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Suppose the world economy is composed of just two countries: A and B. Each can
produce steel or chemicals but at different levels of economic efficiency. The domestic
production possibilities curves are shown in the graphs below.
Refer to the above graphs and information. It can be seen that:
A. country B has a comparative advantage in chemicals.
B. country B can produce more of both goods than A.
C. country A has a comparative advantage in both commodities.
D. it is more costly in terms of resources to produce steel in country A.
Refer to the above diagrams that show identical marginal utility from income curves for
Singer and Catalano. If this initial distribution of $15,000 to Singer and $5,000 to
Catalano is altered in favor of greater equality, it may be argued that:
A. the combined total utility of the two consumers will decline because Catalano has a
greater capacity to derive utility from income than does Singer.
B. incentives to produce will be weakened and total income will decrease.
C. incentives to produce will be enhanced and total income will increase.
D. the combined total utility of the two consumers will decline because Singer has a
greater capacity to derive utility from income than does Catalano.
As price increases along a downsloping linear demand curve:
A. price elasticity of demand increases.
B. price elasticity of demand decreases.
C. price elasticity of demand does not change.
D. the behavior of price elasticity of demand cannot be determined.
Official unemployment statistics:
A. understate unemployment because individuals receiving unemployment
compensation are counted as employed.
B. understate unemployment because discouraged workers are not counted as
unemployed.
C. include cyclical and structural unemployment but not frictional unemployment.
D. overstate unemployment because workers who are involuntarily working part time
are counted as being employed.
In which market model is there mutual interdependence?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
A firm sells a product in a purely competitive market. The marginal cost of the product
at the current output of 800 units is $3.50. The minimum possible average variable cost
is $3.00. The market price of the product is $4.00. To maximize profit or minimize
losses, the firm should:
A. continue producing 800 units.
B. produce less than 800 units.
C. produce more than 800 units.
D. shut down.
Answer the next question on the basis of the following table for a commercial bank or
thrift:
Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves
of this single bank are:
A. $0.
B. $1000.
C. $5000.
D. $30,000.
Nominal GDP was $10,624 billion in year 1 and the GDP price index was 104. Nominal
GDP was $11,246 in year 2 and the GDP deflator that year was 106. What was real
GDP in years 1 and 2, respectively?
A. $9983 billion and $10,111 billion.
B. $10,022 billion and $10,813 billion.
C. $10,215 billion and $10,609 billion.
D. $10,624 billion and $11,246 billion.
The following list contains factors that are related to the aggregate demand curve.
Refer to the above information. Investment spending would most likely be influenced
by changes in:
A. 1 and 3.
B. 4 and 6.
C. 5 and 10.
D. 8 and 9.
Which of the following Gini ratios would indicate the least amount of income
inequality?
A. 0.20
B. 0.40
C. 0.60
D. 0.80
Assume that the required reserve ratio for commercial banks is 25 percent. If the
Federal Reserve Banks buy $3 billion in government securities from commercial banks,
we can say that, as a result of this transaction, the lending ability of the commercial
banking system will:
A. decrease by $9 billion.
B. increase by $9 billion.
C. increase by $12 billion.
D. increase by $15 billion.
Lowering the reserve ratio:
A. increases the discount rate.
B. decreases the discount rate.
C. changes required reserves to excess reserves.
D. decreases the amount of excess reserves banks must keep.
The economy of Cuba most closely approximates:
A. laissez-faire capitalism.
B. a command economy.
C. pure capitalism.
D. a market economy.
Kevin has lost his job in an automobile plant because of the use of robots for welding
on the assembly line. Kevin plans to go to technical school to learn how to repair
microcomputers. The type of unemployment Kevin is faced with is:
A. cyclical.
B. frictional.
C. structural.
D. natural.
Refer to the above table. The marginal cost of the third unit of output is:
A. $20.
B. $23.
C. $24.
D. $25.
Economies of scale are indicated by:
A. the rising segment of the average variable cost curve.
B. the declining segment of the long-run average total cost curve.
C. the difference between total revenue and total cost.
D. a rising marginal cost curve.
A decrease in government spending will cause a(n):
A. increase in the quantity of real domestic output demanded.
B. decrease in the quantity of real domestic output demanded.
C. decrease in aggregate demand.
D. increase in aggregate demand.
The minimum efficient scale of a firm:
A. is realized somewhere in the range of diseconomies of scale.
B. occurs where marginal product becomes zero.
C. is in the middle of the range of constant returns to scale.
D. is the smallest level of output at which long-run average total cost is minimized.
Refer to the above graph. It shows a profit-maximizing, purely competitive firm
operating in the short run. Which area in the graph represents the amount of economic
loss for the firm?
