Figure 4-25
Refer to Figure 4-25. The tax causes a reduction in producer surplus that is represented
by area
a. A.
b. B + C.
c. D + E.
d. F.
Within the AD/AS model, if consumers increase their savings and cut back on their
spending, the
a. natural rate of unemployment will increase.
b. real interest rate will decrease and, thereby, cushion the reduction in consumption
spending.
c. real interest rate will increase because of the higher rate of saving.
d. long-run aggregate supply will decrease to restore equilibrium.
When a good is more broadly defined (for example, Starbucks Caramel Macchiato
versus coffee),
a. it will have more available substitutes so demand will be more elastic.
b. it will have more available substitutes so demand will be less elastic.
c. it will have fewer available substitutes so demand will be more elastic.
d. it will have fewer available substitutes so demand will be less elastic.
In the long run, changes in the money supply affect only the price level because
a. the aggregate demand curve is vertical.
b. the aggregate demand curve is downward sloping.
c. the long-run aggregate supply curve is vertical.
d. the long-run aggregate supply curve is upward sloping.
e. current real GDP is less than the economy’s potential GDP.
When a government subsidy is granted to the sellers of a product, buyers 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. producers will reduce the supply of the product.
Deficit spending and a large national debt can have important effects on future
generations because they
a. make it possible for those living in the present to pass the opportunity costs of current
government spending on to future generations.
b. can significantly impact spending on capital formation.
c. will pass interest obligations on to future generations with no corresponding benefits.
d. will cause the government to go bankrupt.
When the loanable funds and foreign exchange markets are in equilibrium,
a. there are no leakages from the circular flow of income.
b. macro equilibrium cannot occur.
c. the leakages from the circular flow will equal the injections into it.
d. injections into the circular flow will exceed leakages from it.
As third-party payments and government expenditures on healthcare increased
following the passage of Medicare and Medicaid,
a. total expenditures on healthcare declined.
b. the incentive of consumers to economize on their use of healthcare services
increased.
c. the incentive of suppliers to provide healthcare services at a low cost increased.
d. both the prices of healthcare services and total expenditures on those services
increased rapidly.
Since the mid-1980s, if the Fed wanted to shift to a more expansionary monetary
policy, it would
a. expand the reserves available to the banking system, which would drive down
short-term interest rates.
b. reduce the reserves available to the banking system, which would drive down
short-term interest rates.
c. expand the reserves available to the banking system, which would drive up
short-term interest rates.
d. reduce the reserves available to the banking system, which would drive up short-term
interest rates.
As of December, 2012, the privately held portion of the national debt was
approximately
a. 5 percent of the total.
b. 20 percent of the total.
c. 60 percent of the total.
d. 80 percent of the total.
If a country fixes the exchange-rate value of its currency, it will have to
a. follow a highly expansionary monetary policy in order to maintain the convertibility
of its currency.
b. give up its monetary independence in order to maintain the convertibility of its
currency.
c. fix its domestic interest rates in order to maintain the convertibility of its currency.
d. raise taxes in order to maintain the convertibility of its currency.
Which of the following is most indicative of a recession?
a. a decline in unemployment
b. a rise in inflation
c. a decline in real GDP
d. an increase in the interest rate
If decision makers adjust fully to demand stimulus policies, persistent expansionary
macro-policy will lead to
a. inflation with no lasting reductions in unemployment.
b. a permanent reduction in unemployment.
c. lower interest rates.
d. more rapid economic growth.
Empirical evidence indicates that
a. changes in the earth’s cloud cover will clearly enhance the warming effects of carbon
dioxide.
b. the increase in carbon dioxide, over thousands of years, is clearly the cause of global
warming.
c. if global warming continues for another century, as most models forecast, the sea
levels will clearly rise substantially, imposing costs much larger than the cost of
preventing the warming.
d. the earth has warmed a little more than one degree Fahrenheit in the past century.
If a price-taker industry is in long-run equilibrium, the market price in the industry will
be just sufficient to cover the firm’s average
a. total costs.
b. fixed costs.
c. variable costs.
d. variable costs plus a 10 percent accounting profit.
The law of comparative advantage indicates that
a. a group of people will reduce their output when each good or service is supplied by
the low opportunity cost producer.
b. trading partners lose when they can acquire a good through trade cheaper than they
can produce it.
c. trade is most effective when people trade only among those in their own nation.
d. a group of people can increase their output when each good or service is supplied by
the low opportunity cost producer.
Use the figure to answer the following question(s).
Figure 8-4
The average variable cost (AVC) and average total cost (ATC) for a firm are indicated
in Figure 8-4. If the marginal cost curve were constructed, at what output would it cross
the AVC curve?
a. 1
b. 2
c. 3
d. 4
A currency appreciation will be most likely to
a. reduce net exports and therefore increase aggregate demand.
b. raise net exports and therefore decrease aggregate demand.
c. reduce net exports and therefore decrease aggregate demand.
d. raise net exports and therefore increase aggregate demand.
Which of the following is true?
a. When workers are more productive, the demand for their services will be higher.
b. In order to earn a large income, one must provide large benefits to others.
c. High productivity (a large output per hour worked) is the key to high earnings for
both individuals and countries.
d. All of the above are true.
