According to the Economic Freedom of the World measure, between 2000 and 2010 the
economic freedom of the United States
a. declined and its rank fell from third to tenth during this period.
b. increased, and the U.S. became the freest economy in the world during this decade.
c. was largely unchanged and the U.S. remained the third freest economy in the world,
behind only Hong Kong and Singapore.
d. decreased, but the U.S. was still the freest economy in the world in 2010.
The opportunity cost of building a park in your hometown would be the
a. money cost of constructing the park.
b. highest valued bundle of other goods and services that must be forgone because of
the park construction.
c. necessary increase in tax revenues to finance the construction.
d. amount of time spent in leisure activities in the park once it is constructed.
With time, which one of the following strategies would most likely result in an outward
shift in the production possibilities curve of an economy?
a. passage of legislation reducing the workweek to 30 hours
b. instituting a tax policy encouraging consumption at the expense of investment
c. instituting a tax policy encouraging investment at the expense of consumption
d. an increase in the marginal income tax rate, which would reduce the work effort of
individuals
If the price of hamburger increases, the substitution effect works to
a. decrease the quantity of hamburger supplied.
b. increase the number of hamburger buns demanded.
c. decrease the quantity of hamburger demanded.
d. increase the number of hamburger buns supplied.
If General Electric finds that when it doubles both its plant size and the amount of
associated inputs, its output level does not double, then
a. the law of diminishing returns is in effect.
b. long-run average costs must be decreasing.
c. the firm is experiencing diseconomies of scale.
d. the firm should increase production.
e. the firm is experiencing constant returns to scale.
If the Federal Reserve increases its bond purchases, the short-run effects will be
a. an increase in the money supply and lower real interest rates.
b. a decrease in the money supply and lower real interest rates.
c. an increase in the money supply and higher real interest rates.
d. a decrease in the money supply and higher real interest rates.
The prevailing budget philosophy prior to Keynes called for a balanced budget. Keynes
argued that the government should not balance its budget but instead have budget
deficits during
a. economic booms.
b. during periods of peace but surpluses during periods of war.
c. periods of inflation.
d. economic recessions.
Figure 3-19
Refer to Figure 3-19. Sellers whose costs are less than price are represented by which
line segment?
a. AC
b. CE
c. BC
d. CD
When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.
Which of the following is true?
a. in recent decades, the rich countries of the world have consistently grown more
rapidly than poor countries.
b. no LDC was able to achieve a more rapid growth rate than the United States during
the 1980 through 2005 period.
c. during recent decades, most LDCs have stagnated economically.
d. during 1980 through 2005, the fastest growing countries in the world were mostly
LDCs.
The M1 money supply
a. is composed of assets that reflect the medium of exchange function of money.
b. is larger than the M2 money supply.
c. includes credit card balances since they are used to purchase things.
d. is composed of only currency.
Price is important in a market economy because it
a. eliminates imbalances between supply and demand.
b. serves as the rationing mechanism for the limited supplies of goods and services.
c. coordinates the choices of consumers and producers and brings them into harmony.
d. is all of the above.
In short-run equilibrium, a competitive price-taker firm
a. may earn a profit or a loss.
b. always earns a profit.
c. never earns a profit.
d. earns a profit only if the firm has no fixed cost.
Some individuals or families can become completely saturated with a service such as
television. This suggests that
a. wants are limited
b. desires for a single commodity can be satisfied but then the focus will switch to other
goods and services
c. a highly productive economy may someday be able to satisfy all human desires
d. resources are not truly fixed in supply as we generally assume
e. scarcity does not exist
Other things constant, which of the following would cause the M2 money supply to
decline?
a. an increase in the quantity of U.S. currency held overseas
b. a shift of funds from interest-earning checking accounts to money market mutual
funds
c. a reduction in the general public’s holdings of currency outside of banks because
debit cards have become more popular and widely accepted
d. a shift of funds from money market mutual funds into stock and bond mutual funds
because the fees to invest in the latter have declined
Table 12-3
Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of
output sells for $10. How many days of labor should the firm hire?
a. 1
b. 2
c. 3
d. 4
The employment/population ratio is the number of persons employed divided by the
number of persons
a. in the labor force.
b. unemployed.
c. employed plus the number unemployed.
d. in the civilian population age 16 and over.
