Use the figure to answer the following question(s).
Figure 8-6
At what output does the firm depicted in Figure 8-6 begin to experience diminishing
marginal returns to its variable factors of production?
a. q1
b. q2
c. q3
d. an output beyond q3
Use the table below to choose the correct answer.
The tax schedule shown here is
a. regressive.
b. proportional.
c. progressive.
d. proportional up to $20,000 and regressive beyond that.
An unanticipated decline in the real interest rate in the loanable funds market will cause
the
a. aggregate demand curve to shift to the right.
b. aggregate demand curve to shift to the left.
c. long-run aggregate supply curve to shift to the left.
d. natural rate of unemployment to fall.
When the Fed sells bonds and drains reserves from the banking system, thereby
reducing the supply of money, this policy will
a. decrease short-term interest rates to a greater degree than long-term interest rates.
b. decrease long-term interest rates to a greater degree than short-term interest rates.
c. increase short-term interest rates to a greater degree than long-term interest rates.
d. increase long-term interest rates to a greater degree than short-term interest rates.
The total economic cost of producing a good or service is called the
a. comparative value of construction.
b. social consequence of resources.
c. marginal valuation of output.
d. opportunity cost of production.
Imagine two cities, Hometown and Visitorsville, where the rich, middle, and poor
income recipients in one city have annual incomes identical to their counterparts’
incomes in the other city. In Hometown, the poorest families one year almost always
end up as the richest families the next year and become middle-income families the
year after that. In Visitorsville, however, the poor remain poor and the rich remain rich.
Which of the following is true about the two cities?
a. Annual data on the distribution of income will indicate that the degree of income
inequality in the two cities is identical.
b. The degree of lifetime income inequality in the two cities is identical.
c. The income mobility of people in the two cities is identical.
d. The distribution of annual income is more unequal in Visitorsville.
When economists speak of changes in GDP measured in constant dollars, they mean
that
a. money GDP is constant.
b. the price level is constant.
c. a price index has been used to adjust money GDP for the effects of inflation.
d. the growth rate of money GDP has been adjusted for changes in population.
The nominal (money) rate of interest
a. is the real rate of interest plus the inflationary premium.
b. can be expected to decline as inflation accelerates.
c. fell to historic lows during the 1970s when the United States experienced
double-digit rates of inflation.
d. can be expected to increase when the government is running a budget surplus.
Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3. They agree to
split the lunch bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering
a burrito instead of a taco is
a. $1.
b. $2.
c. $2.50.
d. $3.
Since 1979, the price of crude oil in real terms
a. has fluctuated but the overall trend has been downward.
b. rose during 1980-2000, but the price trend has been downward since 2000.
c. declined throughout most of the 1980s and 1990s, but in 2011 the price was once
again higher than the level of 1980.
d. all of the above are true.
If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the
following will most likely occur in the short run?
a. a decrease in the real interest rate
b. an increase in unemployment
c. an increase in real GDP
d. an increase in inflation
To be a natural monopoly, a firm must
a. control an essential natural resource input.
b. be very large.
c. have a continuously falling average cost curve as output rises.
d. have falling average costs over a substantial range of total market demand.
Figure 2-6
Which of the following will most likely shift the production possibilities curve for
breadfruit and fish outward from AA to BB in Figure 2-6?
a. an improvement in the form of economic organization
b. lower investment and a reduction in the country’s capital stock
c. an increase in the price of breadfruit
d. a decrease in the average number of hours worked
Suppose demand decreases and supply increases. Which of the following will happen?
a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
decrease.
b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
increase.
c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will
increase.
d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will
decrease.
e. The change in equilibrium price and quantity cannot be determined.
If the expansion of output in an industry leads to unchanged resource prices, the
industry is most likely to be
a. a decreasing cost industry.
b. an increasing cost industry.
c. a constant cost industry.
d. an industry characterized by economies of scale.
Which of the following will reduce the supply of motorcycles?
a. an increase in the population age 16 to 35, the primary consumers of motorcycles
b. an increase in taxes imposed on motorcycle producers
c. a technological improvement reducing the production costs of motorcycles
d. a government study that reveals motorcycle riders, on average, live 10 years longer
than those who don’t ride motorcycles
Compared to the severe recession of 1981-1982, the growth of real GDP during the first
two years of recovery from the 2008-2009 recession was
a. much more rapid and the unemployment rate fell by a smaller amount after the more
recent recession.
b. slower and the unemployment rate fell by a smaller amount after the more recent
recession.
c. more rapid but the unemployment rate fell by a smaller amount after the more recent
recession.
d. similar and the decline in the rate of unemployment was almost identical during the
recovery from each of these recessions.
The short run sequence of events following an unanticipated shift to a more
expansionary monetary policy would be lower interest rates followed by dollar
a. depreciation, and an increase in the current account deficit.
b. depreciation, and a decrease in the current account deficit.
c. appreciation, and an increase in the current account deficit.
d. appreciation, and a decrease in the current account deficit.
