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If nominal GDP in one year is $5000 billion and the price index is 135, the real GDP
that year is $3704 billion.
Only the bondholders of a corporation have the right to vote for a corporation's
directors.
Economies of scale are increases in per-unit cost that result in a decrease in the size of
markets and firms.
Increasing opportunity costs makes specialization among trading nations complete.
The value of money in the United States is based on the stocks of precious metals held
by the U.S. government.
If the Federal Reserve Bank sells $10 million in government securities to commercial
banks, the effect will be to increase the excess reserves of commercial banks by $10
million.
Price elasticity of demand is lower for goods with few close substitutes.
The Federal Open Market Committee (FOMC) serves as the fiscal agent for the U.S.
government.
Consumers buy more of normal goods as their incomes rise.
A firm's economic profit is usually higher than its accounting profit.
Durable goods are expected to last for at least 10 years.
The Temporary Assistance for Needy Families (TANF) has no work requirements for
those receiving welfare and no limit on the number of years for receiving welfare
benefits.
Diseconomies of scale are caused by the law of diminishing marginal returns.
In the demand-enhancing union model, a union increases the wage rate by increasing
labor demand through actions that increase product demand, raise labor productivity, or
alter the prices of related inputs.
The Council of Economic Advisors was established to give economic advice and
assistance to the U.S. president.
The law of diminishing returns explains diseconomies of scale.
The general view of economists is that a pure monopoly will not be technologically
progressive.
Below the full-employment level of output, per-unit production costs rise and firms
must receive higher product prices for them to be profitable.
Aggregate demand tends to be increased when the Federal Reserve System sells
government securities in the open market.
The supply curve for the pure monopolist is upsloping.
An important part of the market system is that producers and consumers consider the
public interest in making production and consumption decisions.
Equilibrium for the monopolist occurs where P > MR > MC > Average total cost.
Unanticipated inflation benefits creditors and savers.
In pure competition, resources are optimally allocated when production occurs at the
output level where P = MC.
A government tax per unit of output reduces supply.
Price discrimination is not viable if consumers can resell the products they purchase.
If the percentage change in price is less than the percentage change in quantity
demanded, the price elasticity coefficient is greater than 1.
The use of a credit card is most similar to:
A. creating legal tender.
B. reducing the value of the U.S. dollar.
C. purchasing a certificate of deposit at a commercial bank.
D. obtaining a short-term loan from a financial institution.
Refer to the graph above. If demand increased:
A. price and quantity would increase.
B. price and quantity would decrease.
C. price would stay the same and quantity would decrease.
D. price would stay the same and quantity would increase.
If the government wishes to increase the level of real GDP, it might reduce:
A. taxes.
B. transfer payments.
C. the size of the budget deficit.
D. its purchases of goods and services.
Assume that rents flow clockwise in a circular economic flow diagram. This implies
that land flows:
A. clockwise and capital flows counterclockwise.
B. clockwise and profits flow counterclockwise.
C. counterclockwise and capital flows clockwise.
D. counterclockwise and profits flow clockwise.
The Consumer Price Index was 247 in year 1 and 272 in year 2. The rate of inflation in
year 2 was:
A. 12 percent.
B. 10 percent.
C. 8 percent.
D. 6 percent.
Which group is responsible for the policy of the Federal Reserve on purchasing and
selling government securities?
A. Federal Open Market Committee.
B. Office of Management and Budget.
C. Thrift Advisory Council.
D. Federal Advisory Council.
Which is a characteristic of monopolistic competition?
A. Standardized product.
B. A relatively small number of firms.
C. Absence of nonprice competition.
D. Relatively easy entry.
If government tax revenues change automatically and in a countercylical direction over
the course of the business cycle, this would be called a(n):
A. discretionary fiscal policy.
B. expansionary fiscal policy.
C. political business cycle.
D. nondiscretionary fiscal policy.
Other things equal, if the prices of a firm's variable inputs were to fall:
A. one could not predict how unit costs of production would be affected.
B. marginal cost, average variable cost, and average fixed cost would all fall.
C. marginal cost, average variable cost, and average total cost would all fall.
D. average variable cost would fall, but marginal cost would be unchanged.
To track the public debt over time and compare it to the productive capacity of the
economy, it is best:
A. examined relative to budget surpluses.
B. calculated relative to the money supply.
C. measured relative to the gross domestic product.
D. to compare it to imports, exports, and the trade deficit.
Assuming no economies of scale and identical costs, if the firms in a purely competitive
industry were replaced by a profit-maximizing monopolist, the likely result would be:
A. an increase in both price and output.
B. unchanged price and reduced output.
C. an increase in price and unchanged output.
D. an increase in price and reduced output.
The descriptions give the responses of four individuals to a Bureau of Labor Statistics
(BLS) survey of employment.
1) Mollie just graduated from college and is now looking for work. She has had three
job interviews in the past month.
2) George works in an automotive assembly plant. He was laid off six months ago as
the economy weakened. He expects to return to work in several months when national
economic conditions improve.
3) Jeanette worked as an aircraft design engineer for a company that produces military
aircraft until she lost her job last year when the federal government cut defense
spending. She has been looking for similar work for a year, but no company seems
interested in her aircraft design skills.
4) Ricardo lost his job last year when his company downsized and laid off middle-level
managers. He tried to find another job for a year but was unsuccessful and quit looking
for work.
