A large public debt will not bankrupt the federal government because it can refinance
the debt or increase taxes to pay it.
The gross domestic product (GDP) is the market value of all goods and services
produced by the economy in one year.
Since the 1980s, banks and thrifts have lost their share of the financial services industry
and control over financial assets.
Both intermediate and final goods are counted as part of GDP.
Pure competition results in a lower price but identical output level compared to those in
monopolistic competition.
At zero units of output a firm’s variable costs are zero.
Unanticipated inflation benefits some groups in the economy.
The banking system can lend by a multiple of its excess reserves because lending does
not result in a loss of reserves to the banking system as a whole.
Aggregate demand is a schedule that shows the various amounts of goods and services
that only consumers and businesses desire to purchase at each possible price level.
The Federal Reserve is prohibited from lending money to banks and thrifts.
The principle of comparative advantage is that total output will be greatest when each
good is produced by that nation that has the lowest domestic opportunity cost.
Sales taxes are proportional in relation to income because the same tax rate applies
regardless of the size of a purchase.
A fall in real interest rates will reduce aggregate demand.
Economic profit is the difference between total revenue and marginal revenue.
In the U.S. economy, services account for over half of all consumer expenditures.
China, Singapore, South Korea, and Taiwan account for over 60 percent of the volume
of international trade.
Allocative efficiency means achieving the optimal or most desired point on the
production possibilities curve.
Individual property rights are the right of the government to own, use, and dispose of
resources in an economy.
The Federal Reserve is responsible for issuing currency.
Productive efficiency means that goods and services are being produced by society in
the least costly way.
Firms are more likely to collude when the economy is in a recession.
A cartel of 10 firms that controls 100 percent of the output in a market and faces the
same cost schedules that a monopolist would in the market will have to set a price
somewhat lower than the monopoly price for its product.
The demand for cocaine is believed to be relatively elastic among addicts.
Macroeconomics is concerned with the whole economy or its major sectors.
Social Security, Medicare, and unemployment compensation are social insurance
programs.
Benefits under social insurance programs are paid on the basis of need.
If imports are greater than exports, then the difference between them will be added to
other expenditures to calculate GDP.
Minimum wage laws tend to make the price level more flexible rather than less flexible.
Cost-push inflation increases real output and employment.
A product that was produced in 2009 and not sold until 2010 is counted as part of GDP
in 2010.
Monopolistically competitive firms must produce where there is an optimal allocation
of resources because the firms do not present significant barriers to entry to potential
competitors.
Improved economic growth in the major economies of the major trading partners of the
United States would reduce its trade deficit.
The value of a sale of a share of stock is considered to be an investment in national
income accounting.
A decrease in government spending is one of the options that can be used to pursue a
contractionary fiscal policy.
Although state and local taxes are highly progressive, federal taxation is predominantly
regressive.
Fixed exchange rates usually provide more certainty to those engaged in international
trade.
The demand curve of the monopolistic competitor is likely to be more elastic than the
demand curve of the pure monopolist.
The law of diminishing returns explains why short-run marginal cost curves are upward
sloping.
If MRP < Wage rate, a firm should hire more workers.
Rent-seeking behavior refers to activities designed to transfer income or wealth to a
particular firm or resource supplier at someone else’s or society’s expense.
If a firm decides to produce no output in the short run, its costs will be:
A. its marginal costs.
B. its fixed plus its variable costs.
C. its fixed costs.
D. zero.
Pa and Pb represent the prices that citizens (a) and (b), the only two people in this
nation, are willing to pay for additional units of a quantity (Qc) of the public good. Qs
represents the quantity of the public good supplied by government at each of the
collective prices.
Refer to the above information. If the collective willingness to pay for an additional unit
of this public good is $6, then the collective quantity demanded will be:
A.1 unit and the socially optimal quantity supplied will be 5 units.
B.2 units and the socially optimal quantity supplied will be 4 units.
C.3 units and the socially optimal quantity supplied will be 3 units.
D.4 units and the socially optimal quantity supplied will be 2 units.
Use the following balance sheet for the ABC National Bank in answering the next
question. Assume the required reserve ratio is 20 percent.
Refer to the above data. Assuming the bank loans out all of its remaining excess
reserves as a checkable deposit and has a check cleared against it for that amount, the
bank will now have excess reserves of:
A. $0.
B. $3000.
C. $12,000.
D. $5000.
The basic difference between the short run and the long run is that:
A. all costs are fixed in the short run, but all costs are variable in the long run.
B. the law of diminishing returns applies in the long run but not in the short run.
C. at least one resource is fixed in the short run, while all resources are variable in the
long run.
D. economies of scale may be present in the short run but not in the long run.
Which best describes the “invisible hand” concept?
A. Highly detailed central direction of an economy will maximize the public’s best
interests.
B. The market system works best when resources are highly substitutable.
C. The problem of scarcity can best be overcome in a system of mixed capitalism.
D. The desires of producers and resource suppliers to further their own self-interest will
tend to promote the social interest.
The level of GDP will tend to increase when:
A. reserve requirements are increased.
B. there is an increase in the discount rate.
C. the Federal Reserve buys government securities in the open market.
D. the Federal Reserve sells government securities in the open market.
Answer the next question on the basis of the following production possibilities data for
two countries, Alpha and Beta, which have populations of equal size.
Assume the production possibilities in Beta double at alternatives A through E while
remaining as shown in the table for Alpha. As a result Beta should:
A. continue to specialize in producing chips.
B. continue to specialize in fishing.
C. no longer specialize and trade.
D. specialize both in fishing and in producing chips and sell the surplus to Alpha.
As of 2012, approximately how many households are in the United States?
