Which of the following statements is not true?
a. If marginal social cost and marginal private cost are the same, any externality that
exists will be positive.
b. If marginal externality costs are not zero, externalities exist.
c. An expansion of property rights to include air quality and scenic beauty would bring
some private markets close to a socially optimal equilibrium.
d. The existence of pollution as the byproduct of a production or exchange process
indicates a market failure.
e. When municipal water supplies have heavy concentration of agricultural chemicals, it
is probable that agricultural output from the area is produced in quantities greater than
the socially optimal level.
If the economy is experiencing unemployment, then the most appropriate government
policy would be to:
a. shift the aggregate demand curve by using a tax increase coupled with spending cuts.
b. shift the aggregate demand curve by using a tax increase coupled with more
spending.
c. shift the aggregate demand curve by using a tax cut coupled with spending cuts.
d. shift the aggregate demand curve by using a tax cut coupled with more spending.
e. shift the aggregate supply curve by using a tax cut coupled with spending cuts.
Exhibit 12-1 Income for two persons NameIncome
Elaine $100,000
Daniel $ 40,000 In Exhibit 12-1, if the income tax system is proportional, then:
a. Elaine and Daniel will face the same tax rate and will have tax bills the same size.
b. Elaine and Daniel will face the same tax rate but Elaine’s tax bill will be larger.
c. Elaine will face a higher tax rate and will have a larger tax bill than Daniel.
d. Elaine will face a lower tax rate and will have a smaller tax bill than Daniel.
e. Elaine will face a lower tax rate but will have a larger tax bill than Daniel.
Exhibit 8-5 Aggregate expenditures function
As shown in Exhibit 8-5,
dissaving occurs:
a. at $5 trillion.
b. between 0 and $4 trillion.
c. where disposable income is greater than $4 trillion.
d. at $8 trillion.
If the free market is called upon to provide public goods, then:
a. there will more goods provided than is optimal.
b. there will be fewer goods provided than is optimal.
c. the market will provide the optimal number of goods.
d. the market price will be correct, but the optimal amount of output will not be
produced.
e. the firms will earn excess profit.
Exhibit 17-3 Aggregate demand and aggregate supply curves
As shown in Exhibit 17-3, if people
behave according to adaptive expectations theory, an increase in the aggregate demand
curve from AD1 to AD2 will cause the economy to move:
a. from E1 to E2 initially and then eventually move back to E1.
b. directly from E1 to E2 and then remain at E2.
c. directly from E1 to E3 and then remain at E3.
d. from E1 to E2 initially and then eventually move to E3.
If the marginal propensity to consume (MPC) is 0.80, the value of the spending
multiplier is:
a. 2.
b. 5.
c. 8.
d. 10.
Which one of the following correctly represents one of the basic financial statement
models?
a. Assets – Liabilities = Net Income
b. Assets + Liabilities = Owners’ Equity
c. Revenues + Expenses = Net Income
d. Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
Assume Congress passes a new tax of $2.00 per pack on cigarettes. The effect on the
supply curve is a(n):
a. decrease in supply.
b. increase in supply.
c. decrease in quantity supplied.
d. increase in quantity supplied.
The marginal propensity to consume measures the ratio of the:
a. average amount of our income that we spend.
b. average amount of our savings that we spend.
c. change in consumer spending to a change in money holdings.
d. change in consumer spending to a change in interest rates.
e. change in consumer spending to a change in income.
An import quota on a product protects domestic industries by:
a. reducing the foreign supply to the domestic market and, thereby, raising the domestic
price.
b. increasing the foreign supply to the domestic market and, thereby, lowering the
domestic price.
c. increasing the domestic demand for the product and, thereby, increasing its price.
d. providing the incentive for domestic producers to improve the efficiency of their
operation and, thereby, reduce their per-unit costs of production.
Exhibit 5-7 GDP data (billions of dollars) Personal consumption expenditures $5,207
Interest 425
Corporate profits 735
Government spending 1,406
Depreciation 830
Rental income 146
Gross private domestic investment 1,116
Compensation of employees 4,426
Exports 870
Imports 965
Indirect business taxes 553
Proprietors’ income 520
Personal taxes 886
Social Security taxes 432
Transfer payments 376 In Exhibit 5-7, and using the expenditures approach, gross
domestic product (GDP) is:
a. $6,807 billion.
b. $7,082 billion.
c. $7,634 billion.
d. $7,637 billion.
e. $7,730 billion.
A problem with the income security program category for federal government outlays is
that it excludes unemployment compensation.
Microeconomics and macroeconomics use different types of analysis.
Adam Smith believed that a nation would produce the maximum wealth by relying on
government to make public interest economic decisions.
Between 1960 and 1997, the federal budget was never in surplus.
Demand-pull inflation is caused by a rightward shift of the aggregate demand curve.
A rational person may remain less than fully informed on an issue to be decided in an
election.
Distinguish the laws of demand and supply. How are the laws of demand and supply
illustrated graphically?