Refer to the figure above. If Pat and Chris were to specialize in the task for which each
has a comparative advantage:
A. Chris would plant bulbs and Pat would remove trash.
B. Chris would remove trash and Pat would plant bulbs.
C. Pat and Chris would each spend one hour on each task.
D. both Pat and Chris would plant bulbs because they both have an absolute advantage
in that task.
Imposing a minimum wage in the labor market
A. makes all workers better off.
B. lowers labor costs.
C. increases the size of the total wage bill.
D. makes some workers worse off.
The No Cash on the Table principle means unexploited opportunities:
A. never exist.
B. cannot be exploited for long.
C. can exist in equilibrium but rarely do.
D. always exist in equilibrium.
Nominal GDP divided by the money stock equals:
A. real GDP.
B. the value of transactions.
C. the price level.
D. velocity.
In the short-run Keynesian model where the marginal propensity to consume is 0.75, to
offset an expansionary gap resulting from a $1 billion increase in autonomous
consumption, transfers must be:
A. increased by $1 billion.
B. decreased by $1 billion.
C. increased by $1.33 billion.
D. decreased by $1.33 billion.
Refer to the figure above. Based on the figure and starting from an initial short-run
equilibrium where output equals 20,000, if autonomous consumption spending
increases by 1,000, then the new short-run equilibrium is at an output (Y) equal to:
A. 24,000.
B. 6,000.
C. 14,000.
D. 16,000.
M1 differs from M2 in that:
A. M1 includes currency and balances held in checking accounts, which are not
included in M2.
B. M2 includes savings deposits, small-denomination time deposits, and money market
mutual funds that are not included in M1.
C. M1 is a broader measure of the money supply than M2.
D. the assets in M2 are more liquid than the assets in M1.
A village has five residents, each of whom has accumulated savings of $50. Each
villager can use the money to buy a government bond that pays 10% interest per year or
to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The
price of the goat that the villager will get at the end of the year depends on the amount
of weight it gains while grazing on the commons, which in turn depends on the number
of goats sent onto the commons, as shown in table below.
Refer to the information given above. The villagers will buy a year-old goat if that goat
can be sold for a price of at least _____ when it is a 2-year-old.
A. $55
B. $75
C. $70
D. $65
Government policies that are used to affect planned aggregate expenditure, with the
objective of eliminating output gaps, are called ______ policies.
A. structural
B. cyclical
C. productivity
D. stabilization
Suppose the demand curve for open-heart surgery is vertical among people with serious
heart conditions. Therefore, demand for open-heart surgery is _____ with respect to
price.
A. unitary elastic
B. inelastic
C. perfectly elastic
D. perfectly inelastic
The benefits of specialization can be used to explain why:
A. workers prefer to work on a variety of tasks during the day.
B. machines are more productive than human workers.
C. trade can make both parties to the trade better off.
D. big companies take advantage of smaller ones.
Holding other factors constant, technological progress ______ the real wage and
______ employment.
A. increases; increases
B. increases; decreases
C. increases; does not change
D. decreases; increases
If the demand function facing a firm shifts:
A. the firm’s marginal revenue function and profit maximizing output will also change.
B. the firm’s cost functions will also change.
C. the firm’s total cost functions will change, but its variable cost functions will be the
same.
D. the firm’s marginal revenue function will change, but its profit maximizing level of
output will not change.
Real GDP per person in the Canada was $7,377 in 1950. Over the next 48 years it grew
at a compound annual rate of 2.0%. If instead real GDP per person had grown at an
average compound annual rate 2.5%, then real GDP per capita in the Canada in 1998
would have been approximately ______ larger.
A. $1,770
B. $5,050
C. $9,370
D. $24,130
Goods and services that are consumed by the ultimate user are called ______ goods and
services.
A. intermediate
B. final
C. value added
D. nominal
Net exports will tend to be low when the real exchange rate ____.
A. is high
B. is low
C. equals the nominal exchange rate
D. depreciates
Refer to the figure above. If the Federal Reserve wants to set the nominal interest rate at
1%, it must conduct open market ______ to set the money supply at _____.
