If aggregate expenditure is less than GDP, how will the economy reach macroeconomic
equilibrium?
A) Inventories will decline, and GDP and employment will decline.
B) Inventories will rise, and GDP and employment will decline.
C) Inventories will decline, and GDP and employment will rise.
D) Inventories will rise, and GDP and employment will rise.
Declines in spending on residential construction are often due to increases in interest
rates. The collapse in residential construction prior to and during the recession of
2007-2009 was due more to ________ than to higher interest rates.
A) the financial crisis that began in 2007
B) the rapid inflation of the early 2000s
C) increases in the price of lumber
D) rising wages in the construction industry
If firms do not increase their quantity supplied when price changes, then supply is
A) perfectly elastic.
B) perfectly inelastic.
C) relatively inelastic.
D) elastic.
Table 1-4
Eva runs a small bakery in the village of Roggerli. She is debating whether she should
extend her hours of operation. Eva figures that her sales revenue will depend on the
number of hours the bakery is open as shown in the table above. She would have to hire
a worker for those hours at a wage rate of $12 per hour.4. Using marginal analysis,
determine how many hours should Eva extend her bakery’s hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
All but one of the following have been suggested by some economists as possible
consequences of path dependency and switching costs. Which of the following is not a
possible consequence of path dependency and switching costs?
A) Consumers may get locked into using products with inferior technology.
B) market failure
C) diseconomies of scale
D) Government intervention may be necessary in affected markets in order to improve
economic efficiency.
The Bay Area subway system, BART, offers senior citizens discounted fares for BART
rides. This suggests that BART authorities believe that senior citizens have a ________
demand for subway rides.
A) more income elastic
B) less income elastic
C) more price elastic
D) less price elastic
As the value of the Gini coefficient approaches one
A) income distribution becomes less unequal.
B) income distribution becomes more unequal.
C) the percentage of the population under the poverty line increases.
D) the percentage of the population under the poverty line decreases.
An oligopoly firm is similar to a monopolistically competitive firm in that
A) both firms face the prisoner’s dilemma.
B) both operate in a market in which there are entry barriers.
C) both firms have market power.
D) both firms are in industries characterized by an interdependent firm.
________ is a problem that occurs when one concludes that a change in variable X
caused a change in variable Y when in actual fact, it is a change in variable Y that
caused a change in variable X.
A) The omitted variable
B) The positive-to-negative relationship
C) Reverse causality
D) Nonlinear slope
A commercial bank like Comerica creates money by
A) printing paper money.
B) earning profits.
C) selling corporate bonds.
D) making loans.
According to the World Bank, Albania does one of the worst jobs as a country enforcing
the rule of law. The consequence of a weak rule of law is
A) difficulty in attracting investment and low economic growth.
B) a decrease in cash transactions and increased efficiency.
C) more risk taking on the part of entrepreneurs and greater economic investment.
D) strong property rights enforcement leading to greater investment.
Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet
House is . What happens to sales revenue if the restaurant increases its price by 5
percent?
A) Sales revenue falls by less than 5 percent.
B) Sales revenue remains unchanged.
C) Sales revenue falls by 100 percent.
D) It cannot be determined without information on prices.
Publishers practice price discrimination when they sell books at high prices to
A) early adopters.
B) local bookstores.
C) large chain bookstores.
D) online book sellers.
Table 23-15
Using the table above, answer the following questions. The numbers in the table are in
billions of dollars.
a. What is the equilibrium level of real GDP?
b. What is the MPC?
c. If investment spending declines by $10 billion, what will happen to equilibrium
GDP?
Which of the following would be considered an active fiscal policy?
A) The Fed increases the money supply.
B) Tax incentives are offered to encourage the purchase of fuel efficient cars.
C) Spending on the war in Afghanistan is increased to promote homeland security.
D) A tax cut is designed to stimulate spending passed during a recession.
Under the Patient Protection and Affordable Care Act (ACA), every company with
more than 200 employees must offer health insurance to its employees and must
automatically enroll them in the plan.
Social Security began as a “pay-as-you-go” system, meaning that payments to current
retirees were paid
A) from taxes collected from current workers.
B) from taxes collected from retired workers.
C) as long as the government had funds available.
D) as the government collected revenues from tariffs and excise taxes in the years
Social Security payments were made.
If policymakers use a pollution tax to control pollution, the tax per unit of pollution
should be set
A) equal to the marginal external cost at the economically efficient level of pollution.
B) equal to the marginal private cost of production at the economically efficient level of
pollution.
C) equal to the amount of the deadweight loss created in the absence of a pollution tax.
D) at a level low enough so that producers can pass along a portion of the additional
cost onto consumers without significantly reducing demand for the product.
Which of the following would shift a nation’s production possibilities frontier outward?
A) discovering a more efficient process to desalinate water
B) an increase in the minimum wage
C) a decrease in the unemployment rate
D) more restrictive immigration policies