The real rate of interest is
A) the rate of inflation minus the nominal rate of interest.
B) the nominal rate of interest minus the risk premium.
C) the nominal rate of interest minus the rate of inflation.
D) the rate of inflation minus the risk premium.
Suppose the Utopian economy has the following characteristics: 100,000 people in the
noninstitutional population; 80,000 people employed; 20,000 people not in the labor
force. How many people are in the economy’s labor force?
A) 0
B) 20,000
C) 60,000
D) 80,000
E) 100,000
Which of the following is a clear difference between the market system and
government?
A) Collective welfare controls government policy; the market system serves the welfare
of individuals.
B) Competition regulates the market system, but competition does not constrain the
actions of government officials.
C) The market system serves the interests of some; government serves the interests of
all.
D) Each of the above statements expresses the difference between the two.
E) None of the above expresses the difference between the two.
A firm selling in a price-takers’ market
A) can reduce its price without thereby lowering its marginal revenue.
B) can reduce its price without thereby lowering its total revenue.
C) faces a perfectly elastic demand curve.
D) has marginal costs equal to marginal revenue at all levels of output.
In the economic way of thinking, we assume that central bankers act
A) selfishly.
B) to promote projects which interest them.
C) in the national interest.
D) in the global interest.
Consider a tragic and heart-wrenching case in which a cancer patient is told he needs
chemotherapy in order to live three more years at best, but the patient’s final three years
will be filled with all the terrible side-effects of the treatment. Without it, he will surely
die within a year, but his quality of life would be a better. Suppose he chooses to quit
chemotherapy. The economic way of thinking would therefore conclude
A) the patient made the wrong choice.
B) the doctors were absolutely rightthe patient needs chemotherapy.
C) it is better to live longer than it is to die sooner.
D) all of the above are true.
E) none of the above is true.
Quantity demanded means
A) demand.
B) the amount of a good customers need.
C) the amount of a good customers ultimately desire.
D) the amount of a good customers plan to purchase at a given price.
E) the amount of a good suppliers plan to sell.
Fill in the blank: According to the text a commercial society cannot develop
successfully in the absence of ________.
A) the rule of law
B) low interest rates
C) central economic planning
D) massive government works projects
E) perfect and complete information
If a commercial airline starts offering maxi-saver fares at huge discounts to passengers
who purchase tickets at least 30 days in advance and agree to stay over a Saturday
night, what is the most likely effect upon first-class passenger service?
A) First-class fares will rise somewhat to compensate for the loss on other fares.
B) The demand for first-class service may fall somewhat because the price of a
substitute good has decreased substantially.
C) The marginal cost of first-class service will rise somewhat because the total cost
must be allocated among all passengers.
D) The marginal revenue from first-class service will rise somewhat because first-class
service is now more clearly a superior good.
Fill in the blanks: If a meteorologist discovers a new warming pattern is developing,
and the new pattern will create a much larger-than-expected soybean harvest, she
should ________ soybean futures. Other things constant, she is more likely to profit
from her decision when ________ people are aware of the warming pattern and its
consequences.
A) buy; fewer
B) sell; fewer
C) sell; more
D) buy; more
The Economic Freedom Index includes which of the following measures of economic
freedom within a nation?
A) Levels of economic regulation
B) Freedom of pricing
C) Stability of monetary policy
D) Taxation levels
E) All of the above.
If gasoline prices rise by 20% and quantity demanded falls by 5%., then the price
elasticity of demand is:
A) .05.
B) .15.
C) .20.
D) .25.
E) .40.
Could pollution be eliminated by banning all activities harmful to the environment?
A) No, because legislation is influenced by industrial lobbyists.
B) No, because the cost of doing so would be higher than even the most dedicated
environmentalist would agree to accept.
C) Not until we have better information on the sources of pollution.
D) Yes, if we are willing to place long-run considerations ahead of short-run profits.
Assume foreign beer is a normal good. If the incomes of demanders increase,
A) demand for foreign beer will increase.
B) the quantity supplied of foreign beer will increase.
C) the price of foreign beer will increase.
D) all of the above will occur.
E) none of the above will occur.
In a voluntary exchange,
A) both parties tend to receive more in value than they give up.
B) people trade goods of equal value.
C) neither party can gain more than the other.
D) one trader’s gain must be the other’s loss.
Supermarkets will frequently not carry the products of food processors unless the
processors pay fees to the supermarkets because
A) supermarkets are cartels.
B) supermarkets often dominate the geographic areas in which they sell.
C) supermarkets stand between the food processors and the ultimate consumers.
