Which of the following describes a situation in which demand must be inelastic?
a. Total revenue decreases by 10 percent when the price of jeans rises by 10 percent.
b. Total revenue decreases by less than 10 percent when the price of jeans rises by 10
percent.
c. Total revenue increases by more than 10 percent when the price of jeans rises by 10
percent.
d. Total revenue decreases by $10 when the price of jeans rises by $10.
e. Total revenue decreases by more than $10 when the price of jeans rises by $10.
In an economy in which velocity is constant and real output grows at an average rate of
3 percent per year, a 5 percent average rate of growth in the money supply would result
in a
a. constant price level.
b. low (approximately 2 percent) rate of inflation.
c. decline in the general level of prices at an annual rate of approximately 2 percent.
d. rate of inflation of approximately 8 percent.
You just bought a $1,000 bond that is scheduled to mature in ten years. If interest rates
rise during the next six months, the market value (or price) of your bond will
a. increase.
b. decrease.
c. remain unchanged.
d. increase or decrease, depending on the marginal tax bracket you are in.
When determining whether an income places a family or individual in poverty, the
official poverty rate excludes
a. money income derived from sources other than labor.
b. money income received from transfer programs.
c. noncash benefits derived from programs supplying recipients with food, housing, and
medical benefits.
d. noncash benefits that are provided the non-elderly, but it counts these benefits when
they are supplied to the elderly.
According to monetarists, which of the following would be most important for the
control of inflation?
a. a steady increase in federal expenditures
b. the imposition of price controls
c. keeping the growth rate of the money supply low and steady
d. a steady increase in the size of the budget deficit
If a country’s population (age 16 and over) is 50 million, with 2 million unemployed
and 23 million currently holding jobs, the
a. unemployment rate is 4 percent, and the labor force participation rate is 46 percent.
b. unemployment rate is 8.0 percent, and the labor force participation rate is 50 percent.
c. unemployment rate is 4 percent, and the labor force participation rate is 50 percent.
d. unemployment rate is 8.7 percent, and the labor force participation rate 50 percent.
The creation of a new product or process, often facilitated by the knowledge of
engineering and scientific relationships, is known as
a. invention.
b. innovation.
c. application.
d. sublimation.
Use the figure to answer the following question(s).
Figure 8-1
What is the firm’s total cost in Figure 8-1 when it produces four units?
a. 11
b. 15
c. 60
d. 75
Because private owners are held responsible for damages their property causes to the
property of others, private owners have
a. a strong incentive to take steps to reduce the chance that they will harm the property
of others.
b. a strong incentive to use their property now rather than conserving it for the future.
c. little incentive to take good care of the property.
d. little incentive to consider the harm their property may do to the property of others.
When profits exist in a competitive price-searcher market,
a. rival firms will be attracted into the market.
b. high barriers to entry will prevent rival firms from entering the market.
c. product differentiation will prevent new firms from making a profit.
d. the profits will persist because the firms face a downward-sloping demand curve.
Marginal cost is defined as the increase in total cost resulting from an increase in
a. one unit of output.
b. output of 100 units.
c. a firm’s plant size.
d. one unit of labor.
What is the difference between accounting profit and economic profit?
a. They are the same thing.
b. They are only different if the accountant makes a mistake.
c. Accounting profit is usually smaller than economic profits.
d. Accounting profit makes no allowance for several implicit costs, including equity
capital, while economic profit takes these costs into account.
Since 1960, there have been how many years of budget surplus?
a. 5
b. 10
c. 20
d. 30
After an extended period of steady inflation at a constant rate,
a. people will anticipate inflation.
b. actual unemployment will approximate the natural rate of unemployment.
c. actual unemployment will be less than the natural rate of unemployment.
d. both a and b are true.
Which of the following contributed to the sharp economic downturn during 2008?
a. rising housing and stock prices
b. falling housing and stock prices
c. rising housing prices but falling stock prices
d. falling housing prices but rising stock prices
A profit-maximizing monopolist will continue expanding output as long as
a. marginal revenue exceeds marginal cost.
b. marginal revenue is positive.
c. the cost of producing an additional unit exceeds the marginal revenue derived from
the unit.
d. economic profit is more than zero.
Use the figure below to answer the following question(s).
Figure 12-1
Refer to Figure 12-1. If the output of the economy is Y1, which of the following would a
new classical economist be most likely to favor?
a. a reduction in government expenditures
b. a reduction in taxes
c. an increase in taxes
d. continuation of the current tax and expenditure policies
The wages of house painters will tend to rise when
a. more people recognize that house painters have very low incomes.
b. the alternative earning opportunities of house painters improve.
c. house painters can no longer find good paying alternatives for their labor.
d. unemployment in the economy is high and there are few alternative jobs available for
house painters.
