Wages are:
A) the income households earn by selling their labor.
B) the interest earned from bonds.
C) rent earned from the use of land to firms.
D) the indirect ownership of the physical capital used by firms.
In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend Ava
can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10
cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie
production?
A) Kessy
B) Ava
C) Ian
D) Kessy and Ava have the same opportunity cost in cookie production.
Which of the following is a tool used by the Federal Reserve in the conduct of
monetary policy?
A) changes in the prime rate
B) issuing new government bonds and retiring old ones
C) buying and selling corporate bonds
D) buying and selling federal government bonds
A key theme fundamental to all of economics is that:
A) wants are limited.
B) the United States is a rich country, but we are simply not aware of it.
C) people have unlimited wants but limited means to satisfy them.
D) resources are unlimited.
The main problem with the banking system from 1864 to 1913 was that:
A) the Federal Reserve’s monetary policy was too restrictive.
B) government budget deficits destabilized the system.
C) the money supply was not sufficiently responsive to local economic changes.
D) the currency was not uniform because each bank issued its own notes.
If the friend offers to pay you $1 five years from today, the present value will:
A) be higher than $1.
B) depend upon the prevailing interest rate.
C) be equal to zero, since you don’t have the dollar.
D) not be important in understanding the time value of money.
Fiscal stimulus is expansionary fiscal measures, such as increases in government
spending and decreases in taxes, designed to reduce unemployment.
A) True
B) False
All points on the production possibility frontier are:
A) efficient.
B) inefficient.
C) infeasible.
D) economic growth.
To decrease interest rates, the Fed should make an open-market sale of Treasury bills.
A) True
B) False
Figure: Monetary Policy and the AD“SRASModel
Look at the figure Monetary Policy and the AD”SRASModel. If the economy is in an
inflationary gap at point h, it can move to point ias a result of:
A) an increase in the money supply.
B) a reduction in the discount rate.
C) a decrease in the money supply.
D) purchases of government securities in the open market.
The efficient markets hypothesis says that asset prices embody all publicly available
information.
A) True
B) False
A $100 million increase in government spending increases equilibrium GDP by:
A) $100 million.
B) more than $100 million.
C) less than $100 million.
D) zero.
As a recessionary gap self-corrects, the equilibrium price level _____ and the
equilibrium real output _____.
A) rises; decreases
B) rises; increases
C) falls; decreases
D) falls; increases
Over the past 50 years in the United States, as a percentage of gross domestic product:
A) exports have grown and imports have remained constant.
B) imports have grown and exports have remained constant.
C) exports have decreased.
D) exports and imports have grown.
Which of the following is a measure of changes in the cost of a market basket of raw
commodities, such as steel, electricity, and coal?
A) GDP deflator
B) Dow Jones Industrial Average
C) consumer price index
D) producer price index
Look at the table Production Possibilities. The opportunity cost of 1 computer for _____
is _____.
A) the United States; 2
B) Colombia; 0.5
C) the United States; 0.5
D) Colombia; 1
Suppose Ronny decides to withdraw all of the cash from his checking account and open
a single time deposit account at the same bank. As a result of this transaction:
A) M2 falls but M1 remains unchanged.
B) M1 and M2 both fall.
C) M1 and M2 both remain unchanged.
D) M1 falls but M2 remains unchanged.
Look at the figure Wine and Wheat. If this economy is producing on the production
possibility frontier, what would allow it to produce at point C?
A) an improvement in technology
B) a decrease in resources
C) a decrease in production
D) elimination of unemployment
Which of the following is FALSE? Gross domestic product:
A) is aggregate output.
B) is the total production of final goods and services.
C) grows during an expansion.
D) is the total production of all final and intermediate goods and services.
If there has been an upward movement along the fixed short-run Phillips curve, the
_____ curve has shifted to the _____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
The job creation argument for protection against free trade:
A) is that keeping out foreign imports allows the goods and services to be produced by
domestic workers.
B) is frequently put forward by economists.
C) is mostly that we need full employment to defend the security of the nation.
D) is that we need full employment to prevent currency depreciation.
Figure: The Market for Calculators
Look at the figure The Market for Calculators. Assume that Sand Drepresent the
domestic demand and supply of calculators. The world price, PW,equals $100. When
the economy moves from autarky, under which the price is $150, to free trade,
consumer surplus rises by area _____ and producer surplus falls by _____.
A) B+ K+ L; B
B) B+ C+ K+ L; B+ C+ K+ L
C) B+ C+ H+ I+ K+ L; B+ C+ H+ I
D) B+ C+ G+ H+ I+ J+ K+ L; B+ C
If a country sells more goods and services to the rest of the world than it purchases from
the other countries, then the country has a:
A) trade deficit.
B) budget deficit.
C) trade surplus.
D) budget surplus.
Which of the following will NOT cause an increase in demand for good X?
A) a decrease in income if good X is an inferior good
B) an increase in income if good X is a normal good
C) a decrease in the price of good X
D) an increase in consumers’ taste for good X
“The unemployment rate should be higher” is a normative statement.
A) True
B) False
You and a coworker have been trying to develop a linear equation that describes the
local household consumption function. Your coworker has sent you a very short email
that simply says he has finished the project and the consumption function is C= 100 +
0.75(YD). Your job is to explain this result to your supervisor. According to this
consumption function, what is the marginal propensity to consume?
A) 100
B) 0.75
C) 4
D) 0.25
Intel finds it difficult to hire enough skilled computer engineers. This statement best
represents this economic concept:
A) Resources are scarce.
B) People usually exploit opportunities to make themselves better off.
C) There are gains from trade.
D) One person’s spending is another person’s income.
Scenario: Closed Economy S= I
GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and
government spending is $2 trillion. Taxes are $0.5 trillion.
Look at the scenario Closed Economy S = I. How much is investment spending?
A) $3.5 trillion
B) $3 trillion
C) $2.5 trillion
D) $2 trillion
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 8 old dollars, then a mortgage of $200,000 would become a debt of 25,000 new
dollars.
A) True
B) False
When the price level decreases, firms in perfectly competitive markets will:
A) decrease output and increase the price.
B) decrease output.
C) increase output and decrease the price.
D) increase output.
The bill that Congress passed in 2010 to correct many of the problems that led to the
2008 financial crisis was called:
A) the Wall Street Reform and Consumer Protection Act.
B) the Sherman Anti-Trust Act.
C) the Glass-Steagall Act.
D) the Financial Institutions Modernization Act.
When an economy is operating between a trough and a peak of the business cycle, it is
in:
A) an expansion.
B) a contraction.
C) a short-run condition.
D) the beginning of a fall in aggregate spending.