A. purchases; 300
B. sales; 100
C. purchases; 900
D. sales; 900
In an open-market purchase the Federal Reserve ______ government bonds and the
supply of bank reserves ______.
A. buys; increases
B. buys; decreases
C. sells; decreases
D. sells; increases
Production possibilities curves for large economies generally have an outward bow
shape because:
A. specialization gives some producers a comparative advantage.
B. opportunity costs tend to decrease with increases in production.
C. opportunity costs tend to increase with increases in production.
D. as more resources are used to produce the same good, those resources become less
and less expensive.
Refer to the figure above. The social optimum in the market illustrated could be
achieved by imposing a _______.
A. tax equal to EF
B. tax equal to DB
C. tax equal to BA
D. tax equal to BC
Globalization ______ the wages of workers in the exporting industries and ______ the
wages of workers in the import-competing industries.
A. raises; raises
B. raises; lowers
C. raises; does not change
D. lowers; raises
Refer to the figure above. Because production of paper imposes costs on society, the
optimal level of production is:
A. zero.
B. less than the equilibrium quantity of 300, but more than zero.
C. 300.
D. more than 300 but less than the equilibrium quantity of 350.
Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony
reasons that if he wants to buy something with a price of $50, it is a good offer, but if he
wants to buy something with a price of $500, it is not a good offer. This is an example
of:
A. inconsistent reasoning; saving $20 is saving $20.
B. the proper application of the cost-benefit principle.
C. rational choice because in the first case he saves 40% and in the second case he
saves 4%.
D. marginal cost equals marginal benefit thinking.
The key to resolving the apparent paradox of international trade increasing total output
yet facing much political opposition is noting that:
A. economists are mistaken about the increase in output.
B. only the wealthy benefit from trade.
C. no one benefits from trade.
D. everyone does not benefit equally from trade.
Since 1925, the longest expansion in the United States lasted:
A. 10 years.
B. 24 months.
C. 43 months.
D. 5 years.
If all the world’s resources were to magically increase a hundredfold, then:
A. the scarcity principle would still govern behavior.
B. economics would no longer be relevant.
C. the scarcity principle would disappear.
D. tradeoffs would become unnecessary.
If a firm shuts down in the short run, then:
A. total revenue and total cost will fall to zero.
B. profit will equal zero.
C. profit will equal negative fixed costs.
D. profit will equal negative variable costs.
Refer to the figure above. Private market incentives would result in this good being
_____ by _____.
A. overpriced; BD
B. underpriced; BD
C. overpriced; BC
D. underpriced; BC
Based on the following information, the value of the M1 measure of the money supply
is ______ and the value of the M2 measure of the money supply is ______.
A. $530 billion; $3,700 billion
B. $330 billion; $4,230 billion
C. $520 billion; $4,320 billion
D. $530 billion; $4,230 billion
Identically furnished one bedroom apartments can be rented either for one week for
$100 or a month for $375. Is the one-month rental option a rational strategy?
A. No, everyone will pick the one week option.
B. No, the landlord is not profit maximizing.
C. Yes, since it lessens the amount of searching the tenant does.
D. Yes, since it lessens the amount of searching for both landlord and tenant.
Workers should invest in additional human capital as long as the:
A. marginal benefit exceeds the marginal cost.
B. marginal cost exceeds the marginal benefit.
C. opportunity cost exceeds the marginal benefit.
D. opportunity cost is zero.
The foreign exchange market is the market on which ______ of various nations are
traded for one another.
A. goods and services
B. stocks and bonds
C. currencies
D. international financial securities
Government policy actions intended to increase planned spending and output are called
______ policies.
A. aggregate
B. monetary
C. fiscal
D. expansionary
When Dale visits the doctor, Dale does not pay for either the visit or any tests the doctor
may order. Dale must therefore
A. be a member of an HMO.
B. have a medical insurance policy with a deductible.
C. have first-dollar medical insurance.
D. be underutilizing medical care.
Inflation makes it difficult to distinguish relative price changes from changes in the
general level of prices. Consequently, inflation ______ the efficiency of the market
system.
A. increases
B. decreases
C. does not change
D. may either increase or decrease