A. 60 million.
B. 115 million.
C. 200 million.
D. 290 million.
Of the 10 fastest-growing occupations in percentage terms, it is estimated for
2008-2018 that the top seven will be related to:
A. energy and mining.
B. banking and finance.
C. health and computers.
D. government.
In a market economy, entrepreneurs are most concerned with:
A. maximizing utility or satisfaction from limited incomes.
B. increasing the wages and salaries of workers.
C. maximizing profits or minimizing losses.
D. the selfish pursuit of money.
The U.S. beer industry:
A. sells a growing proportion of its product for consumption in bars and taverns.
B. was made more competitive by technological advances such as faster bottling lines.
C. was formerly a monopolistically competitive industry, but today it is an oligopoly.
D. has experienced competition from a growing number of independent brewers over
the past 40 years.
How does human specialization contribute to an economy’s output?
A. It makes use of differences in abilities.
B. It is a process of creative destruction.
C. It works like an “invisible hand.”
D. It decreases derived demand.
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 first two units of
capital goods?
A. 4 units of consumer goods
B. 5 units of consumer goods
C. 9 units of consumer goods
D. 13 units of consumer goods
A reduction in the level of unemployment would have which effect with respect to the
nation’s production possibilities curve?
A. It would shift the curve to the right.
B. It would shift the curve to the left.
C. It would not shift the curve; it would be represented by moving from a point inside
the curve toward the curve.
D. It would not shift the curve; it would be represented by moving from a point on the
curve to a point outside the curve.
Under a guaranteed minimum annual income plan, if the minimum income level is
$5000 with a benefit-reduction rate of 50 percent, the earnings level at which benefits
(transfer payments) would be zero is:
A. $2500.
B. $5000.
C. $8.000.
D. $10,000.
The worker is guaranteed an income of $5000. If the worker made $10,000, he would
have 50 percent of the earned income (i.e., $10,000 * 0.50 = $5000) taken away. This
means the guaranteed income disappears.
The consumption of fixed capital from each year’s production activities is called:
A. indirect business taxes.
B. inventory reduction.
C. depreciation.
D. investment.
The cyclically adjusted budget is also called the:
A. actual budget.
B. cyclical budget.
C. administrative budget.
D. full-employment budget.
GDP is the market value of:
A. all expenditures on natural resources, labor, and capital goods in an economy in a
given year.
B. all expenditures on consumption, investment, and net exports in an economy in a
given year.
C. all intermediate goods and services produced in an economy in a given year.
D. all final goods and services produced in an economy in a given year.
Using the data in the above table, what percentage should be reported in blank C of
column 3?
A. 6
B. 11
C. 35
D. 51
In calculating the unemployment rate, “discouraged” workers who are not actively
seeking employment are:
A. excluded.
B. included.
C. treated the same as part-time workers.
D. included in the labor force.
The degree of inequality in the distribution of income in an economy is depicted in a:
A. Lorenz curve.
B. Phillips curve.
C. Laffer curve.
D. supply curve.
Which is a barrier to entry?
A. Patents
B. Revenue maximization
C. Profit maximization
D. Elastic product demand
The demand curve for a monopolistically competitive firm has a:
A. positive slope and the marginal revenue curve has a negative slope.
B. positive slope and the marginal revenue curve has a positive slope.
C. negative slope and the marginal revenue curve has a negative slope.
D. negative slope and the marginal revenue curve has a positive slope.
How long is the term of office for members appointed to serve on the Board of
Governors of the Federal Reserve System?
A. 2 years
B. 4 years
C. 7 years
D. 14 years
What real or potential economic problem is posed by the public debt and its growth?
A. It can lead the nation to bankruptcy.
B. It causes expansionary economic policy making.
C. It may crowd out investment in new capital goods.
D. It places an unwarranted economic burden on future generations.
When aggregate demand shifts because of expansionary fiscal policy, then the impact of
the fiscal policy for:
A. increasing GDP will be weakened by an increase in the price level.
B. increasing GDP will be strengthened by the decrease in the price level.
C. decreasing GDP will be strengthened if crowding out occurs.
D. increasing GDP will be weakened if crowding out occurs.
In monopolistic competition, a firm has a limited degree of “price-making” ability. This
means that the firm will:
A. always earn an economic profit.
B. set price equal to marginal cost.
C. set price above marginal cost.
D. produce at minimum average total cost.
An effective price floor will:
A. force some firms in this industry to go out of business.
B. result in a product surplus.
C. result in a product shortage.
D. clear the market.
Suppose the United States pursued an expansionary fiscal policy to stimulate its
economy and eliminate a recession. The crowding-out effect suggests that:
A. private investment would decrease, thus decreasing aggregate demand and partially
offsetting the fiscal policy.
B. private investment would decrease, thus increasing aggregate demand and partially
offsetting the fiscal policy.
C. net exports would increase, thus decreasing aggregate demand and partially
offsetting fiscal policy.
D. net exports would increase, thus increasing aggregate demand and partially
reinforcing the fiscal policy.
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
A. increase aggregate supply.
B. decrease aggregate supply.
C. decrease aggregate demand.
D. cause a movement along the aggregate demand curve.
Digital cameras and memory cards are:
A. substitute goods.
B. complementary goods.
C. independent goods.
D. inferior goods.
The following economy produces two products.
Refer to the above table. The total opportunity cost of the three units of steel is:
A. 15 units of wheat.
B. 20 units of wheat.
C. 45 units of wheat.
D. 55 units of wheat.