the female/male earnings ratio has been ____ during this same period.
a. rising; declining
b. rising; increasing
c. falling; increasing
d. falling; declining
Some economists argue that competitive price-searcher markets are inefficient because
a. the firms earn economic profits in the long run.
b. the firms’ marginal costs and marginal revenues are not always equal.
c. firms do not produce the output rate that would minimize their average total costs.
d. barriers to entry are high.
Water supply problems are widespread, indicating that
a. water markets can seldom work, because water Is a necessity.
b. property rights are frequently incomplete and not fully tradable.
c. water is too important to ration by price.
d. water markets are seldom controlled by government.
In a competitive price-taker market,
a. many other sellers are offering a product that is essentially identical.
b. consumers have more influence over the market price than producers do.
c. government intervention prevents firms from influencing price.
d. producers agree not to change the price.
The phase out of the subsidies for the purchase of health insurance will increase the
implicit marginal tax rate on earnings for which of the following groups?
a. The elderly.
b. Individuals and families with incomes between 133 percent and 400 percent of the
poverty level.
c. Individuals and families with incomes of more than 400 percent of the poverty level.
d. All workers employed by firms with fewer than 50 full-time employees.
Widespread use of credit cards
a. will increase the M1 money supply figures.
b. will increase the M2 money supply figures but not those for M1.
c. tends to reduce the average quantity of money that people will choose to hold.
d. tends to increase the average quantity of money that people will choose to hold.
Historically, when a diverse set of stocks is held over a lengthy time period, stocks have
yielded a ____ rate of return, and the variation in the rate of return has been ____.
a. low; low
b. low; high
c. high; low
d. high; high
Which of the following factors is least likely to be a barrier limiting the entry of
potential competitors into a market?
a. legally enforced patent rights
b. an inelastic demand for a product
c. licensing
d. control over an essential resource
Per capita GDP is
a. real GDP divided by the GDP deflator
b. a measure of income per person
c. a measure of resources available to each person
d. an indicator of the overall production of a government
The stages of a business cycle, in order, are
a. expansion, contraction, recession, and boom.
b. contraction, recession, expansion, and boom.
c. boom, expansion, contraction, and recession.
d. recession, contraction, expansion, and boom.
Use the figure to answer the following question(s).
Figure 8-10
Using Figure 8-10, calculate the firm’s approximate total cost when average total cost is
at a minimum.
a. $60
b. $80
c. $100
d. $120
If the price of crude oil fell significantly, which of the following would be most likely
to happen?
a. The price of air travel would increase.
b. The demand for large cars would increase.
c. The price of gasoline would increase.
d. The wages of workers in the automobile industry would fall.
What did Keynes and Hayek believe about government central planning?
a. Both believed that central planning could be used to allocate resources efficiently.
b. Both believed that perverse political incentives would undermine the ability of
central planners to allocate resources efficiently.
c. Keynes believed that government central planning could improve on market
outcomes; Hayek disagreed, arguing that both political incentives and insufficient
information would undermine their ability to do so.
d. Keynes believe that central planning would fail because the policy-makers did not
have sufficient information to plan efficiently; Hayek believed that efficient central
planning was possible if political decisions were made democratically.
The time period between when economic conditions change and when policy makers
are aware of the change is called the
a. index of leading indicators.
b. administrative lag.
c. recognition lag.
d. impact lag.
Which of the following about unemployment is true?
a. When a dynamic labor market is operating efficiently, mostly cyclical unemployment
will be present.
b. Some unemployment will be present even when a dynamic labor market is operating
efficiently.
c. When full employment is present, the rate of unemployment will be zero.
d. When full employment is present, there will not be any frictional unemployment.
e. When full employment is present, it will be impossible to sustain the current rate of
output in the future.
Use the figure below to answer the following question(s).
Figure 15-2
According to the modern expectational Phillips curve illustrated in Figure 15-2,
unemployment will temporarily fall below the natural rate of unemployment when
a. inflation turns out to be lower than what people expected.
b. inflation turns out to be higher than what people expected.
c. inflation turns out to be equal to what people expected.
d. all of the above are true.
Many external costs occur because
a. people do not pay the true cost of using a resource.
b. people do not pay the private cost of using a resource.
c. companies do not pay the market price for natural resources.
d. companies pay more than the true cost of using a resource.
Which of the following best describes the impact of fiscal policy during the Great
Depression?
a. Despite the large increases in government spending as a share of GDP when the New
Deal policies were initiated, the expansionary fiscal policy failed to stimulate demand.
b. Fiscal policy was focused on monetary expansion, when it should have focused on
maintaining a balanced budget.
c. It is difficult to link expansionary fiscal policy with economic recovery because
government spending and budget deficits were a relatively small portion of GDP prior
to the beginning of World War II.
d. There is a direct correlation between increases in government spending as a share of
GDP and increases in output and employment.
Which of the following is true?
a. Anticipated inflation is an increase in the price level that comes as a surprise, at least
to most individuals.
b. Unanticipated inflation is a change in the price level that is widely expected.
c. When the inflation rate is high and variable, decision makers will generally be able to
anticipate year-to-year changes in inflation quite accurately.
d. Inflation will tend to increase the nominal values of both prices and wages.
Which of the following is notan advantage of the corporate structure over
proprietorship and partnership forms of business organization?
a. Stockholders in the corporation have limited liability, whereas proprietors or partners
have unlimited liability.
b. Ownership rights of a corporation may be transferred more easily.
c. Large investment funds are more easily attracted by the corporation.
d. Corporations are less likely to suffer from the principal-agent problem.
You purchased an automobile a year ago for $10,000. Its current market price is $6,000,
and the expected market value one year from now is $4,000. If the interest rate is 10
percent, how much will it cost you to keep the car for an additional year (over and
above operation and maintenance costs)?
a. $2,000
b. $2,600
c. $4,000
d. $6,000
Which of the following must be true if average total costs are declining?
a. Marginal cost is less than average total cost.
b. Marginal cost is less than average variable cost.
c. Marginal cost is greater than average total cost.
d. Marginal cost equals average total cost.
Economists use the phrase “business cycle” when referring to fluctuations in
a. the rate of real output and employment.
b. interest rates.
c. the consumer price index.
d. the general level of prices.