If a woman marries her housekeeper, GDP would remain constant.
a. True
b. False
The short-run equilibrium output of a competitive firm is found by equating marginal
cost with price.
a. True
b. False
“Cream skimming” usually results in
a. cross-subsidization of markets.
b. subsidies to rural consumers of the service.
c. regulations to provide universal service.
d. monopoly.
John’s Bait Shop was surprised to learn that when it raised prices by 10 percent, total
revenue was unaffected. This is because the elasticity for bait is
a. unit elastic.
b. inelastic.
c. elastic.
d. Not enough information is given.
After years of hard work in the field of macroeconomics, you win the Nobel Prize in
economics (currently about $1.5 million). What is the most likely effect of this prize on
your consumption function?
a. It will shift downward temporarily.
b. It will shift upward temporarily.
c. It will shift downward permanently.
d. It will shift upward permanently.
e. none of the above
Government can deal with externalities through the use of taxes and subsidies.
a. True
b. False
Marginal revenue product is the extra revenue the firm receives by hiring one additional
unit of input.
a. True
b. False
Interest income on municipal bonds
a. is subject to a portion of federal income tax.
b. is taxable on amounts greater than $15,000 per year.
c. is payable quarterly, at time of coupon redemption.
d. is exempt from federal income tax.
The dollar has depreciated if it buys less of a foreign currency.
a. True
b. False
The ratio of the percentage change in quantity demanded to the percentage change in
income is known as the cross elasticity of demand.
a. True
b. False
When the dollar appreciates, the prices of imported inputs
a. fall and aggregate supply shifts outward.
b. fall and aggregate supply shifts inward.
c. rise and aggregate supply shifts outward.
d. rise and aggregate supply shifts inward.
Securities markets perform a valuable economic function because they provide
a. an opportunity for investors to make money in a short time.
b. the principal indicator of the performance of the U.S. economy.
c. an easy way to transfer corporate securities, thereby reducing risk to investors.
d. assurance that stock purchasers can get back the purchase price of their stock.
A horizontal line has a slope of 0.
a. True
b. False
The idea of the invisible hand was introduced by
a. Wassily Leontief.
b. Adam Smith.
c. Thomas Jefferson.
d. Mountifort Longfield.
The shortfall between actual real GDP and potential GDP
a. decreases as the unemployment rate rises.
b. increases as the unemployment rate rises.
c. increases as the employment rate rises.
d. decreases as the labor force increases.
A major Internet service provider decides to spend $70 million to purchase new server
equipment. If the marginal propensity to consume is 0.8, the eventual change in GDP
will be
a. $40 million.
b. $50 million.
c. $90 million.
d. $350 million.
e. $850 million.
Supply-side tax cuts tend to benefit the rich because tax cuts
a. on income tend to benefit high income earners more than low income earners.
b. on savings benefit high income earners who do most of the personal saving.
c. for capital formation tend to benefit those with the means to accumulate capital.
d. on capital gains tend to benefit those with larger financial assets.
e. All of the above are correct.
The lack of a universal productivity effect of higher education was demonstrated by the
experience of
a. the United Kingdom.
b. Ireland.
c. France.
d. the Soviet Union.
A decrease in the unemployment rate will shift the PPF outward from the origin.
a. True
b. False
A demand curve with unit elasticity can never touch either the vertical or horizontal
axes.
a. True
b. False
Labor productivity is defined as
a. the amount of output a typical worker turns out in an hour of work.
b. the amount of output the best worker turns out in a day of work.
c. the amount of output improvement in a year of work.
d. the amount of average output improvement for a team in a year of work.
In terms of the production possibilities diagram, the principle of increasing cost simply
asserts that the frontier is
a. downward sloping.
b. upward sloping.
c. bowed inward.
d. bowed outward.
e. undefined, because no market will exist in this case.
The Federal Reserve reduced the fed funds rate to the 0-0.25 percent range in 2008 in
response to the Lehman Brother’s catastrophe.
a. True
b. False
As a general rule, an increase in the capital available to a society
a. reduces the slope of the production possibilities frontier, making it shallower.
b. increases the slope of the production possibilities frontier, making it steeper.
c. shifts the production possibilities frontier outward, away from the origin.
d. shifts the production possibilities frontier inward, toward the origin.
e. makes the production possibilities frontier more bowed out.
Rolls Royce may actually sell fewer cars at lower prices due to the “snob effect.”
a. True
b. False
The two primary reasons to adopt measures to restrict trade are that
a. they help keep real wages high in the importing country, and they also permit small
businesses to compete in international markets.
b. they may help the importing country improve its educational system, and they keep
high-technology products from being stolen by foreign competitors.
c. they may help the importing country get better prices for its goods, and they protect
certain industries from foreign competition.
d. they may help advance the political goals of the nation, and they encourage
productivity in domestic industries.
If a nation has an absolute advantage in the production of some commodity, it
a. can gain only if it has a comparative advantage in the commodity.
b. may still gain from trade in the commodity.
c. cannot gain from trade in the commodity.
d. cannot gain unless it has an absolute advantage in every other commodity.
If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?
a. It will give the bank new reserves.
b. It will write the bank a check.
c. It will transfer cash to the bank’s vault.
d. It will take reserves from another bank.
Environmental problems occur exclusively in capitalist economies.
a. True
b. False
Because of the recessions in 1983 and 1991, the structural deficit was far larger than the
actual deficit in those years.
a. True
b. False
The marginal cost of Alexa’s Guide to Street People and Their Pets is constant at $5.
Alexa sells 5,000 copies per year at $20 per copy. She would like to increase readership
and hold total profit constant. If the price goes to $15, how many copies must she sell?
a. 10,000
b. 9,000
c. 7,500
d. 6,000
Between 1988 and 1989, the price of retail space in Ginza, Tokyo’s premier commercial
and entertainment center, rose from $400 to $625 per square foot. This was the result of
an increase in demand in the face of a perfectly inelastic supply curve for retail space.
Economists call this
a. monopoly profit.
b. economic rent.
c. usury.
d. marginal revenue product.
Monetary costs and opportunity costs are always identical.
a. True
b. False
Identify the basis on which you measure the liquidity of an asset.
a. Its value.
b. Its future earning potential.
c. Its convertibility into cash.
d. Its ability to act as a perfect store of value.