The 2012 box office receipts for the movie The Avengerswere $1,515.8 million. By way
of comparison, the 1977 receipts forStar Wars were $798.0 million. If the Consumer
Price Index was 60.6 in 1977 and 229.6 in 2012, which of the following is true?
a. The real receipts of The Avengers were almost four times greater than those for Star
Wars.
b. The real receipts of Star Wars were nearly two times greater than those for The
Avengers.
c. The real receipts of The Avengers were one-third of those for Star Wars.
d. The real receipts of Star Wars were about 33 percent greater than those for The
Avengers.
The major sources of economic growth are
a. gains from trade, entrepreneurial discovery, and investment.
b. high taxes, an expansion in the size of government, and restrictions on investments
by foreigners.
c. rapid expansion in the supply of money, trade restrictions, and government licensing
of business activities.
d. free and open elections and politicians who are willing to place the general welfare of
the populace above their political ambitions.
Figure 4-20
Refer to Figure 4-20. The equilibrium price in the market before the tax is imposed is
a. $8.
b. $6.
c. $5.
d. $3.
Which of the following is an example of a deficiency caused by a regulatory approach
to pollution?
a. ignored information provided by market signals
b. special interest influence on policies
c. lack of accountability by regulators for costs of regulation
d. all of the above
A business owned by a single individual who is fully liable for its debts is called
a. a corporation.
b. a proprietorship.
c. a partnership.
d. an agency.
Suppose that the consumer price index at year-end 2008 was 140 and by year-end 2009
had risen to 150. What was the inflation rate during 2009?
a. 7.1 percent
b. 10 percent
c. 14.2 percent
d. 50 percent
In the short run, a price increase in the goods and services market will
a. increase the purchasing power of money.
b. improve producer profits and, thereby, induce suppliers to expand output.
c. increase resource prices, lower profits, and lead to a decline in output.
d. reduce the natural rate of unemployment.
Public choice analysis indicates that politicians will find
a. budget deficits more attractive than budget surpluses.
b. budget surpluses more attractive than budget deficits.
c. budget deficits attractive during an economic boom, but surpluses attractive during a
recession.
d. tax increases more attractive than increases in government spending.
In 2012, the number of workers per Social Security beneficiary was approximately
____; by the year 2030, this figure is expected to ____.
a. 5; increase to approximately 8
b. 2.9; fall to approximately 2.2
c. 2.2; increase to approximately 3.2
d. 8; fall to approximately 5
A bank finds itself short of required reserves and therefore borrows from another
commercial bank. The interest rate on this loan is
a. zero.
b. the prime rate.
c. the discount rate.
d. the federal funds rate.
e. the required reserve ratio.
Figure 4-16
Refer to Figure 4-16. Some policymakers have argued that the government should
establish a “living wage.” A living wage would provide workers a reasonable standard
of living in their city or region. If a living wage of $10 per hour is established in the
market pictured here, we would expect
a. employment will increase to 14 million.
b. employment will decrease to 8 million.
c. the wage will actually rise to $20 per hour.
d. there will be a surplus of 14 million workers.
Use the figure below to answer the following question(s).
Figure 11-2
Refer to Figure 11-2. Which of the following will a Keynesian most likely favor if the
economy is operating at point a?
a. a tax cut
b. an increase in government expenditures
c. restrictive fiscal policy
d. an increase in the budget deficit
The successful introduction and adoption of a new product or process is called
a. invention.
b. innovation.
c. economies of scale.
d. economic growth.
Suppose the population (age 16 and over) of Guatemala is 100 million; 5 million are
unemployed, and 70 million hold jobs. The employment/population ratio of Guatemala
is
a. 5 percent.
b. 65 percent.
c. 70 percent.
d. 85 percent.
How will consumers generally react to an increase in the price of butter?
a. They will purchase a larger quantity of butter.
b. They will substitute other goods like margarine for the more expensive butter.
c. They will reduce their purchases of substitute goods like margarine.
d. They will continue purchasing the same quantity of butter at the higher price.
If the United States unilaterally removed all of its trade restrictions and moved toward a
policy of free trade, international trade theory indicates that
a. U.S. residents would gain, but people in other countries would be worse off.
b. people in other countries would gain, but U.S. residents would be worse off.
c. both U.S. residents and people in other countries would be able to achieve higher
income levels.
d. the average income level would be lower in both the United States and other
countries.
Which of the following most accurately indicates the political incentive to spend and/or
tax?
a. Politicians will find tax increases more attractive than increases in government
expenditures.
b. Voters will generally support higher taxes in order to eliminate budget deficits.
c. Politicians are rewarded for raising taxes and punished for providing programs that
benefit their constituents.
d. Politicians are rewarded for providing programs that benefit their constituents and
punished for raising taxes.
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found
to cause cancer,
a. the price of aspartame will increase.
b. the price of sugar will decrease.
c. the price of saccharin will increase.
d. the demand curves for aspartame and sugar will shift leftward.
e. aspartame and sugar will be complements.