Given the following figures, by approximately what percentage did Aiden’s real income
increase between 2004 and 2005?
Aiden’s 2004 money income = $50,000
Aiden’s 2005 money income = $55,000
2004 CPI = 120.0
2005 CPI = 128.0
a. zero
b. 3.1 percent
c. 6.7 percent
d. 10 percent
Empirical studies indicate that the velocity of money tends to increase when interest
rates rise. Which of the following best explains why this is true?
a. When the velocity of money is high, banks will increase their lending interest rates.
b. An increase in the growth rate of GDP will cause the velocity of money to increase.
c. The higher interest rates increase the cost of holding money balances and, thereby,
increase the velocity of money.
d. Both the velocity of money and interest rates will rise when the inflation rate falls.
The marginal revenue product of a resource is best described as the
a. selling price of the last unit of output produced.
b. increment of total cost resulting from the use of an additional unit of the resource.
c. marginal product of the resource divided by the unit price of the good produced.
d. change in total revenue resulting from employing an additional unit of the resource.
When a good is nonexcludable,
a. it is impossible or very costly to exclude nonpaying customers from receiving the
good.
b. individuals will have an incentive to become free riders.
c. it will be difficult for a private firm producing the good to generate revenue sufficient
to cover the cost of production.
d. all of the above are true.
Which one of the following factors would increase the demand for oranges?
a. an increase in the price of grapefruit, a substitute product
b. a reduction in the price of bananas, a substitute product
c. development of a line of high-yield orange trees that are also more freeze resistant
d. a decrease in consumer income
When a competitive price-searcher market is in long-run equilibrium, the firms in the
market will earn
a. substantial economic profits.
b. zero economic profits.
c. significant economic losses.
d. an above-normal accounting rate of return.
Which of the following is the most accurate statement about real and nominal interest
rates?
a. Real interest rates can be either positive or negative, but nominal interest rates must
be positive.
b. Real interest rates and nominal interest rates must be positive.
c. Real interest rates must be positive, but nominal interest rates can be either positive
or negative.
d. Real interest rates and nominal interest rates can be either positive or negative.
If entry-restricting legal barriers effectively organized the funeral home industry of a
large city into a monopoly cartel, economic theory indicates that, compared to the
previously competitive situation,
a. the price of funeral services would decline, and output would increase.
b. both the price and output of funeral services would decline.
c. the price of funeral services would increase, and output would decline.
d. both the price and output of funeral services would increase.
Suppose people expect inflation to be 3 percent during the next several years. When the
real interest rate is 5 percent, the money, or nominal interest rate, will be
a. 1 percent.
b. 4 percent.
c. 7 percent.
d. 8 percent.
Compared to those with higher incomes, low-income families are more likely to
a. be headed by a person between 35 and 55 years of age.
b. have both a husband and a wife in the labor force.
c. be single-parent families.
d. be headed by a college graduate.
When the Social Security surplus is used to cover the current operating expenses of the
federal government, it will
a. make it easier for future taxpayers to provide promised Social Security benefits to
baby boomers.
b. reduce the outstanding debt of the federal government.
c. make it possible for Congress and the president to spend more without raising current
taxes or borrowing from the general public.
d. increase the credibility of the Social Security benefits promised to future retirees.
An unanticipated shift to a more expansionary macro-policy that leads to a
higher-than-expected rate of inflation will
a. place downward pressure on prices.
b. temporarily reduce unemployment.
c. temporarily reduce output.
d. temporarily reduce the natural rate of unemployment.
If policymakers cut taxes because they perceive that recession is a major threat, a
proponent of the new classical view will be most likely to argue that the tax cut is
a. highly appropriate because it will stimulate aggregate demand and, thereby, help to
strengthen the economy.
b. highly inappropriate because it will exert a restrictive impact on aggregate demand,
output, and employment.
c. not very important because the “demand stimulus effects” of the tax cut will be
largely offset by additional borrowing and higher interest rates.
d. not very important because the “demand stimulus effects” of lower current taxes will
be largely offset by the expectation of higher taxes in the future.
When the price elasticity of demand is large, then
a. the product is more likely to be a necessity.
b. the responsiveness of quantity demanded to a change in price is small.
c. the percentage change in price divided by the percentage change in quantity
demanded is large.
d. the responsiveness of quantity demanded to a change in price is large.
A business spends $10 million on new capital equipment, and during the same year, $7
million of its existing capital wears out. Which of the following is correct?
a. The firm’s gross investment is $7 million, and its net investment is $10 million.
b. The firm’s gross investment is $3 million, and its net investment is $7 million.
c. The firm’s gross investment is $7 million, and its net investment is $3 million.
d. The firm’s gross investment is $10 million, and its net investment is $3 million.