The difference between the economy’s potential output and its actual output relative to
its potential output at a point in time is called the:
A. budget deficit.
B. trade deficit.
C. output gap.
D. full-employment rate.
Real GDP per person in both Alpha and Omega is equal to $2,000. Over the next 100
years, real GDP per person grows at a 1 percent annual rate in Alpha and at a 2 percent
annual rate in Omega. After 100 years, real GDP per person in Alpha is ______ smaller
than real GDP per person in Omega.
A. $2,000
B. $5,410
C. $9,080
D. $11,080
Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a
small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and
Island Bikes has no fixed costs. Each day Island Bikes has six potential customers,
whose reservations prices are listed below.
Suppose Island Bikes knows that customers whose reservation prices are at least $10
always rent bikes before noon, while those whose reservation prices are below $10
never do so. If Island bikes charges a different price in the morning and in the
afternoon, then what will be the total economic surplus?
A. $49
B. $41
C. $9
D. $3
In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs,
and the desired reserve/deposit ratio is 10%. If the Central Bank prints an additional
200 econs and uses this new currency to buy government bonds from the public, the
money supply in Macroland will increase from ______ econs to ______ econs,
assuming that the public does not wish to change the amount of currency it holds.
A. 20,000; 22,000
B. 5,000; 2,000
C. 3,000; 5,000
D. 5,000; 7,000
Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C.
If the good shown on the graphs is a public good, and the marginal cost of providing
each unit is constant and equal to $5, then what is the optimal quantity of the public
good?
A. 50 units
B. 40 units
C. 30 units
D. 20 units
Suppose there are two parallel highways between two cities with approximately equal
traffic. What would you expect to happen if the state began charging tolls to drive on
one of those highways?
A. More drivers would drive on the non-toll road, making the toll road less congested.
B. More drivers would drive on the toll road making the non-toll road less congested.
C. Traffic would remain evenly divided between the two roads as drivers continuously
sought the less-congested route.
D. Traffic would decrease on both roads.
A seller’s supply curve shows the seller’s:
A. willingness to pay for an additional unit of output at each quantity.
B. opportunity cost of producing an additional unit of output at each quantity.
C. hourly wage for producing an additional unit of output at each quantity.
D. profit from producing an additional unit of output at each quantity.
Which of the following helps explain the problem of disappearing political discourse?
A. The lemons model.
B. Adverse selection.
C. Moral hazard.
D. Statistical discrimination.
Consider two restaurants located next door to each other: Quick Burger and The
Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and
noise will bother customers seated outside at The Sunshine Café. The table below
shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger
does and does not operate a drive-through window.
If Quick Burger has the legal right to operate a drive-through window, then the
Sunshine Café would be willing to pay Quick Burger as much as ______ per month to
NOT operate a drive-through window.
A. $9,000
B. $11,000
C. $12,000
D. $15,000
Refer to the figure below. If the price of Good A is $1 and the price of Good B is $3,
then the rational spending rule is satisfied when the consumer purchases ______ units
of Good A and ______ units of Good B.
A. 4; 3
B. 3; 4
C. 4; 4
D. 3; 3
The duration of an expansion is measured from:
A. peak to trough.
B. trough to peak.
C. peak to peak.
D. trough to trough.
MegaCable and Acme are competing for an exclusive contract to provide the city of
Dustin with cable television for the next year.The firm that wins the contract will earn
an economic profit of $5 million. The contact will be awarded to the firm that spends
the most on lobbying.If both firms spend the same amount on lobbying, then the winner
will be determined by a coin flip, so each will have a 50 percent chance of winning.
Suppose MegaCable spends $2 on lobbying, and Acme spends $1 on lobbying.In this
case, MegaCable’s economic profit net of its lobbying costs will be ______, and Acme’s
economic profit net of its lobbying costs will be ______.
A. $4,999,998; -$1
B. $5 million; -$1
C. $2.5 million; $2.5 million
D. 0; $5 million
A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can
assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9
computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot
work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a
case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per
computer. If the firm sells each computer for $650, then how many hours a day should
the firm employ Pam to maximize its net benefit from her employment?
A. 1 hour
B. 2 hours
C. 3 hours
D. 4 hours
Points that lie beneath the production possibilities curve are:
A. unattainable and inefficient
B. unattainable but efficient
C. attainable but inefficient
D. attainable and efficient
Suppose the market wage for cashiers increases from $7 per hour to $9 per hour.As a
result, Pat, who is a cashier, now works five more hours per week. On the other hand
Chris, who is also a cashier, now works five fewer hours per week.Pat’s behavior
illustrates the ______ effect of a wage increase.