During the last four decades, defense expenditures have
a. accounted for approximately one-half of federal expenditures.
b. accounted for less than 10 percent of federal expenditures.
c. been increasing as a share of federal expenditures.
d. been declining as a share of federal expenditures.
Which of the following must be true if average total costs are rising?
a. Average fixed costs must be rising.
b. Total fixed costs must be rising.
c. Average variable costs must be falling.
d. Marginal costs must be greater than average total costs.
The main problem with using the infant industries argument to justify protecting an
industry from foreign competition is that
a. all industries will claim that they are infant industries in order to gain protection.
b. the protected industry will become too efficient and drive out foreign competition.
c. once in place, it is difficult to remove protection even as the industry matures.
d. it causes the goods that are produced in the protected industry to have lower prices.
Why is the current U.S. tax-treatment of health insurance purchased through one’s
employer discriminatory?
a. Health insurance should not be a tax-deductible expense for anyone.
b. The system gives preferential tax treatment to self-employed individuals.
c. The system imposes higher taxes on the direct purchase of health insurance because it
is not tax deductible.
d. The system gives preferential tax treatment to people who purchase health insurance
directly from a provider.
Which of the following provides the best summary of the basic idea of public choice
analysis?
a. Public choice analysis applies the principles of economics to political science topics.
b. Public choice analysis takes the principles of political science and applies them to the
traditional topics of economics.
c. Public choice analysis uses the principle of majority rule to determine the efficiency
of an action.
d. Public choice analysis indicates there is a sharp distinction between economic and
political topics.
Figure 3-17
Refer to Figure 3-17. Area C represents
a. the decrease in consumer surplus that results from a downward-sloping demand
curve.
b. consumer surplus to new consumers who enter the market when the price falls from
P2 to P1.
c. the increase in producer surplus when quantity sold increases from Q2 to Q1.
d. the decrease in consumer surplus to each consumer in the market when the price
increases from P1 to P2.
The new classical model states that a
a. budget surplus will effectively retard inflation that comes from excess demand.
b. budget deficit will have no impact on real interest rates.
c. budget deficit will increase the real interest rate.
d. substitution of debt for tax financing will increase aggregate demand and real output.
If a construction boom leads to an increase in the price of lumber, how will the higher
lumber prices influence the wood furniture market?
a. The demand for wood furniture will decline, and furniture prices will fall.
b. There will be a shortage of wood furniture.
c. There will be a surplus of wood furniture.
d. The supply of wood furniture will decline, and furniture prices will increase.
Two studies published in the New England Journal of Medicine link the risk of breast
cancer to alcohol consumption. Young women who have nine drinks per week were
reportedly 150 percent more likely to develop breast cancer. According to economic
analysis, how would this information affect the market for alcohol?
a. Demand will increase, placing upward pressure on price.
b. Supply will decrease, placing downward pressure on price.
c. Demand will decrease, placing downward pressure on price.
d. Supply will increase, placing upward pressure on price.
Which of the following attributes of the recession of 2008-2009 is most supportive of
the Keynesian view that the crowding-out effect will be minimal during a severe
recession?
a. the immediate increase in output and employment generated by the budget deficits of
2008-2009
b. the decline in the general level of prices during 2009
c. short-term interest rates falling to near zero, despite growing budget deficits during
2008-2009
d. short-term interest rates falling to near zero, as the budget deficit declined during
2008-2009
Which of the following is a predictable side effect of increased government activity (for
example, taxes and subsidies) designed to redistribute income among citizens?
a. improvement in the operational efficiency of government agencies
b. budget surpluses
c. reduction in the poverty rate
d. an increase in rent-seeking activity
Which of the following provides the foundation of the case for free trade?
a. the law of diminishing marginal utility
b. the anti-dumping argument
c. the industrial diversity argument
d. the law of comparative advantage
When the Fed purchases additional securities and shifts to a more expansionary
monetary policy,
a. the inflation rate will rise almost immediately.
b. the growth of output and employment will increase quickly.
c. several months will typically pass before the shift in policy exerts much impact on
output and employment.
d. this policy will eventually lead to a decline in the general level of prices if it is
continued for a prolonged period of time.
Which of the following is true regarding value, transaction costs, and exchange?
a. Middlemen can be viewed as agents who create value by reducing transaction costs
and, thereby, facilitating gains from exchange.
b. Middlemen fail to create value since they do not expand the supply of physical
goods.
c. A good or service has a given value regardless of who uses it or how it is used.
d. Voluntary exchange reduces value by channeling goods into the hands of people who
value them least.
Nevada is the low opportunity cost producer of computer software, and California is
low opportunity cost producer of wine. Which of the following is true?
a. Nevada has no comparative advantage over California in the production of wine or
computer software.
b. Nevada has a comparative advantage in producing wine
c. Nevada has a comparative advantage in producing software.
d. Nevada has a comparative advantage in producing both wine and software.