When a government subsidy is granted to the buyers of a product, sellers can end up
capturing some of the benefit because
a. the market price of the product will fall in response to the subsidy.
b. the market price of the product will rise in response to the subsidy.
c. the market price of the product will not change in response to the subsidy.
d. buyers will reduce their demand for the product.
A valid argument against redistributing income to achieve complete equality is that
a. income equality would destroy the social cohesiveness that exists among different
income groupings.
b. this would eliminate the monetary incentives to work and produce.
c. the cost of obtaining the equality would be so deflationary as to promote economic
instability.
d. income equality would imply class segregation based on factors such as sex or race
since income would be constant.
Prior to 2008, the primary tool used by the Fed to control the money supply was
a. the manipulation of the required reserve ratio banks must hold against their checking
deposits.
b. the extension of loans to financial institutions.
c. the buying and selling of stocks and corporate bonds.
d. the buying and selling of U.S. Treasury securities.
Which of the following perspectives exerted the most impact on fiscal policy during the
Great Depression?
a. the Keynesian view
b. the supply-side view
c. the view that the federal government should maintain a balanced budget
d. the new classical view that fiscal policy exerts little impact on demand and output
According to Adam Smith, what is the primary source of a nation’s wealth?
a. The amount of gold and silver in the government’s possession.
b. A spirit of cooperation in which people share according to their means.
c. Strong central planning authorities.
d. The people’s ability to produce products and trade in free markets.
Investment in both physical and human capital tends to enhance economic growth
because it generally
a. increases consumption during the current period.
b. makes it possible for individuals to produce more goods and services per hour
worked.
c. encourages firms to expand output by employing more low productivity workers.
d. encourages workers to unionize and thereby fight for higher wages.
As prices rise, consumers and businesses will want to hold larger money balances. This
will lead to
a. a reduction in the demand for resources and reduced resource prices.
b. an increase in the amount of goods and services demanded due to the real balance
effect.
c. an increase in exports due to the international substitution effect.
d. a reduction in the supply of loanable funds and an increase in the interest rate.
The expression “There’s no such thing as a free lunch” means
a. if one person gains, someone else must lose.
b. each person must pay for exactly what he or she receives.
c. the use of resources to produce a good has an opportunity cost because of scarcity.
d. you cannot have a free lunch at the expense of someone else.
Real GDP per person
a. minus real GDP per person from the previous period equals the growth rate of real
GDP per person.
b. provides more meaningful comparisons across time and countries than real GDP.
c. provides a less useful measure of the standard of living than nominal GDP per
person.
d. All of the above are correct.
In the short run, if prices were below equilibrium,
a. excess aggregate demand for goods and services would place downward pressure on
prices.
b. excess aggregate supply of goods and services would place downward pressure on
prices.
c. excess aggregate demand for goods and services would place upward pressure on
prices.
d. excess aggregate supply of goods and services would place upward pressure on
prices.
If the price level in the current period is higher than what buyers and sellers anticipated,
a. profit margins will be unattractive and firms will expand output.
b. profit margins will be unattractive and firms will reduce output.
c. profit margins will be attractive and firms will expand output.
d. profit margins will be attractive and firms will reduce output.
In a price-taker market, profits are
a. the result of consumers being charged arbitrarily high prices.
b. a reward for creating value.
c. the result of barriers to entry into the market.
d. a signal that fewer resources are needed in a market.
If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of
laptop, then to maximize profit, it will
a. increase output if it is a price searcher, but this may not be proper if it is a price taker.
b. increase output if it is a price taker, but this may not be proper if it is a price searcher.
c. decrease output, regardless of whether it is a price taker or a price searcher.
d. increase output, regardless of whether it is a price taker or a price searcher.
Suppose the dollar rises from 100 to 125 yen. As a result,
a. imports from Japan will likely increase.
b. exports to Japan will likely increase.
c. Japanese tourists will be more likely to visit the United States.
d. U.S. businesses will less likely use Japanese shipping lines to transport their
products.
Price discrimination occurs when
a. firms maximize their profit by setting price equal to marginal cost.
b. a seller charges different prices to different consumers for the same product or
service.
c. a seller charges the same price to consumers for a different product or service.
d. a seller charges different prices to consumers, discriminating by race or gender of the
consumer.
A wealthy English executive decides to buy a large amount of U.S. financial assets.
