The long-run equilibrium price level is the price level the economy is expected to reach
when the
a. economy produces its potential output
b. Fed has stabilized interest rates
c. federal budget is balanced
d. discount rate equals the prime rate
e. inflation rate is zero
What is meant by the expression, “There is too much money chasing too few goods”?
a. People spend too much time chasing after money.
b. An expansion in the supply of money relative to the availability of goods and
services is causing an increase in the general level of prices.
c. The value of money will tend to decline when the supply of gold increases.
d. People would be better off if the monetary authorities increased the supply of money
more rapidly.
Under a flexible exchange rate system, which of the following will be most likely to
cause a depreciation in the exchange rate value of the dollar (relative to the English
pound)?
a. An economic boom occurs in England, inducing English consumers to buy more
American-made automobiles, trucks, and computer products.
b. Real interest rates in the United States fall lower than real interest rates in England.
c. Restrictive monetary policy in the United States causes inflation to be lower than in
England.
d. Attractive investment opportunities in the United States induce English investors to
buy stock in U.S. firms.
The usual results of an adverse supply shock are
a. a rise in prices and a fall in output.
b. a fall in prices and a rise in output.
c. increased growth and lower inflation.
d. a rise in prices and a rise in output.
The Laffer curve illustrates the concept that
a. an increase in marginal tax rates will always cause tax revenues to increase.
b. an increase in marginal tax rates will always cause tax revenues to decrease.
c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax
revenues to increase.
d. when marginal taxes are quite low, an increase in the tax rate will probably cause tax
revenues to decline.
Figure 15-4
Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Which of the
following statements is true?
a. Country I has the most unequal income distribution.
b. Country II has the most unequal income distribution.
c. Country I has the most equal income distribution.
d. Country III has the most equal income distribution.
e. Country II has a more equal income distribution than Country I.
The large amount of violence associated with the current drug trade is mostly caused by
a. the fact that drug markets must operate outside the normal legal system.
b. buyers and sellers often being under the influence of drugs at the time of the
transaction.
c. buyers and sellers who are often unfamiliar with conducting normal transactions
within the legal system.
d. the lack of quantity supplied and quantity demand being in balance in black markets
because there is no equilibrium price in these markets.
External debt is that portion of the national debt
a. held by private investors.
b. held by the Federal Reserve.
c. that the United States does not intend to repay.
d. held by foreigners.
Figure 4-25
Refer to Figure 4-25. The equilibrium price before the tax is imposed is
a. P1.
b. P2.
c. P3.
d. impossible to determine from the figure.
The usefulness of the price-taker model requires that the firm’s decision makers
a. act to maximize their total revenue and fully understand marginal costs and marginal
revenues.
b. be able to draw accurate marginal cost and marginal revenue curves.
c. place the social interest of the economy above their individual self interests.
d. seek to maximize the profits of the firm.
A downfall of the infant-industry argument is that
a. most industries need protection when they are mature, not when they are first
established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant
industry.
c. once a tariff is granted, political pressure will likely force withdrawal of the tariff
before the industry matures.
d. once established, a tariff is politically difficult to remove.
A barter economy is one in which
a. money serves as a medium of exchange.
b. only precious metals are accepted as money.
c. goods are traded directly for other goods.
d. paper money is backed by gold.
A currency board
a. issues domestic currency in exchange for foreign currency at an exchange rate of its
choosing.
b. is responsible for the conduct of the nation’s monetary policy.
c. promises to continue redeeming the issued currency at a fixed rate.
d. does all of the above.
An unexpected increase in the demand for accountants will lead to
a. an increase in their earnings and an expansion in the future supply of accountants.
b. a decrease in the incentive of students to prepare for a career in accounting.
c. a reduction in the current earnings of accountants, followed by a reduction in the
future supply of accountants.
d. a reduction in the employment of accountants but not their wage rates.
Suppose a new country is formed, and its government has the following revenues and
expenditures for its first three years of existence.
Which of the following is correct regarding this government?
a. In the third year, it had a $5 national debt, and after the third year, it has a $25 deficit.
b. In the third year, it ran a $5 deficit, and its national debt after the third year is $45.
c. In the third year, it ran a $5 surplus, and its national debt after the third year is $25.
d. In the third year, it ran a $5 deficit, and its national debt after the third year is $25.
Dr. Smith on the Channel 6 news says, “The recent figures showing that the
unemployment rate is lower this quarter than last quarter are a definite sign that our
economy is coming out of the recession.” Dr. Jones on the Channel 8 news says,
“Recent figures showing that employment is lower this quarter than it was last quarter
are a definite sign that our economy is still plunging deeper into the recession.”
If the actual price level exceeds the expected price level reflected in long-term
contracts,
a. firms will find production more profitable than they had expected and will decrease
the quantity of output supplied
b. firms will find production less profitable than they had expected and will decrease
the quantity of output supplied
c. firms will find production less profitable than they had expected and will increase the
quantity of output supplied
d. unemployment will decrease
If political officials want to minimize the excess burden accompanying a tax, they
should set the tax at a rate
a. that will maximize the revenue derived from the tax.
b. slightly above the rate that will maximize the revenue derived from the tax.
c. well below the rate that will maximize the revenue derived from the tax.
d. that is the highest that could possibly be imposed.