The chained consumer price index
a. assumes that households purchase the same bundle of goods and services over a
lengthy time period.
b. adjusts the quantities of the typical bundle purchased each month to reflect the
substitution away from goods that have become more expensive.
c. reflects changes in the prices of all final goods and services produced domestically by
the citizens of a nation during a period.
d. will generally result in a higher measured rate of inflation than the regular consumer
price index.
When continued for several years, rapid growth in the money supply relative to the
growth of real output will likely lead to an extended period of
a. low unemployment.
b. high inflation.
c. low nominal interest rates.
d. high rates of real economic growth.
“Every major contraction in the U.S. economy has either been created or greatly
exacerbated by monetary instability. Every major inflation has been caused by
monetary expansion.” Which of the following economists made this statement?
a. Adam Smith
b. John Maynard Keynes
c. Milton Friedman
d. Paul Samuelson
Which of the following describes a situation in which demand must be elastic?
a. The price of dish soap rises by 10 cents, and quantity of dish soap demanded falls by
50.
b. The price of dish soap rises by 10 cents, and total revenue rises.
c. A 20 percent increase in the price of dish soap leads to a 20 percent decrease in the
quantity of dish soap demanded.
d. Total revenue does not change when the price of dish soap rises.
e. Total revenue decreases when the price of dish soap rises.
Which of the following provides the strongest evidence that a firm operating in the
highly competitive retail sector is supplying goods and services that consumers value
highly relative to their cost?
a. The top-level managers of the firm are paid high salaries.
b. The firm is on the verge of bankruptcy.
c. The firm is a large corporation.
d. The firm is highly profitable, and its sales have grown rapidly.
Use the figure below to answer the following question(s).
Figure 15-1
In Figure 15-1, AD1 andSRAS1 indicate initial conditions in the goods and services
market. In the short run, which of the following will most likely result from a shift to a
more expansionary monetary policy under the adaptive expectations hypothesis?
a. price level P1 and output Y1
b. price level P2 and output Y2
c. price level P3 and output Y1
d. price level P1 and output Y2
If a firm in a competitive price-searcher market finds that its marginal cost exceeds its
marginal revenue at the current rate of output, it should
a. raise the price of the product and expand its output.
b. raise the price of the product and reduce its output.
c. lower the price of the product and expand its output.
d. lower the price of the product and reduce its output.
The labor supply curve reflects how
a. workers’ decisions about the labor-leisure tradeoff respond to a change in the wage.
b. workers’ decisions about the opportunity cost of labor respond to a change in the
quantity of labor supplied.
c. firms’ decisions about the labor-leisure tradeoff respond to the quantity of labor
demanded.
d. firms’ decisions about how the quantity of labor they hire respond to changes in their
opportunities to earn profits.
Which one of the following is a credit in the U.S. current account?
a. the purchase of a U.S. car by a German
b. the purchase of insurance from Lloyd’s of London by an American
c. a trip to Mexico by an American student
d. the purchase of Japanese bonds by an American investor
Which of the following reduced the demand stimulus effects of monetary policy during
the years following the 2008-2009 recession?
a. Failure of the Fed to provide sufficient reserves to the banking system for the
extension of new loans.
b. A substantial reduction in the velocity of money resulting from the historically low
interest rates.
c. The Fed’s high interest rate policy that reduced private investment.
d. Inability of the Fed to gain approval from Congress to purchase assets other than
bonds issued by the federal government.
According to the data, was the stock-market crash of 1929 the primary cause of the
Great Depression?
a. No, the Great Depression actually began two years before the stock market crash of
1929.
b. Yes, after the stock market crash of October 1929 the market never recovered until
the depression came to an end a decade later.
c. Yes, sharp reductions in stock prices like that of 1929 always result in prolonged
depressions.
d. No, the stock market actually recovered to the level of October 1929 during the five
months following the crash.
Government-operated firms with monopoly power
a. will necessarily meet the criteria of economic efficiency, as long as price equals
average total cost.
b. will always be more efficient than private firms because they do not have to make a
profit.
c. are likely to be inefficient since some of the monopoly power is likely to serve the
interests of the governmental managers and employees.
d. are highly responsive to changes in the preferences of individual consumers since
consumers are also voters.
What problem does the government have that makes price regulation less than an ideal
solution?
a. There is no effective way to enforce price regulation.
b. The government cannot tell what price a firm is charging.
c. Regulators frequently will not have the information they need to set prices.
d. Regulation often will lead to lower costs.
Public choice theory indicates someone who spends more time evaluating which tennis
racket to buy than deciding which U.S. Senate candidate to support
a. is behaving irrationally.
b. is behaving rationally, given the structure of incentives confronted.
c. will likely be responsible for electing the wrong senator.
d. is failing to maximize his own personal utility.
When the 2010 Patient Protection and Affordable Care Act is fully implemented, it will
a. substantially reduce the share of health care expenses paid by a third party.
b. require all Americans to purchase health care insurance from either a private or
government source.
c. increase the competitiveness of the health insurance business by allowing people to
purchase the insurance across state boundaries.
d. reduce the demand for health care and thereby lead to lower prices for health care
services.