This would contribute to
a. a deficit in the U.S. capital account.
b. a surplus in the U.S. current account.
c. a surplus in the U.S. capital account.
d. a deficit in the total balance of payments.
If the exchange rate between the U.S. dollar and the euro was 1.20 ($1.20 = one euro),
what would be the price in dollars of a bottle of French wine selling for 40 euro?
a. $33.33
b. $40
c. $48
d. $120
Which of the following equations is accurate?
a. money interest rate = real interest rate inflationary premium
b. real interest rate = money interest rate + inflationary premium
c. real interest rate = money interest rate inflationary premium
d. real interest rate = money interest rate
The entry of new firms into a competitive market will
a. increase market supply and increase market prices.
b. increase market supply and decrease market prices.
c. decrease market supply and increase market prices.
d. decrease market supply and decrease market prices.
Figure 14-8
Refer to Figure 14-8. At an interest rate of 4 percent there is excess
a. money demand equal to the distance between a and b.
b. money demand equal to the distance between b and c.
c. money supply equal to the distance between b and a.
d. money supply equal to the distance between c and b.
When externalities are present,
a. suppliers will refuse to produce desired goods and services.
b. this indicates that property rights are well-defined and enforced.
c. competitive market outcomes may be inconsistent with ideal economic efficiency.
d. competitive markets will generally achieve ideal economic efficiency.
If a profit-maximizing firm hires an additional unit of labor, what must be true about
labor’s wage and marginal revenue product?
a. Its wage always equals its marginal revenue product.
b. Its wage is always greater than its marginal revenue product.
c. Its wage is always total revenue minus marginal revenue product.
d. Its wage is always less than or equal to its marginal revenue product.
When the Fed decreases the money supply, interest rates
a. rise.
b. fall.
c. are unaffected.
d. rise and then fall.
e. fall and then rise.
An analysis of countries experiencing rapid inflation indicates that inflation is generally
a. caused by strong labor unions.
b. the result of restrictive macroeconomic policy, which pushes up interest rates.
c. caused by the impulse buying of consumers, who continue to buy the same goods
even when prices rise.
d. the result of rapid growth in the money supply.
In which of the following industries would we expect collusion to be most effective?
a. retail gasoline, where most gas is sold by a large number of small dealers
b. crude oil production, where most oil is sold by a small number of large sellers
c. housing construction, an industry dominated by local firms that produce unique
products
d. soybean production, where there are large numbers of farmers in many countries
A progressive tax is defined as a tax for which the
a. average tax rate rises as income increases.
b. average tax rate falls as income increases.
c. average tax rate remains constant at all levels of income.
d. dollar tax liability of those with higher income is more than the dollar tax liability of
those with lower income.
Within the framework of the AD/AS model, if a long-run equilibrium is present in the
goods and services market,
a. decision makers will have accurately forecast the current price level when they
arrived at resource price and loanable funds agreements.
b. the profit rates of the firms will generally exceed the competitive level.
c. the actual rate of unemployment will be less than the natural rate of unemployment.
d. output will exceed the economy’s long-run sustainable output.
If the banking system has $50 billion in excess reserves, and the required reserve ratio
is 25 percent, what is the maximum amount by which the money supply can be
increased?
a. $250 billion
b. $200 billion
c. $50 billion
d. $25 billion
When a park is funded by visitors but not by taxpayers in general,
a. there will be too few parks because most people will not pay to use a park.
b. visitors will be better served because poor service would lead to reductions in
revenues.
c. park budgets will decline.
d. park quality will decline.
During the financial crisis of 2008-2010, the Fed increased its purchases of securities
and extended more loans, which caused the monetary base to
a. increase rapidly, but the M1 money supply declined because the banks loaned out
most of the additional reserves to businesses.
b. fall, but the M1 money supply still expanded rapidly because the banks increased
their loans to businesses.
c. increase rapidly, but the M1 money supply expanded at a much slower rate because
the banks enlarged their excess reserves.
d. fall, and this led to a sharp decline in the M1 money supply.
Which of the following provides the strongest evidence that a firm operating in the
highly competitive retail sector is failing to provide goods and services that consumers
value highly relative to their cost?
a. The firm is making losses, and its sales are declining.
b. The top-level managers of the firm are paid high salaries.
c. The wages earned by the employees of the firm are low.
d. The firm is a large corporation.
e. The firm is highly profitable, and its sales have grown rapidly.