Which of the following statements is correct?
a. If the buyer of a good gains, the seller must lose an equal amount.
b. The value of goods is objective; it is equal to the cost of supplying the good.
c. Opportunity costs will always be incurred when scarce resources are used to produce
a good.
d. Changes in incentives generally have no effect on human behavior.
Which of the following lists two things that both decrease the money supply?
a. lower the discount rate and raise the reserve requirement ratio
b. lower the discount rate and lower the reserve requirement ratio
c. raise the discount rate and raise the reserve requirement ratio
d. raise the discount rate and lower the reserve requirement ratio
If a product is manufactured under conditions of constant cost, an increase in the
demand for the product will increase
a. both equilibrium quantity and equilibrium price in the long run.
b. equilibrium price, but equilibrium quantity will be unchanged in the long run.
c. equilibrium price but reduce equilibrium quantity in the long run.
d. equilibrium quantity, but equilibrium price will be unchanged in the long run.
If most firms in an industry are earning a 7 percent rate of return on their assets, but
your business is earning 9 percent, your rate of economic profit is
a. minus 2 percent.
b. 2 percent.
c. 9 percent.
d. 16 percent.
If a $500 tax is placed legally (statutorily) on the sellers of new violins and as a result
the price of violins to consumers rises by $400, then the actual burden of the tax
a. falls completely on violin buyers.
b. falls completely on violin sellers.
c. is $400 on violin buyers and $100 on sellers.
d. is $100 on violin buyers and $400 on sellers.
Between 2000 and 2013, the world added more than 100 billion tons of carbon to the
atmosphere. Between 1998 and 2013, the earth’s temperature
a. rose by approximately 3 degrees Fahrenheit.
b. rose by approximately 2 degrees Fahrenheit.
c. showed no significant change.
d. fell by 1.4 degrees Fahrenheit.
Use the figure below to answer the following question(s).
Figure 9-2
The output of the economy depicted in Figure 9-2 is
a. equal to the full-employment output.
b. greater than the full-employment output.
c. less than the full-employment output.
d. not sustainable in the long run.
Which of the following reflects the incentive structure confronted by a typical firm in a
cartel?
a. If I alone cheat, I’m better off; if everyone cheats, I’m worse off.
b. I can never do better for myself than by following agreed-upon cartel policies.
c. If everyone cheats, I’m better off and so is everyone else in the cartel.
d. If I suspect others are planning to cheat, I’ll do best for myself by deciding not to
cheat.
Which of the following describes a situation in which demand must be inelastic?
a. The price of vitamins rises by 10 cents, and quantity of vitamins demanded falls by
50.
b. The price of vitamins rises by 10 cents, and total revenue rises.
c. A 20 percent increase in the price of vitamins leads to a 20 percent decrease in the
quantity of vitamins demanded.
d. Total revenue does not change when the price of vitamins rises.
e. Total revenue decreases when the price of vitamins rises.
If there was an increase in the excise tax imposed on guitar suppliers, what would be
the effect on the equilibrium price and quantity of guitars?
a. Price increases; quantity decreases
b. Price decreases; quantity decreases
c. Price increases; quantity increases
d. Price decreases; quantity increases
The supply of a resource, such as oil, is likely to be
a. equally elastic in both the short and long run.
b. more elastic in the long run than in the short run.
c. more elastic in the short run than in the long run.
d. determined by the demand for the resource.
Which of the following would cause the demand for plumbers to decrease?
a. an increase in the productivity of plumbers
b. a decline in the construction of housing
c. a law that mandated higher wages for plumbers
d. an increase in the number of plumbers who belong to a union
When a person who receives welfare benefits earns income, those benefits are reduced
as earned income rises. This is referred to as
a. an implicit marginal tax.
b. the opportunity cost of income.
c. the work-leisure trade-off.
d. reverse discrimination.
If Terrell can produce more bagels in one day than Zori can produce in one day, then
a. Terrell has a comparative advantage in the production of bagels.
b. Zori has a comparative advantage in the production of bagels.
c. Terrell has an absolute advantage in the production of bagels.
d. Terrell should produce bagels and Zori should spend her time on a different activity.