D) supermarket shelves are scarce goods.
E) supermarkets typically have more bargaining power than food processors.
Which of the following pricing practices, if proved, would prove a firm engaged in
predatory pricing?
A) The firm sets prices below marginal cost per unit.
B) The firm sets prices below sunk cost per unit.
C) The firm sets prices below total cost per unit.
D) The firm sets prices low enough to drive all its competitors out of business.
E) None of the above would prove predatory pricing had occurred.
The unemployment rate is obtained by
A) dividing the number of employed people by the number of unemployed people.
B) dividing the number of employed people by the noninstitutional population.
C) dividing the number of unemployed people by the noninstitutional population.
D) dividing the number of unemployed people by the civilian labor force.
A property tax payment made by the owner of an apartment building is a
A) cost irrelevant to rent-setting decisions because it is not affected by supply and
demand.
B) marginal cost of continuing to own the building.
C) marginal cost of supplying rental space.
D) marginal overhead cost and will therefore affect rental rates.
E) sunk cost and therefore cannot affect rents even in the long run.
Sellers who charge different prices to different customers can increase their net revenue
A) by forcing some customers to pay more for the product than it is worth to them.
B) by getting high-price customers in effect to subsidize sales to low-price customers.
C) if the demand of some customers for the product enables the sellers to build volume
by selling at prices below marginal cost.
D) if they can prevent customers from reselling to one another.
Legislators who must stand for re-election every two years will tend to support
A) policies beneficial to all the people eligible to vote.
B) policies beneficial to all the people now living.
C) policies beneficial to all present voters and future generations of voters.
D) policies promising early benefits and deferred costs.
E) policies representing the public interest.
Which is the most popular tool of the Fed used to control the stock of money?
A) Manipulating reserve requirements.
B) Buying and selling government bonds.
C) Manipulating the discount rate.
D) Issuing new U.S. Treasury bonds.
The non-bank public chooses among various financial assets in deciding what kind of
liquidity it wants to hold. It thereby increases or decreases
A) the narrowly-defined money stock (M1).
B) the reserves of commercial banks.
C) the reserves commercial banks are required to hold.
D) all of the above, at least potentially.
E) none of the above, since only the Fed can alter the money supply.
Who is likely to complain to state regulatory authorities about unlicensed movers
defrauding customers?
A) Consumer organizations
B) Individual customers who are planning to move
C) Individual customers who have already used unlicensed movers and have not been
thoroughly satisfied
D) Licensed movers
E) Unlicensed movers
According to your authors, the United States would probably not have experienced
tremendous economic growth between 1800 and 1870 were it not for
A) slavery.
B) sharecropping.
C) antitrust legislation.
D) balanced federal budgets.
E) technological innovation.
If Ed Sike (who you met in Chapter 8) lowers ticket prices to a point where the number
of tickets demanded is greater than the number of seats available,
A) Ed will be in a good position to grant favors to his friends.
B) net revenue will be negative.
C) net revenue will be positive but not necessarily at the maximum level.
D) resources will not be allocated efficiently.
E) total revenue will be maximized.
Why would irrigated farming not become more profitable if the federal government
lowered the price farmers had to pay for irrigation water?
A) Farmers would have to pay more for electricity to pump the water.
B) The cost of owning or renting land that could be irrigated would rise.
C) The prices of irrigated crops would not rise.
D) Water is a marginal cost in farming.
E) Water is a sunk cost in farming.
For many years after the Great Depression, economists believed a central bank policy
of increasing bank reserves in response to a recession would be
A) largely ineffective.
B) the opposite of what the circumstances required.
C) useless unless it also raised interest rates.
D) useless unless it was accompanied by declining prices.
Suppose the market-clearing price of wheat is $2.50 per bushel. At a price below $2.50,
A) supply would equal demand.
B) quantity supplied would equal quantity demanded.
C) quantity supplied would exceed quantity demanded.
D) quantity supplied would be less than quantity demanded.
Which of the following would likely take the longest time to enact?
A) Federal government fiscal policy that strives for a balanced budget
B) The Fed’s lowering of the discount rate
C) The Fed’s raising of the discount rate
D) The Fed’s engagement in open market operations
Suppose a successful advertising campaign increases the demand for Nike shoes. Which
would tend to occur?
A) The demand curve for Nikes would shift to the right.
B) The quantity supplied of Nikes would increase.
C) The price of Nikes would rise.
D) All of the above.
In any society, an effective system of property rights would not be possible without
A) the cooperation of other people.
B) the entire legal system to adjudicate them fairly.
C) the police to enforce them.
D) non-property (public rights).