A. 0beg
B. bcde
C. acdf
D. abef
Using income as the tax base, which of the following best illustrates a regressive tax?
A. The federal inheritance tax
B. A 7 percent general sales tax
C. The corporate income tax
D. The personal income tax
Using the graph above, what is the difference between purely competitive and pure
monopolist output at the industry level?
A. 0
B. 35
C. 70
D. 105
The production possibilities table below shows the hypothetical relationship between
the production of capital goods and consumer goods in an economy.
Refer to the table above. What is the opportunity cost of producing the third unit of
capital goods?
A. 4 units of consumer goods
B. 5 units of consumer goods
C. 6 units of consumer goods
D. 7 units of consumer goods
Which of the following were factors in the financial crisis of 2007-2008?
A. Mortgage default crisis.
B. Securitization.
C. Subprime mortgage loans.
D. All of these.
The goldsmith's ability to create money was based on the fact that:
A. withdrawals of gold tended to exceed deposits of gold in any given time period.
B. consumers and merchants preferred to use gold for transactions, rather than paper
money.
C. the goldsmith was required to keep 100 percent gold reserves.
D. paper money in the form of gold receipts was rarely redeemed for gold.
A purely competitive firm does not try to sell more of its product by lowering its price
below the market price because:
A. its competitors would not permit it.
B. it can sell all it wants to at the market price.
C. this would be considered unethical price chiseling.
D. its demand curve is inelastic, so total revenue will decline.
Some economists prefer to use the term business fluctuations rather than business
cycles to describe the historical growth record in the United States because:
A. cycles include a trough phase while fluctuations do not.
B. cycles imply regularity while fluctuations do not.
C. fluctuations include an expansion phase while cycles do not.
D. fluctuations are relatively predictable events.
An increase in the price of a good will cause total revenue to fall if price elasticity of
demand is:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly elastic.
It has been proposed that a government agency be charged with the responsibility for
determining the amount of pollution that the atmosphere or a body of water can safely
recycle, and selling these limited rights to polluters. From an economist's perspective,
what would be the advantage of such a market for pollution rights?
A.Government agencies can make a great deal of money.
B.Pollution would be eliminated because nobody would want to pay for such a right.
C.The quality of water or air can be maintained at some acceptable standard through
economic incentives.
D.The social consciousness of people would be raised as they obtain more appreciation
for the importance of conservation.
The issue of the separation of ownership and control is concerned with the fact that:
A. politicians pass laws to control corporations, but since corporations cannot vote, they
cannot protest such control.
B. major decisions in large corporations are generally made by professional managers
rather than the owners of the corporation.
C. most farms are owned by landlords who do not live on the farms.
D. many small proprietorships are actually controlled by large corporations.
Refer to the above graph. Suppose that a competitive firm in long-run equilibrium faces
a market wage W0 as shown. Suddenly, the price of the output it produces increases. If
other things remain the same, the short-run effect of this change in price would be to:
A. increase the firm's demand for labor from MRP1 to MRP3.
B. decrease the firm's demand for labor from MRP1 to MRP2.
C. increase the market wage rate to W1 and decrease the quantity of labor the firm
demands to point A.
D. decrease the market wage rate to W2 and increase the quantity of labor the firm
demands to point B.
In which of the following statements are the terms "demand" and "quantity demanded"
used correctly?
A. When the price of ice cream rose, the demand for both ice cream and ice cream
toppings fell.
B. When the price of ice cream rose, the quantity demanded of ice cream fell and the
demand for ice cream toppings fell.
C. When the price of ice cream rose, the demand for ice cream fell and the quantity
demanded of ice cream toppings fell.
D. None of these statements uses the terms correctly.
A decline in the quantity of real output demanded along the aggregate demand curve is
a result of a(n):
A. decrease in the level of income.
B. increase in the price level.
C. increase in the level of income.
D. decrease in the price level.
Refer to the above graph. A budget deficit would be associated with GDP level:
A. J.
B. K.
C. L.
D. no GDP level.
