Graphically, long-run equilibrium occurs at the intersection of the aggregate demand
curve and:
A. the aggregate supply curve and potential output.
B. the planned aggregate expenditure line.
C. the aggregate supply curve.
D. potential output.
If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires,
$100 for a car CD player, and sells cars made with these parts for $20,000, then each
car the automobile manufacturer sells contributes how much to GDP?
A. $19,300
B. $20,000
C. $20,200
D. $20,700
Suppose that each serving of Mac & Cheese costs exactly $0.50 to make no matter how
many servings are produced. This means that the price elasticity of supply for Mac &
Cheese is ______ and the supply is _______.
A. one; perfectly inelastic
B. zero; perfectly elastic
C. infinity; perfectly inelastic
D. infinity; perfectly elastic
Business managers are people who:
A. engage exclusively in business travel.
B. entertain the workers.
C. run businesses on a day-to-day basis.
D. own the physical capital used in production.
Pizzas sell for $10 each.
Refer to the figure above. When the pizza shop employs 3 workers per day, the pizza
shop will collect total revenue of:
A. $2,000
B. $1,500
C. $900
D. $750
GDP would be a better measure of economic well-being if it included:
A. the costs of education.
B. the total value of intermediate goods.
C. the market value of final goods.
D. the value of leisure.
An open-market purchase of government securities by the Fed will:
A. increase bank reserves, and the money supply will increase.
B. decrease bank reserves, and the money supply will increase.
C. increase bank reserves, and the money supply will decrease.
D. decrease bank reserves, and the money supply will decrease.
Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly
Groceries is produced by the following production process:
What is the value added of Fulton Family Farm?
A. $0.00
B. $0.50
C. $1.50
D. $2.50
If potential output equals $8 billion and actual output equals $10 billion, then this
economy has an output gap equal to:
A. $2 billion.
B. 20 percent.
C. 25 percent.
D. -25 percent.
To prevent people paying a higher percentage of their income in taxes even when their
real incomes have not changed, Congress:
A. implemented a flat tax.
B. reduced the capital gains tax.
C. indexed the income tax brackets to the CPI.
D. deflated the income tax brackets to the CPI.
Pure monopoly exists when:
A. many firms produce a good with no close substitutes.
B. a single firm produces a good with no close substitutes.
C. a single firm is present in the market.
D. a single firm produces a good with many close substitutes.
Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and
fish. Ginger can gather mangoes faster than Maryann and can also catch more fish per
hour than can Maryann. Therefore:
A. Ginger should specialize in fishing because it is harder than gathering mangoes, and
Maryann should specialize in gathering mangoes.
B. Ginger should strike out on her own, because Maryann reduces their combined
productivity.
C. Maryann should specialize in the activity for which she has a comparative
advantage.
D. Ginger should specialize in the activity for which she has an absolute advantage.
The law of one price states that if transportation costs are relatively small, then the:
A. nominal exchange rates for every countries’ currency must be equal.
B. nominal exchange rate for a currency must equal the real exchange rate for that
currency.
C. price of an internationally traded commodity must be the same in all locations.
D. producer with the lowest opportunity cost should be the only producer any
commodity.
The average benefit of an activity is the:
A. total benefit of the activity divided by the number of units.
B. number of units divided by the total benefit of the activity.
C. number of units times the total benefit of the activity.
D. extra benefit for one additional unit of the activity.
The unemployment rate for younger workers is usually ______ the unemployment rate
for older workers.
A. less than
B. approximately equal to
C. greater than
D. more predictable than
Suppose that the company that owns all of the vending machines on your campus has
doubled the price of a can of soda, but they still sell almost the same number of sodas
per day because:
A. students do not have good nutritional information.
B. soda purchases represent a large fraction of students’ budgets.
C. there are few other places to purchase soda on campus.
D. price elasticity of demand for soda is almost unitary.
The principle of comparative advantage states that specialization increases productivity,
but the principle of increasing opportunity costs states that, when you increase
production of a single good, you must use increasingly costly resources. These two
principles:
A. are evidence that economic theory is internally inconsistent.
B. are an example of the difference between abstract models and the real world.
C. cannot be true at the same time.
D. together account for the outward bow shape of production possibility curves.
Two reasons savers keep deposits at banks are to:
A. secure mortgages and to purchase stocks.
B. earn a return on their savings and to facilitate making payments.
C. lower interest rates and to increase the money supply.
D. equalize loan supply and demand and to earn interest.
In the Nash Equilibrium of a prisoner’s dilemma game:
A. there is no cash left on the table.
B. there is unrealized opportunity for both to gain.
C. total economic surplus is maximized.
D. both players have equal payoffs.
A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A
college graduate in 2005 found a job paying $28,000. The CPI was 1.68 in 2005. The
1972 graduate’s job paid ______ in nominal terms and ______ in real terms than the
2005 graduate’s job.