Suppose external benefits are present in a market which results in the actual market
price of $49 and market output of 800 units. How does this outcome compare to the
efficient, ideal equilibrium?
a. The efficient price would be higher than $49.
b. The efficient price would be lower than $49.
c. The efficient price would also be $49.
d. The efficient output would be less than 800 units.
If average fixed costs equal $60 and average total costs equal $120 when output is 100,
the total variable cost must be
a. $40.
b. $60.
c. $6,000.
d. $8,000.
Which of the following constitutes a barrier limiting the entry of potential competitors
into a market?
a. diseconomies of scale
b. an elastic market demand for the product produced by the industry
c. control over an essential resource
d. a perfectly elastic demand curve
Which of the following is a positive economic statement?
a. reducing unemployment should be the highest priority of the federal government.
b. a reduction in the payroll tax will reduce the unemployment rate.
c. corporations should be prohibited from laying off workers during a recession.
d. the current unemployment rate is too high.
Compared to low-income families, upper-income families are likely to
a. be larger in size.
b. be headed by an adult of prime working age (between 35 years and 64 years).
c. have more than one family member working.
d. be all of the above.
Government action will often result in the counterproductive use of resources because
a. there is often a conflict between winning political elections and adoption of only
productive programs.
b. many politicians are not interested in how their legislative votes will influence their
chances of winning future elections.
c. politicians are often unwilling to listen to interest groups that have specialized
knowledge.
d. voter participation is low; if more people voted, the political process would be more
efficient.
Which of the following variables is left out of the simple economic model of the firm?
a. the marginal cost of production
b. consumer tastes and preferences
c. the fact that many firms actually earn profits
d. the entrepreneurial decision-making process
Keynesians and non-Keynesians would largely agree on which one of the following
statements?
a. Expansionary fiscal policy will tend to substantially increase current real output.
b. Proper timing of discretionary fiscal policy is difficult to achieve.
c. The use of discretionary fiscal policy is an important stabilization tool.
d. Market forces will automatically direct the economy toward full employment.
Which of the following would most likely cause a nation’s currency to appreciate?
a. an increase in inflation of the nation’s trading partners
b. an increase in the nation’s domestic inflation rate
c. a decrease in domestic real interest rates
d. an increase in real interest rates abroad
As the present value of the future earnings from owning an asset ____, the market value
of the asset ____.
a. decreases; increases
b. increases; decreases
c. decreases; decreases
d. decreases; is uncertain
Normal profit is a term for
a. explicit profit.
b. the competitive rate of return.
c. the accounting profit forgone.
d. pure economic profit.
Figure 4-23
Refer to Figure 4-23. In which market will the tax burden be most equally divided
between the buyer and the seller?
a. market (a)
b. market (b)
c. market (c)
d. All of the above are correct.
Zari takes a summer course in London, England. She doesn’t buy British pounds at the
U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that
she can buy pounds for $1.65 each. Which of the following is true?
a. Zari would have been better off if she had bought pounds in the United States where
U.S. dollars were cheaper.
b. Zari would have been better off if she had bought pounds in the United States where
pounds were less expensive.
c. The pounds were more expensive in London because a currency is always most
valued in its home country.
d. The pounds were more expensive in the United States because they are less available
there.
e. It doesn’t matter where she buys the pounds, since she can’t use U.S. money anyway
once she’s in England.
Income mobility
a. is a term used to characterize the ease of establishing residence or a business in a new
area of the country.
b. has increased in recent years because of reductions in transportation cost.
c. is the term used to describe the movements up and down the economic ladder.
d. is present only when the general level of prices is rising.
Measured as a share of GDP, the total government expenditures of the United States are
a. larger than any country in the world.
b. smaller than any country in the world.
c. smaller than the comparable figure for Japan and most Western European countries.
d. larger than the comparable figure for Japan and most Western European countries.
If national income accountants fail to make an adequate adjustment for increases in the
quality of goods and services over time,
a. increases in real GDP will understate the growth rate of real output.
b. increases in real GDP will overstate the growth rate of real output.
c. the GDP deflator will overstate the rate of inflation.
d. the GDP deflator will understate the rate of inflation.
e. both a and c are correct.
Figure 17-10
Refer to Figure 17-10. With the tariff, the domestic price and domestic quantity
demanded are
a. P1 and Q1.
b. P1 and Q4.
c. P2 and Q2.
d. P2 and Q3.