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Suppose you have $200 with which you can buy shares of stock from two companies:
ABC Hot Chocolate Company and XYZ Lemonade. Each company's stock currently
sells for $100 per share. If the temperature next year is lower than average, the stock
price for ABC will increase by $20, and the stock price for XYZ will not change. If the
temperature next year is higher than average, the stock price for XYZ will increase by
$20, and the stock price for ABC will not change. There is a 50% chance that it will be
colder than average next year, and a 25% chance that it will be warmer than average. If
you purchase one share of ABC stock and one shares of XYZ stock, there is a ______
chance that your gain will be $20. Otherwise, your gain will be ______.
A. 50%; $0
B. 25%; $30
C. 75%; $0
D. 50%; $40
Firms and individuals do not technically buy and sell the labor input; renting is a more
accurate description. Therefore,
A. the supply and demand model does not apply.
B. the basic model of supply and demand can be applied to competitive labor markets.
C. equilibrium will never occur.
D. firms will always underpay workers.
Refer to the figure above. Assume that column A and column B are the initial demand
and supply curves. At a price of $30, the market would experience:
A. an equilibrium.
B. excess demand of 95 units.
C. excess supply of 45 units.
D. excess demand of 45 units.
Moe has just been offered a job that pays much more than other jobs requiring the same
skills, education, and hours. Moe can infer that
A. the job will be more prestigious.
B. the job will involve adverse working conditions.
C. the employer is not greedy.
D. the job will also offer generous benefits.
The table below gives the quantities and prices for 2000 and 2010 for an economy that
produces just two goods: sailboats and coconuts.
For this economy that produces just sailboats and coconuts, and with 2000 is the base
year, nominal GDP was approximately ______ times larger in 2010 than it was in 2000.
A. 1.34
B. 1.65
C. 1.77
D. 2.19
If bank reserves are 200, the public holds 400 in currency, and the desired
reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.
A. 200; 600
B. 400; 800
C. 600; 1,000
D. 800; 1,200
The lemons model predicts that the market price of used cars will be _______ than the
market value of used cars of average condition, therefore attracting _______ cars into
the market.
A. greater; better than average
B. lower; better than average
C. equal to; only average
D. lower; worse than average
What is the optimal supply of roadside litter?
A. Zero, because it is costless for each individual to throw away his or her own trash.
B. The quantity of litter that would remain if trash were picked up until the average cost
of picking up trash equaled the total benefit.
C. The quantity of litter that would remain if trash were picked up until the marginal
cost of picking up trash equaled the marginal benefit.
D. The quantity of litter that would remain if trash were picked up until the total cost of
picking up trash equaled the marginal benefit.
When Argentines increase their savings in U.S. dollars, the U.S. money:
A. supply curve shifts left.
B. supply curve shifts right.
C. demand curve shifts right.
D. demand curve shifts left.
Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in
the rebate form if:
A. the opportunity cost of the time and trouble of sending in the rebate form is less than
$10.
B. the opportunity cost of the time and trouble of sending in the rebate form is more
than $10.
C. she would have bought the phone without the rebate, and so sending in the rebate
form involves no opportunity cost.
D. Ginger's surplus from purchasing the phone was less than $10.
In an industry with free entry and exit, economic profits:
A. indicate a market failure.
B. can never occur.
C. provide incentives for a reallocation of resources out of other industries and into the
one with economic profits.
D. can be sustained indefinitely.
Money serves as a medium of exchange when:
A. it is used to purchase goods and services.
B. there is direct trade of goods and services.
C. it is a basic measure of economic value.
D. it is a means of holding wealth.
To accommodate an adverse inflation shock the Fed must ____, while to offset the
effect of an increase in aggregate demand the Fed must _____.
A. lower the inflation rate target; adjust the real interest rate target to the level at which
saving equals investment in the long run.
B. raise the inflation rate target; adjust the real interest rate target to the level at which
saving equals investment in the long run.
C. maintain the inflation rate target; maintain the real interest rate target.
D. adjust the real interest rate target to the level at which saving equals investment in
the long run; lower the inflation rate target.
If all prices adjusted immediately to balance the quantities supplied and demanded for
all goods and services:
A. output gaps would not exist.
B. output gaps would be positive more often than they would be negative.
C. cyclical unemployment would be positive.
D. potential GDP would rise much more quickly.
Demographers predict that the average age of the population of the U.S. will increase.
One result will be an increase in the demand for nurses. Assume that the graph below
describes the current nursing labor market in a mid-sized city, and that the market is a
competitive one.