A. more; less
B. more; more
C. less; more
D. less, less
The cost-benefit model used by economists is:
A. unrealistic because it is too detailed and specific to apply to a variety of situations.
B. unrealistic because everyone can think of times when he or she violated the
principle.
C. useful because everyone follows it all of the time.
D. useful because most people follow it most of the time.
If all firms in a perfectly competitive industry earn a normal profit, then:
A. new firms will enter the industry.
B. old firms will exit the industry.
C. the number of firms in the industry is stable.
D. market supply will shift to the left.
Your state department of transportation is considering installing toll booths and gates on
one of the freeways that runs through an unpopulated part of the state. If this is adopted,
a good that is currently a(n)
A. public good will become a private good.
B. nonrival good will become a rival good.
C. nonexcludable good will become an excludable good.
D. rival good will become an excludable good.
Why do lines tend to be longer at the bank teller in a poorer neighborhood?
A. Low-income consumers are not willing to pay for shorter line.
B. Low-income consumers would pay for shorter lines if the bank owners ask them to.
C. Poor people have a high opportunity cost for their time.
D. Poor people don’t have anything better to do.
Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini
Mart and together they are the only gas stations in town. At the current price of $3 per
gallon, both receive total revenues of $1,000. Joe is considering cutting his price to
$2.90, which would increase his total revenue to $1,350 if Sam continues to charge $3.
If Sam’s price remains $3 after Joe cuts his price, Sam will collect $500 in revenues. If
Sam cuts his price to $2.90, his total revenues would also rise to $1,350 if Joe continues
to charge $3. Joe will collect $500 in revenues if he keeps his price at $3 while Sam
lowers his to $2.90. Joe and Sam will receive $900 each in total revenue if they both
lower their price to $2.90. You may find it easier to answer the following question if
you fill in the payoff matrix below.
Refer to the information given above. The clear outcome of this game is that:
A. Joe will cut his price and Sam won’t.
B. both will cut price to $2.90.
C. Sam will cut his price and Joe won’t.
D. neither Joe nor Sam will cut his price.
In the above decision tree, Tracy picks first, and Amy picks second. Tracy knows Amy’s
payoffs to each choice, and Amy knows Tracy’s payoffs.
Refer to the figure above. The equilibrium to the game results in _______ for Amy and
Tracy relative to what they would receive if they could solve their _______.
A. lower payoffs; prisoner’s dilemma
B. higher payoffs; commitment problem
C. lower payoffs; credible threat
D. lower payoffs; commitment problem
The AD curve can be shifted by:
A. both fiscal and monetary policy.
B. neither fiscal nor monetary policy.
C. fiscal policy only.
D. monetary policy only.
Suppose that a government agency is trying to decide between two pollution reduction
policy options. Under the permit option, 100 pollution permits would be sold, each
allowing emission of one unit of pollution. Firms would be forced to shut down if they
produced any units of pollution for which they did not hold a permit. Under the
pollution tax option, firms would be taxed $250 for each unit of pollution produced.
The regulated firms all currently pollute and face varying costs of pollution reduction,
though all face increasing marginal costs of pollution reduction.
Because firms face increasing marginal costs to reduce pollution, demand for pollution
permits will be
A. upward sloping.
B. downward sloping.
C. perfectly inelastic.
D. perfectly elastic.
The two negative demand shocks that caused the Great Recession were:
A. declining housing prices and the 2008 financial panic.
B. declining housing prices and declining stock prices.
C. increasing oil prices and the 2008 financial panic.
D. increasing oil prices and declining stock prices.
Real GDP measures the ______ of production.
A. change in the volume
B. physical volume
C. current dollar value
D. current market value
Which of the following policies would be expected to increase private saving?
A. Replacing the income tax with a consumption tax
B. Increasing the tax rate on capital gains
C. Providing more generous Social Security retirement benefits
D. Reducing the size of down payments needed to buy a house