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According to the Keynesian view, if policy makers thought the economy was about to
fall into a recession, which of the following would be most appropriate?
a. a change in government spending and taxation that will lead to a budget surplus
b. a planned increase in the budget deficit
c. reducing government expenditures
d. balancing the budget
The owners of a firm are earning economic profit if
a. return on their capital is lower than the opportunity cost of employing that capital in
their industry.
b. their total revenues exceed the monetary payments to labor and other resources in the
long run after all plant size adjustments are made.
c. price exceeds average variable costs at the shutdown point.
d. they are earning a return on their capital that is higher than what can generally be
earned in other markets.
A supply shock is a surprise occurrence that
a. shifts the long-run aggregate supply curve to the right.
b. either increases or decreases short-run aggregate supply and output.
c. temporarily increases aggregate demand.
d. temporarily reduces aggregate demand.
In the short run, which of the following is the most likely effect of an unanticipated
move to expansionary monetary policy?
a. an increase in real output
b. a decrease in real output
c. an improvement in technology, which will stimulate growth in the long run
d. an increase in prices proportional to the increase in the money supply
If the federal government were to run a budget deficit, this would
a. increase the size of the national debt.
b. reduce the size of the national debt.
c. leave the size of the national debt unchanged.
d. increase the national debt only if the government also expands the supply of money.
The supply of human capital to a particular use is
a. perfectly inelastic in the short run.
b. perfectly elastic in the long run.
c. more inelastic in the short run since it takes time for persons to acquire a particular
skill.
d. more elastic in the short run since individuals who already possess the particular skill
can be attracted into the labor force in the short run.
Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a
new checkable deposit of $1,000, it could make new loans of
a. $100.
b. $900.
c. $1,000.
d. $10,000.
Increased spending on which of the following items is most likely to increase the size of
government during the years following 2012?
a. education
b. Social Security and Medicare
c. agricultural subsidies
d. transportation (roads and airports)
If a firm is a price taker and wants to earn as much profit as possible, it should expand
output
a. to the quantity at which marginal cost is minimized.
b. as long as marginal cost is less than price.
c. to the quantity at which average total costs are minimized.
d. to try to sell all the output it can produce so that its average fixed costs will be
minimized.
If the prices of energy products rise sharply, consumers will most likely
a. sharply reduce their consumption of these products in both the short run and the long
run.
b. reduce their consumption of these products slightly in the short run and more sharply
in the long run.
c. reduce their consumption of these products sharply in the short run, but in the long
run consumption will fall by only a small amount.
d. increase their consumption of these products slightly in the short run and more
sharply in the long run.
Figure 17-10
Refer to Figure 17-10. With trade and without a tariff, the price and domestic quantity
demanded are
a. P1 and Q1.
b. P1 and Q4.
c. P2 and Q2.
d. P2 and Q3.
Use the table below to choose the correct answer.
The marginal tax rate on income in the $25,000 to $30,000 range is
a. 10 percent.
b. 20 percent.
c. 50 percent.
d. 70 percent.
Which of the following is an important insight of Keynesian analysis?
a. When an economy is in a recession, lower interest rates and lower wage rates will
quickly direct the economy back to full employment.
b. When widespread unemployment is present, increases in aggregate demand will exert
a larger impact on real output than when the economy is operating at or near full
employment.
c. When an economy is in a recession, it makes sense to increase taxes and reduce
government expenditures.
d. A balanced budget is the key to maintenance of full employment.
Other things constant, countries that invest more will grow
a. more rapidly.
b. less rapidly.
c. at the same rate.
d. at exactly 2% per year.
The height of the demand curve for a product indicates the
a. minimum price consumers are willing to pay for an additional unit of it.
b. minimum quantity consumers are willing to purchase at the current price.
c. maximum price consumers are willing to pay for an additional unit of it.
d. minimum price required to induce suppliers to produce an additional unit of it.
Which of the following most accurately describes the invisible hand concept?
a. Wise central planning by government is necessary for the efficient use of resources.
b. In a democratic setting, majority rule will result in the efficient use of resources.
c. In a market setting, when individuals pursue their own interests, they simultaneously
tend to promote the public interest.
d. In a market setting, when individuals pursue their own interests, they tend to engage
in activities that lower the overall economic welfare of society.
Use the production possibilities data below to answer the following question(s).
Table 2-3
Refer to Table 2-3. The farmer and the rancher both could benefit if the farmer were to
specialize in
a. meat and the rancher were to specialize in potatoes.
b. potatoes and the rancher were to specialize in meat.
c. neither good and the rancher were to specialize in both goods.
d. none of the above; they cannot both benefit by specialization and trade.
If the interest rate were 10 percent, the net present value of $100 to be received one
year from now would be
a. $90.
b. $90.91.
c. $100.
d. $110.
