A decrease in the supply of dollars on the foreign exchange market, all else equal, will
result in:
A) appreciation of the U.S. dollar and depreciation of the foreign currency.
B) appreciation of the U.S. dollar and appreciation of the foreign currency.
C) depreciation of the U.S. dollar and depreciation of the foreign currency.
D) depreciation of the U.S. dollar and appreciation of the foreign currency.
Much of the research on the minimum efficient scale suggests that for many firms the
LRAC curve is:
A) downward sloping over the relevant range of output.
B) upward sloping over the relevant range of output.
C) U-shaped.
D) flat over a relatively large range of output levels.
If marginal propensity to save equals 0.50, then the marginal propensity to consume is:
A) 1.25.
B) 0.50.
C) 0.70.
D) 1.00.
The aggregate expenditure in an open economy is defined as:
A) E = C + I + G.
B) E = C + I + G + X.
C) E = C I G X – M.
D) E = C + I + G + X – M.
Demand for a good will tend to be more price elastic if it exhibits which of the
following characteristics?
A) It accounts for a small part of the consumer’s total income.
B) The good has many available substitutes.
C) It is a non-durable (as opposed to a durable good).
D) There is little time for the consumer to adjust to the price change.
A strong Japanese yen:
A) induced Japanese auto manufacturers to increase their production of cars in Japan.
B) induced Japanese auto manufacturers to shift their production of cars to the U.S.
C) made Japanese exports more price competitive globally.
D) had no meaningful impact on Japanese auto manufacturers.
Referring to the previous question, which of the following best describes the adjustment
to the new market equilibrium?
A) Price would fall, causing quantity supplied to decrease until the new equilibrium is
reached.
B) Price would rise, causing quantity supplied to increase until the new equilibrium is
reached.
C) Price would fall, causing quantity supplied to increase until the new equilibrium is
reached.
D) Price would rise, causing quantity supplied to decrease until the new equilibrium is
reached.
A fixed exchange rate system where central banks buy and sell gold to keep exchange
rates at a given level is called the:
A) fixed standard.
B) flexible standard.
C) fiat standard.
D) gold standard.
A depreciation of the U.S. dollar would shift the:
A) aggregate demand curve rightward.
B) aggregate demand curve leftward.
C) aggregate supply curve rightward.
D) aggregate supply curve leftward.
Assume firm X is one of the three largest firms in an oligopolistic industry. Firm X is
currently considering a vertical merger with another firm that is the sole supplier of an
input used by all of the firms that compete with firm X. If the merger goes through, firm
X would be able to operate much like:
A) a perfectly competitive firm.
B) a monopolistically competitive firm.
C) an oligopolist.
D) a monopolist.
If a country’s national government wants to stimulate spending in the economy, it
should:
A) decrease taxes and increase government spending.
B) increase taxes and decrease government spending.
C) increase taxes and government spending.
D) decrease taxes and government spending.
The action taken by a country’s central bank to prevent balance of payments policies
from influencing the country’s domestic money supply is called a:
A) fiscal policy intervention.
B) monetary policy intervention.
C) sterilized intervention.
D) non-sterilized intervention.
A decrease in the reserve requirement would:
A) decrease excess reserves and reflect an expansionary monetary policy.
B) decrease excess reserves and reflect a contractionary monetary policy.
C) increase excess reserves and reflect an expansionary monetary policy.
D) increase excess reserves and reflect a contractionary monetary policy.
Gross Domestic Product (GDP) is defined as the market value of:
A) all goods and services sold during the year by domestic and foreign producers.
B) all final consumer goods produced during the year by domestic and foreign
suppliers.
C) all intermediate goods produced during the year by domestic and foreign suppliers.
D) all final goods and services produced within the boundaries of an economy during
the year by domestic and foreign-supplied resources.
In order to maximize its profits, a price-taking firm should produce the level of output
at which:
A) total revenue = total cost.
B) average revenue = average cost.
C) variable revenue = variable cost.
D) marginal revenue = marginal cost.
Assume a firm is currently employing 20 units of capital and 100 units of labor in its
production process. Assume also that the marginal product of the 20th unit of capital is
40 units of output, the marginal product of the 100th unit of labor is 10 units of output
and the per unit prices of capital and labor are $20 and $10, respectively. In this case, in
order to minimize its costs of production the firm should:
A) hire more capital and less labor.
B) hire more labor and less capital.
C) hire less capital and less labor.
D) hire more capital and more labor.
An increase in the price level will shift the aggregate demand curve:
A) rightward.
B) leftward.
C) both.
D) none of the above.
Which of the following statements is correct?
A) The use of Census data is especially useful and cost-effective in targeted marketing.
B) Census data are considered more reliable than data collected via direct consumer
surveys because people are more likely to provide accurate responses to government
census takers.
C) While the use of census data in targeting marketing can provide relatively accurate
information, experience has shown that it has the disadvantage of increasing marketing
costs by a substantial amount.
D) While census data are considerably less expensive than data obtained via direct
consumer surveys, they are also considerably less reliable.
Higher prices and price increases combined with lower real output and income,
resulting from a major increase in input prices in the economy is called:
A) deflation.