A. demand
B. supply
C. income
D. substitution
The payoff matrix below shows the payoffs (in millions of dollars) for two firms, A and
B, for two different strategies, investing in new capital or not investing in new capital.
Firm A’s dominant strategy is to ______, and Firm B’s dominant strategy is to ______.
A. invest; not invest
B. not invest; invest
C. invest; invest
D. not invest; not invest
Refer to the figure above. Suppose that only demand has suddenly shifted to the left. To
restore equilibrium, this market will have an immediate:
A. excess demand, which will cause prices to rise to a new equilibrium.
B. excess supply, which will cause prices to rise to a new equilibrium.
C. excess demand, which will cause prices to fall to a new equilibrium.
D. excess supply, which will cause prices to fall to a new equilibrium.
Which argument in favor of enacting workplace safety regulations can be justified using
economic tools or observation?
A. Analyzing safety in terms of monetary costs and benefits is inappropriate.
B. Concerns about relative income encourage some workers to accept risk in exchange
for higher wages, leading to an inefficient outcome.
C. Economic regulations in competitive markets generally increase total economic
surplus.
D. Firms that exploit workers typically earn high profits for the owners, while the
workers bear the risk of injury.
Pollution permit policies achieve an ______ outcome because _____.
A. inefficient; wealthier firms can afford to purchase more permits.
B. efficient; firms that have the lowest cost of reducing pollution will be able to pay
more for each permit.
C. inefficient; the supply of permits is set by the government, and so is perfectly
inelastic.
D. efficient; firms that have the highest cost of reducing pollution will have the greatest
incentive to purchase permits.
Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last
month are shown in this table:
Based on last month’s data, ______ should specialize in truck sales, and ______ should
specialize in car sales.
A. Joe; Ralph
B. Ralph; Larry
C. Larry; Ralph
D. Larry; Joe
Other things equal, the combination of a ______ saving rate and a ______ real interest
rate will result in the largest accumulation of wealth over time.
A. high; high
B. high; low
C. high; zero
D. low; high
The buyer’s reservation price of a particular good or service is the:
A. minimum amount the buyer would be willing to pay for it.
B. same as the market price.
C. maximum amount the buyer would be willing to pay for it.
D. price the buyer must pay to ensure he or she gets it.
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals
10, and potential output (Y*) equals 9,000, then government purchases must ______ to
eliminate any output gap.
A. increase by 100
B. decrease by 100
C. increase by 1,000
D. decrease by 1,000
Two examples of governments that printed large quantities of paper currency to finance
massive budget deficits, causing hyperinflation, are ______ and ______.
A. the Confederacy during the American Civil War; Japan after World War II
B. the Confederacy during the American Civil War; Germany after World War I
C. the United States during the Great Depression; Japan after World War II
D. the United States during the Great Depression; Germany after World War I
In a certain economy, the components of planned spending are given by:
C = 500 + 0.8(Y – T) – 300r
Ip = 200 – 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, which expression below gives
induced expenditures?
A. [910 – 700r]
B. [790 – 700r]
C. 0.8Y
D. 0.2Y
Lower taxes on interest income:
A. permanently lower growth rates by encouraging saving rather than consuming.
B. increase growth rates by increasing consumption rates.
C. increase growth rates by increasing saving and thus investment.
D. lower growth rates by reducing government expenditures.
The components of M2 that are not also in M1:
A. sum to an amount that is smaller than the sum of the components of M1.
B. pay lower rates of interest than do the components of M1.
C. are not usable for making payments.
D. are usable for making payments, but at a greater cost or inconvenience than currency
or checks.
According to Okun’s law, when cyclical unemployment is negative, the output gap:
A. is positive.
B. is negative.
C. equals zero.
D. equals the rate of cyclical unemployment.
During the Christmas shopping season, the demand for money increases significantly.
To offset the increase in money demand, the Fed must ______ the money supply, which
will put ______ pressure on nominal interest rates.
A. increase; downward
B. increase; upward
C. decrease; downward
D. decrease; upward
This graph shows the cost curves for Moe’s mushroom gathering business, which is
perfectly competitive.
Moe’s short run supply curve is:
A. Curve C to the right of curve A.
B. Curve B to the right of curve A.
C. Curve A above curve B.
D. Curve A above curve C.