Suppose the market started out in equilibrium, with Supply A and the current demand in
effect. Relative to that situation, the shift in supply from Supply A to Current Supply
together with an increase in demand to Demand, predicted
A. cancel each other out, so that neither wages nor number of nurses changes.
B. cause the number of nurses to increase, but the wages will change minimally if at all.
C. cause wages to increase, but the number of nurses will change minimally if at all.
D. cause both wages and the number of nurses to increase.
In the short-run total spending affects ____, and in the long-run total spending affects
______.
A. prices; output
B. prices; unemployment
C. output; prices
D. output; unemployment
Changes in autonomous consumption could be the result of:
A. changes in disposable income.
B. changes in inflation.
C. changes in the mpc.
D. changes in housing prices.
In the basic Keynesian model, a tax cut:
A. reduces short-run equilibrium output.
B. increases short-run equilibrium output.
C. reduces potential output.
D. increases potential output.
The very small city of Pleasantville is considering building a public swimming pool that
costs $1,000. The table shows the five voters in the city and their marginal benefit of a
swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must
vote.
Kyle proposes that all voters pay 68% of their marginal benefit in taxes to pay for the
pool. The outcome of this proposal is __________ votes in favor, __________ votes
opposed and the measure will __________.
A. 4; 1; pass
B. 5; 0; pass
C. 0; 5; fail
D. 3; 2; pass
Intermediate goods and services are ______ production and ______ counted in GDP.
A. the end products of; are
B. the end products of; are not
C. used up in the process of; are
D. used up in the process of; are not
Larry has a comparative advantage in writing a term paper if he:
A. can write a paper faster than the other students in class.
B. has an absolute advantage in writing a term paper.
C. always earns an A on his papers.
D. has the lowest opportunity cost for writing a term paper.
The data below describe the economy of Econland:
Public saving in Econland equals:
A. -5
B. 5
C. 16
D. 17
The opportunity cost of money is:
A. the time spent going to the bank to withdraw funds.
B. the fees charged by banks to provide checking services.
C. the nominal interest rate.
D. the price level.
An implication of entry and exit in response to the profit incentive is that, for perfectly
competitive firms,
A. no firm accepts zero economic profits in the long run.
B. firms produce the quantity that minimizes average variable costs in the short run.
C. firms produce the quantity that minimizes average total costs in the long run.
D. demand is completely inelastic.
If a firm is experiencing diminishing returns, you can conclude that:
A. marginal costs are also declining.
B. marginal costs are increasing.
C. total labor costs are constant.
D. average revenue is increasing.
When housing prices decrease, household wealth _____, and consumption _____.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
A village has five residents, each of whom has accumulated savings of $50. Each
villager can use the money to buy a government bond that pays 10% interest per year or
to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The
price of the goat that the villager will get at the end of the year depends on the amount
of weight it gains while grazing on the commons, which in turn depends on the number
of goats sent onto the commons, as shown in table below.
Refer to the information given above. What will be the total village income, if every
individual makes the decision that gives him or her the most private benefit?
A. $5
B. $125
C. $75
D. $25
Refer to the figure above. When the demand is P1 = $30, what is the total cost?
A. $960
B. $1200
C. $1600
D. $2500
Higher future living standards require:
A. reduced rates of current consumption.
B. increased rates of population growth.
C. increased rates of current consumption.
D. reduced rates of current investment.
Demographers predict that the average age of the population of the U.S. will increase.
One result will be an increase in the demand for nurses. Assume that the graph below
describes the current nursing labor market in a mid-sized city, and that the market is a
competitive one.
Suppose that several years ago the supply of nurses in this city was as shown as Supply
A. What might explain the change from Supply A to Supply, current?
A. an increase in nurses' wages.
B. a decrease in nurses' wages.
C. increased immigration of people trained as nurses in other countries.
D. increased employment opportunities for people who would have once chosen
nursing as a career.
The following table shows the relationship between the speed of a computer's CPU and
the benefits and costs. Assume that all other features of the computer are the same, i.e.,
CPU speed is the only source of variation.
Choosing the 1,000 Mhz computer would be inefficient because:
A. the marginal benefit is less than the marginal cost.
B. the marginal benefit is equal to the marginal cost.
C. it is impossible to tell the difference compared to a 600 Mhz computer.
D. the marginal benefit is more than the marginal cost.
The benefits of economic growth are _____, while the costs of economic growth are
_____.
A. increased output per person; too small for concern
B. increased output per person; the consumption sacrificed in exchange for capital
formation
C. increased output per person; less future consumption
D. more current consumption; less future consumption
The U.S. dollar exchange rate, e, where e is the nominal exchange rate expressed as
Japanese yen per U.S. dollar, will depreciate when:
A. real GDP in the U.S. increases.
B. real GDP in Japan increases.
C. the U.S. Federal Reserve tightens monetary policy.
D. U.S. consumers decrease their preference for Japanese cars.
Entrepreneurs are people who:
A. engage exclusively in business travel.
B. entertain the workers.
C. run businesses on a day-to-day basis.
D. create new economic enterprises.
Suppose that the price elasticity of supply for the Hope Diamond is zero. Therefore, the
supply curve for the Hope Diamond is:
A. elastic.
B. perfectly inelastic.
C. unitary elastic.
D. perfectly elastic.