If we observe a decrease in the price of a good and a decrease in the amount of the good
bought and sold, this could be explained by
a. an increase in the supply of the good.
b. an increase in the demand for the good.
c. a decrease in the demand for the good.
d. a decrease in the supply of the good.
Country A and country B initially have the same per capita income. Suppose that A
sustains an annual growth rate of 3.5 percent, while the annual growth rate of country B
is 1.75 percent. The “rule of 70” indicates that after forty years, the per capita income of
country A will be approximately ____ that of country B.
a. one-half
b. 70 percent greater than
c. twice
d. four times
An increase in supply will cause
a. an increase in demand.
b. a decrease in demand.
c. an increase in quantity demanded.
d. a decrease in quantity demanded.
e. an increase in equilibrium price.
The primary value of data for real GDP lies in its ability to
a. reflect the welfare of a society relative to a previous period.
b. compare a nation’s productivity during two periods widely separated in time.
c. indicate short-term changes in the output rate of a nation.
d. indicate how hard the people of a nation are working.
If a country’s political leaders wanted to promote economic growth, which of the
following policy alternatives would be most effective?
a. imposition of price controls on agricultural products in an effort to keep food cheap.
b. imposition of high marginal tax rates designed to reduce income inequality.
c. imposition of tariffs and other trade restraints limiting international trade.
d. monetary policy consistent with long-run price stability
If the Federal Reserve wanted to expand the money supply in order to increase output,
it should
a. sell government bonds, which will increase the money supply; this will cause interest
rates to fall and aggregate demand to rise.
b. buy government bonds, which will increase the money supply; this will cause interest
rates to fall and aggregate demand to rise.
c. increase the discount rate, which will raise the market rate of interest; this will cause
both costs and prices to rise.
d. decrease taxes, which will reduce costs and cause prices to fall.
The modern synthesis view of fiscal policy stresses
a. how easy it is to time fiscal policy changes so they exert a stabilizing influence on the
economy.
b. the ineffectiveness of fiscal policy, even during periods of widespread
unemployment.
c. the difficulties involved in timing fiscal policy changes so they will exert a stabilizing
impact on the economy.
d. that automatic stabilizers do not help smooth fluctuations in the economy.
Figure 4-21
Refer to Figure 4-21. The amount of the tax per unit is
a. $10.
b. $6.
c. $4.
d. $2.
Which of the following is true of stocks?
a. Stock ownership is risky because the investor can never be sure what return they will
earn or what the value of their stock holdings will be in the future.
b. The riskiness of stocks is one reason why their average rate of return has been higher
than investments like bonds that guarantee a specified nominal amount in the future.
c. Both a and b are true.
d. Neither a nor b is true.
Suppose the population (age 16 and over) of New Zealand is 48 million; 4 million are
unemployed, and 40 million hold jobs. Indicate the rate of unemployment and the
employment/population ratio of New Zealand.
a. The unemployment rate is 10 percent, and the employment/population ratio is 75
percent.
b. The unemployment rate is 9.1 percent, and the employment/population ratio is 91.7
percent.
c. The unemployment rate is 10 percent, and the employment/population ratio is 83.3
percent.
d. The unemployment rate is 9.1 percent, and the employment/population ratio is 83.3
percent.
Suppose that new demands greatly reduce the proved reserves of titanium to
unexpectedly low levels, and it appears that the new demands will continue. If the
market price is unregulated, we should expect that the price will
a. rise sharply, calling forth added exploration and more effective (and more costly)
recovery methods, resulting in additional new supplies of titanium.
b. rise sharply, calling forth new ways for manufacturers to conserve titanium and to
find substitutes for it.
c. over time, bring the quantity supplied of titanium into balance with the quantity
demanded.
d. do all of the above.
Which of the following is most likely to be true of economic and accounting profits?
a. Economic profits are less than accounting profits.
b. Accounting profits are less than economic profits.
c. Economic profits plus accounting profits equal zero.
d. Accounting profits minus economic profits equal zero.
Which of the following is accurate regarding income statistics?
a. Current annual income is also an accurate indicator of relative economic status for
the same individual over a longer period such as a decade or lifetime.
b. When there is substantial income mobility, one’s current position in the income
distribution will not be a very good indicator as to what one’s position will be a few
years in the future.
c. Recent studies indicate that there is a strong positive relationship between the relative
income position of a family and the relative income position of their children and
grandchildren.
d. Even though annual income data camouflage the fact, high-income earners generally
maintain their status year after year, while those with low current incomes tend to stay
poor year after year.
Manny’s Bar-n-Grill is next door to a franchised fast-food restaurant near a busy
freeway exit. Essentially, the menus, food quality, atmosphere, and service are equal at
the two restaurants. Nevertheless, the nationally franchised restaurant can attract more
customers, even though its prices are higher. This situation
a. indicates that people are irrational because it never makes sense to pay a higher price
when a product is cheaper elsewhere.
b. is one in which the national franchise provides uninformed consumers with valuable
information that reduces their risk of being unsatisfied with the purchase.
c. reflects the greater elasticity of supply for food at Manny’s Bar-n-Grill relative to the
nationally franchised restaurant.
d. is inconsistent with the basic postulates that underlie the economic way of thinking.
The standard economists use to assess whether an activity should be undertaken is
a. majority vote
b. the marginal benefit assessment.
c. the gold standard
d. economic efficiency.