Economic theory indicates that, the size of government will be
a. unrelated to economic growth.
b. negatively related to economic growth at all possible sizes of government.
c. positively related to economic growth at all possible sizes of government.
d. positively related to economic growth at small levels of government but is negatively
related to economic growth as government becomes larger and larger.
The replacement of the phonograph by the cassette tape player and the eventual
replacement of the latter by CD and MP3 players is an example of
a. economies of scale.
b. planned obsolescence.
c. diseconomies of scale.
d. creative destruction.
Figure 4-20
Refer to Figure 4-20. The price that buyers pay after the tax is imposed is
a. $8.
b. $6.
c. $5.
d. $3.
When a country allows trade and becomes an exporter of a good,
a. the gains of the domestic producers of the good exceed the losses of the domestic
consumers of the good.
b. the gains of the domestic consumers of the good exceed the losses of the domestic
producers of the good.
c. the losses of the domestic producers of the good exceed the gains of the domestic
consumers of the good.
d. the losses of the domestic consumers of the good exceed the gains of the domestic
producers of the good.
The quantity of money that households and businesses will demand
a. increases if income falls but decreases if interest rates rise.
b. increases if income falls and increases if interest rates rise.
c. decreases if income falls but increases if interest rates rise.
d. decreases if income falls and decreases if interest rates rise.
Figure 11-20
At the profit-maximizing level of production, the monopoly in Figure 11-20 will have
total revenue of
a. $308
b. $187
c. $216
d. $306
e. $272
An unanticipated shift to a more restrictive monetary policy by the Fed will
a. increase real interest rates and, thereby, reduce investment, current consumption, and
aggregate demand.
b. reduce real interest rates, leading to a depreciation of the dollar and an expansion in
net exports and aggregate demand.
c. increase real interest rates, leading to higher asset prices that will stimulate aggregate
demand.
d. reduce real interest rates and, thereby, stimulate investment, current consumption,
and aggregate demand.
Which of the following statements is correct?
a. Approximately 50 percent of our national income is allocated to human capital, while
the remaining 50 percent is allocated to physical capital in the form of rents, interest,
and corporate profits.
b. As union membership as a share of the U.S. labor force has declined during the last
three decades, the share of national income allocated to physical capital has risen.
c. Unions have consistently opposed minimum wage legislation because it tends to
cause unemployment.
d. During the past several decades, the share of output going to capital has been
virtually constant, even though union membership as a share of the labor force has
decreased.
If the exchange rate between the U.S. dollar and the European euro went from $1.20 US
= 1 euro to $1.10 US = 1 euro, then
a. European goods have become less expensive for Americans.
b. American goods have become less expensive for Europeans.
c. American exports to Europe are likely to increase.
d. American imports from Europe are likely to decrease.
Other things constant, a decrease in aggregate demand will
a. lead to a decrease in the demand for resources.
b. cause an increase in the general level of prices.
c. result in higher nominal wage rates.
d. reduce the rate of unemployment.
Madison, a U.S. citizen, works only in Germany. The value she adds to production in
Germany is included
a. in U.S. GDP, but it is not included in German GDP.
b. in German GDP, but it is not included in U.S. GDP.
c. in both German GDP and U.S. GDP.
d. in neither German GDP nor U.S. GDP.
Use the figure below to answer the following question(s).
Figure 4-8
Refer to Figure 4-8. How much revenue does the $40-per-ton tax generate for the
government?
a. $600 million
b. $700 million
c. $2.4 billion
d. $2.8 billion
The price of soccer balls increases from $35 to $40, and as a result, the quantity
demanded decreases from 250 to 200. Over this price range,
a. demand is elastic.
b. demand is inelastic.
c. demand is of unitary elasticity.
d. there is insufficient information to determine the price elasticity of demand.
Figure 3-11
In Figure 3-11, suppose D1 and S1 indicate initial conditions in the market for kitchen
cabinets. Which of the following would tend to cause the supply curve to shift from S1
to S2?
a. the invention of "folding" plates and cups that take up substantially less storage space
in the kitchen
b. a decrease in consumer income
c. a decrease in the price of wood, a resource used to produce kitchen cabinets
d. an increase in the price of steel hinges, a resource used to produce kitchen cabinets
Economic models suggest that movie stars have salaries that
a. greatly exceed their marginal contribution to the movie studio's revenue.
b. understate their full contribution to the movie studio's revenue-as the celebrities are
the main reason that people go to see movies.
c. are about equal to their marginal revenue products.
d. can only be explained by looking at specific movie stars and their individual salaries.
Which combination of signals is indicative that Fed policy is restrictive and that a shift
to a more expansionary policy is in order?
a. Commodity prices are falling, and the dollar is appreciating.
b. Commodity prices are rising, and the dollar is appreciating.
c. Commodity prices are rising, and the dollar is depreciating.
d. Commodity prices are falling, and the dollar is depreciating.