B) inflation.
C) stagflation.
D) none of the above.
Which of the following statements is correct for the case of a downward-sloping
demand curve (beyond the first unit of output)?
A) P = AR = MR
B) P = AR > MR
C) P > AR > MR
D) P = AR < MR
Marginal cost is defined as the change in ________ cost when output changes by one
unit. In the short run, marginal cost can also be measured by the change in ________
cost when output changes by one unit.
A) total; fixed
B) variable; fixed
C) fixed; variable
D) total; variable
When demand for a firm’s product decreases, the firm can take a number of steps to
adjust costs and quantities supplied to the market. Some are listed below. Which actions
are short run and which are long run? Explain your reasoning.
a. Layoff 25 percent of the firm’s existing employees.
b. Declare bankruptcy and sell all of the firm’s plant and equipment.
c. Require management personnel to take a significant cut in pay.
d. Furlough employees for 3 days each month.
e. Move to a smaller production facility.
Assume a consumer is currently purchasing a combination of goods, X and Y, that
maximizes her utility given her budget constraint, i.e., MRSX,Y = PX/PY. Now assume
that there is a decrease in the price of Y. In this case, to once again maximize her utility,
the consumer will want to adjust her purchases of X and Y such that:
A) the marginal rate of substitution of X for Y, i.e., MRSX,Y, decreases.
B) the marginal rate of substitution of X for Y, i.e., MRSX,Y, stays the same.
C) the marginal rate of substitution of X for Y, i.e., MRSX,Y, increases.
D) none of the above. The consumer will continue to maximize her utility after the price
change by continuing to consume the same combination of X and Y.
Diminishing marginal returns occur when:
A) units of a variable input are added to a fixed input and total product falls.
B) units of a variable input are added to a fixed input and marginal product falls.
C) the size of the plant is increased in the long run.
D) the quantity of the fixed input is increased and returns to the variable input fall.
Which of the following barriers to entry is is most likely to result in the creation of of
new products and production processes?
A) Patents.
B) Licenses.
C) Ownership of an essential raw material.
D) Significant economies of scale.
If the consumer has a great deal of time to adjust to an increase in the price of gasoline,
which of the following is correct?
A) Quantity demanded will be relatively sensitive to the change in price.
B) The percentage change in quantity demanded will be quite small relative to the
percentage change in price.
C) The percentage change in price will be quite large relative to the percentage change
in quantity demanded.
D) Demand will tend to be unitary elastic as it is for most goods in the long run.
Which of the following statements regarding the requirement that a firm be granted a
license to operate in a particular market is false?
A) Advocates of licensing maintain that the practice is necessary to maintain quality of
service.
B) One of the economic effects of a license requirement is to constrain the available
supply of the affected good or service.
C) The requirement that they be licensed ensures that the affected firms will be able to
earn a positive economic profit.
D) Relaxing certain licensing requirements should increase the supply of the affected
good or service.
Increases in both labor and capital productivity will result in:
A) downward shift of the average and marginal product curves and upward shift of the
average cost curves.
B) downward shift of the average and marginal product curves and downward shift of
the average cost curves.
C) upward shift of the average and marginal product curves and downward shift of the
average cost curves.
D) upward shift of the average and marginal product curves and upward shift of the
average cost curves.
Why is the price elasticity of demand a relative measure? That is, why is elasticity
measured in percentage terms rather than in absolute terms?
A) So the coefficient of elasticity will not be dependent on the physical units of the
good.
B) Because absolute measures do not account for the direction of the change in
quantity.
C) So that the coefficient of elasticity will not be negative.
D) Because the absolute price or quantity demanded of a product is irrelevant to the
elasticity measure.
The federal law that prohibits, among other things, “unfair” competition and created the
Federal Trade Commission is the:
A) Sherman Act of 1890.
B) Clayton Act of 1914.
C) Federal Trade Commission Act of 1914.
D) Celler-Kefauver Act of 1950.
The payments to the factors of production are:
A) wages.
B) rent.
C) rent and interest.
D) wages, rent, interest, and profits.
Assume a factory that currently employs 25 workers is considering adding another 5
workers to its payroll. Economists would classify this as:
A) a short-run decision.
B) a long-run decision.
C) neither a short-run nor a long-run decision.
D) both a short-run and a long-run decision.
The slope of the isocost line:
A) changes as the combination of labor and capital is altered by the firm.
B) is equal to the ratio of the marginal productivities at all points along the isocost line.
C) is equal to the negative of the ratio of the prices of the outputs.
D) is equal to the negative of the ratio of the prices of the inputs.
In the long run, the price elasticity of demand is ________ than in the short run because
________.
A) less; consumers have more time in which to make adjustments to price changes
B) less; the percentage change is measured over a larger amount of time
C) greater; consumers have more time in which to make adjustments to price changes
D) greater; firms have more time to shift the burden of the tax forward to consumers
The GDP deflator:
A) measures the price changes of a fixed basket of goods and services.
B) measures the price changes of all final goods and services produced.
C) measures the price changes of just goods consumed by the household sector.
D) none of the above.