Refer to the above information. Which individual is cyclically unemployed?
A. 1
B. 2
C. 3
D. 4
When a firm does more of something, it gets better at it. This learning-by-doing is:
A. a source of diseconomies of scale.
B. a source of economies of scale.
C. called the principle of natural progression.
D. called "spreading the overhead."
Which of the following is the basic economic policy function of the Federal Reserve
Banks?
A. Holding the deposits or reserves of commercial banks.
B. Acting as fiscal agents for the federal government.
C. Controlling the supply of money.
D. The collection or clearing of checks among commercial banks.
The necessity to maintain incentives to work and incentives to produce output would be
a point made by an individual making the case for:
A. income equality.
B. income inequality.
C. maximization of total utility.
D. maximization of marginal utility.
Senator Approxmire opposes a proposal requiring that the monopsonist pay a minimum
wage of at least Wmin, stating: "Even if the labor market is monopsonistic, economic
theory unambiguously demonstrates that imposing a minimum wage causes
employment to fall." Senator Approxmire is:
A. correct because the law of demand states that as the wage rises, the firm demands
less labor.
B. incorrect because the monopsonist would offer a wage of WA, which is higher than
Wmin, and maintain its employment at L1.
C. incorrect because the monopsonist's effective MRC curve becomes ABCD, which
means that it would choose to hire more workers, from L1 to L2, following the
imposition of the minimum wage.
D. correct because the graph indicates that at the wage of Wmin, the monopsonist would
not make a profit from hiring labor and so would not hire any at all.
Which of the above diagrams illustrate(s) the effect of an increase in the price of
Budweiser beer on the market for Coors beer?
A. A and C
B. A only
C. B only
D. C only
Which one of the following is a tool of monetary policy for altering the reserves of
commercial banks?
A. Tax rate.
B. Discount rate.
C. Unemployment rate.
D. Budget surplus or deficit.
As the economy expands, the collection of personal income tax revenues automatically
rises. This relationship best describes how the progressive income tax system:
A. increases crowding out in the economy.
B. decreases real interest rates in the economy.
C. offsets the timing problem for fiscal policy.
D. provides built-in stability for the economy.
Which is true of normal profits?
A. They are necessary to keep a firm in the industry in the long run.
B. They are zero under pure competition in the long run.
C. They are excluded from a firm's costs of production.
D. They are greater than the opportunity cost to the firm.
Which of the following would be primarily determined in the resource market?
A. The price of compact discs.
B. The wage rates for electricians.
C. The number of automobiles produced.
D. The amount of money in circulation.
Social Security payments are primarily made to:
A. families with dependent children.
B. families affected by natural disasters.
C. retired and disabled workers.
D. unemployed workers.
A characteristic of a purely competitive labor market would be:
A. "price-maker" behavior by the firms.
B. "wage-taker" behavior by workers.
C. a few firms competing for labor services.
D. significant differences among workers in the level of work skills.
Items
1) Money market mutual funds held by individuals
2) Savings deposits, including money market deposit accounts
3) Money market mutual funds held by businesses
4) Currency held by the public
5) Small time deposits
6) Checkable deposits
Refer to the above table. The M1 money supply is composed of items:
A. 5 and 6.
B. 4 and 6.
C. 6 and 7.
D. 1 and 4.
If the monetary authorities want to reduce the monetary multiplier, they should:
A. lower the legal reserve ratio.
B. raise the legal reserve ratio.
C. increase bank reserves.
D. lower interest rates.
If a variable input is added to some fixed input, beyond some point the resulting extra
output will decline. This statement describes:
A. economies and diseconomies of scale.
B. X-inefficiency.
C. the law of diminishing returns.
D. the law of diminishing marginal utility.
Refer to the above data. What is the price elasticity of demand over the range of $8 to
$10?
A. 0.11
B. 0.47
C. 1.93
D. 1.43
An increase in demand means that:
A. given supply, the price of the product will decline.
B. the demand curve has shifted to the right.
C. price has declined and, therefore, consumers want to purchase more of the product.
D. the demand curve has shifted to the left.
All economic systems must answer certain fundamental economic questions. Which is
not one of these questions?
A. Which actions should government take to reduce inflation?
B. How will the goods and services be produced?
C. What goods and services will be produced?
D. Who is to receive the output?
Refer to the above graph. The level of output at which this firm is maximizing an
economic profit is:
A. 0A.
B. 0B.
C. 0C.
D. 0K.
The total population of an economy is 175 million, the labor force is 125 million, and
the number of unemployed is 8 million. The unemployment rate for this economy is:
A. 4.6 percent.
B. 5.8 percent.
C. 6.4 percent.
D. 7.8 percent.
If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease
in price will:
A. increase quantity demanded by 5 percent.
B. increase quantity demanded by 0.5 percent.
C. decrease quantity demanded by 5 percent.
D. decrease quantity demanded by 0.5 percent.
Refer to the above graph. If the full-employment level of GDP for this economy is at H,
the:
A. cyclically adjusted budget will produce a surplus.
B. cyclically adjusted budget will produce a deficit.
C. actual budget will produce a deficit.
D. actual budget will produce a surplus.
For which product is the income elasticity of demand most likely to be negative?
A. Computer software
B. Used clothing
C. Golf balls
D. Bread
