The rules of the WTO:
a. apply only to domestic trade within a nation.
b. apply to both domestic trade within a nation and international trade with other
nations.
c. apply only to trade among nations.
d. include a prohibition of tariffs.
e. encourage high tariffs.
Exhibit 2-16 Production possibilities curve
In Exhibit 2-16, which of the following
points on the production possibilities curve are full-employment production points?
a. A, B, C, D
b. A, B, C, D, U
c. E, U, W
d. B, C, D, U
e. A, B, C, U
When the economy is operating well below capacity, an increase in spending tends to
be reflected primarily in a(n):
a. lower level of employment.
b. increase in price.
c. lower level of output.
d. higher level of output and employment.
e. increase in business failures.
The law of demand refers to the:
a. inverse relationship between the price of a good and the willingness of consumers to
buy it.
b. price increase that results from an increase in demand for a good of limited supply.
c. inverse relationship between the price of a good and the quantity offered for sale.
d. increase in the quantity of a good available when its price increases.
In the aggregate expenditures model, equilibrium occurs if:
a. consumption equals investment.
b. inventory equals investment.
c. aggregate expenditures equal consumption.
d. aggregate expenditures equal disposable income.
What is the length of the term of the members of the Board of Governors of the Federal
Reserve System?
a. Four years.
b. Six years.
c. Fourteen years.
d. Life or until the member resigns.
Exhibit 2-3 Production possibilities curve data ABCDE
Capital goods 0 1 2 3 4
Consumer goods 20 18 14 8 0 According to the data given in Exhibit 2-3, the
production of 1 unit of capital goods and 14 units of consumer goods:
a. is possible but would be inefficient.
b. may be a result of unemployment.
c. may be a result of unused natural resources.
d. all of these.
Adam Smith, in his book, The Wealth of Nations, advocated:
a. socialism.
b. an economy guided by an “invisible hand.”
c. government control of the “invisible hand.”
d. the adoption of mercantilism.
Because of the problem of scarcity, each economic system must make which of the
following choices?
a. How to produce?
b. What to produce? c. For whom to produce?
d. All of these.
If Bill is willing to pay $10 for one good X, $8 for a second, and $6 for a third, and the
market price is $5, then Max’s consumer surplus is:
a. $24.
b. $18.
c. $9.
d. $6.
An advocate of supply-side fiscal policy would advocate which of the following?
a. Subsidies to produce technological advances.
b. Reduction in regulation.
c. Reduction in resource prices.
d. Reduction in taxes.
e. All of these.
Which of the following is an automatic stabilizer that moves the federal budget toward
deficit during an economic contraction and toward surplus during an economic
expansion?
a. Personal income tax revenues.
b. Corporate income tax revenues.
c. Unemployment benefits.
d. All of these.
Which of the following statements is true?
a. The most important source of revenue to the federal government is personal income
taxes.
b. The most important source of revenue to state governments are sales and property
taxes.
c. The most important source of revenue to local governments are local property taxes.
d. The taxation burden, measured by taxes as a percentage of GDP, is lighter in the
United States than in most other advanced industrial countries.
e. All of these.
If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is
imposed at $3 per thousand cubic feet, the result will be:
a. a surplus of natural gas.
b. a shortage of natural gas.
c. an accumulation of inventories of unsold gas.
d. None of these.
Exhibit 11-8 Aggregate demand and supply curves
The Laffer curve belongs to which of the
following schools of economic thought?
a. Keynesian.
b. Supply-side.
c. Demand management.
d. Classical.
Assume the economy is in short-run equilibrium at a real GDP below its potential real
GDP. According to Keynesian theory, which of the following policies should be
followed?
a. The Federal Reserve should increase the money supply.
b. The federal government should increase spending.
c. The federal government should do nothing because the economy will self correct to
potential real GDP.
d. All of these.
External debt refers to the portion of the national debt owned by private individuals and
internal debt refers to that part owned by the public sector.
When there is a shift in autonomous expenditure, why is there a multiple expansion of
income and real GDP? Trace the multiplier effect through the first four rounds when
there is an increase in autonomous expenditure of $40 billion and the marginal
propensity to consume is 0.75.
The greater the marginal propensity to consume (MPC) in the economy, the greater the
spending multiplier.
Two variables that are inversely related tend to move in opposite directions.
How is inflation typically measured? What are the different types of inflation? Why is it
important to know which type of inflation we may be experiencing?
The tax multiplier is equal to the spending multiplier.
The real interest rate can be negative.
The law of supply states that an increase in supply is represented graphically as a
rightward shift of the supply curve.