Archives: Quiz

A subgame is a simultaneous game embedded in a sequential game. The success of Walt Disney’s animated film The Lion King in 1994 increased production of animated films, increasing the demand for animators much faster than the supply of animators […]

Rent control is an example of a price ceiling. In the United States, imports and exports make up more than half of GDP. Answer: FALSE If some monopolistically competitive firms exit their market after suffering short-run losses, the demand curves […]

Indirect finance includes the sale by a corporation of stocks or bonds, as well as borrowing money from a bank. As output increases, the distance between average total cost and average variable cost increases. Answer: FALSE Horizontal equity is achieved […]

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit. A positive technological change will cause the supply of a good to increase. Answer: TRUE The U.S. government would never […]

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country. A market failure arises when an entire sector of the economy (for […]

If consumers believe the price of iPads will decrease in the future, this will cause the demand for iPads to decrease now. A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good […]

As a result of the long-term growth between 1900 and 2010, the output per person in the United States was about twice as large in 2010 as it was in 1900. A) True B) False The marginal propensity to consume […]

During the 1940s, 1950s, and 1960s: A) the role of the government in the economy increased. B) the role of the government in the economy decreased. C) Keynes’s ideas were constantly challenged by free-market policies. D) Keynes’s views were accepted […]

The BEST example of making a choice at the margin is whether to: A) buy a new computer. B) quit your job. C) eat another slice of pizza. D) attend college. If the opportunity cost of manufacturing automobiles is lower […]

Suppose the marginal propensity to consume is 0.8 and the government cuts taxes by $40 billion. Real GDP will _____ by _____. A) increase; $200 billion B) decrease; $200 billion C) increase; $160 billion D) decrease; $160 billion The consumer […]

Foreign exchange reserves are: I. stocks of foreign currency. II. gold and silver. III. bonds of foreign governments. A) I only B) II only C) III only D) I, II, and III In the circular-flow diagram, the places where goods […]

If LeRoyce trades two cookies for one of Amir’s brownies, we say that they are engaging in: A) exploitation. B) benevolence. C) barter. D) a zero-sum game. Figure: Guns and Butter Look at the figure Guns and Butter. If the […]

When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply. A) less; decrease B) less; increase C) more; decrease D) more; increase As long as people have different […]

Figure: Inflationary and Recessionary Gaps Look at the figure Inflationary and Recessionary Gaps. At E1, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) has low unemployment. The groundbreaking book The General […]

Taxes equal: A) government spending plus private savings. B) total spending minus consumption minus investment minus private savings. C) total income minus consumption minus private savings. D) consumption plus private savings plus total income. If the marginal propensity to consume […]

Which of the following was an argument in favor of using discretionary fiscal policy in fighting the Great Recession? A) Monetary policy could not be effective, since interest rates were near zero. B) If taxes were increased, the budget could […]

Between 1990 and 2005 the price of oil was low relative to prices in the 1970s and 1980s, and consumers responded by buying large, fuel-inefficient vehicles. A) True B) False When the economy is in a recession, tax receipts _____ […]

A cut in taxes will have the most effect on aggregate demand if it is given to: A) people with a low marginal propensity to consume. B) people with a high marginal propensity to consume. C) everyone in the economy. […]

All of the following cause structural unemployment EXCEPT: A) a government-mandated floor on the price of labor set above the equilibrium wage. B) collective bargaining efforts that secure higher wages for unionized workers than for nonunionized workers. C) offering high […]

In 2009 Greece received emergency loans from other European countries and the International Monetary Fund. These loans required the Greek government to cut spending, which worsened the Greek recession. A) True B) False Figure: The Market for Thumb Drives Look […]

Licensing systems that limit the right of individuals to buy foreign currency are: I. floating exchange rate regimes. II. foreign exchange controls. III. exchange market interventions. A) I only B) II only C) III only D) I, II, and III […]

A high TED spread means that banks expect they are taking on a high level of risk when they lend to each other. A) True B) False Figure: The Aggregate Consumption Function and Planned Aggregate Spending Look at the table […]

The production possibility frontier is bowed out because: A) resources are not equally suited for the production of both goods. B) resources are scarce. C) economic growth leads to inefficiency. D) resources are inefficiently used. The worst inflation in the […]

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate. A) no change; a rise B) no change; a fall C) […]

“Many economists agree that income taxes should be increased for rich people” is a positive statement. A) True B) False A floating exchange rate: I. leaves monetary policy available for domestic stabilization. II. is less expensive to maintain than a […]

The slope of the planned aggregate spending line is determined by: A) the marginal propensity to consume. B) the level of unplanned investment spending. C) the level of planned investment spending. D) the level of autonomous consumption. If an economy […]

If the multiplier is 4, the marginal propensity to save is: A) 3. B) 0.80. C) 0.75. D) 0.25. Which of the following is considered to be investing in a physical asset? A) purchasing stock in IBM B) selling stock […]

If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking employment, then its unemployment rate is: A) 5%. B) 7.5%. C) 15%. D) 20%. The terms decrease in […]

Explain why each of the following transactions would or would not be counted in the GDP of the United States. a. Japanese auto producer Honda builds a factory in Indiana. b. You buy a new pair of pants produced at […]

Table: The Production Possibilities for Cars and Leather Boots Look at the table The Production Possibilities for Cars and Leather Boots. Given the opportunity costs of production: A) there is no basis for trade. B) Mexico should specialize in boots. […]

The need for a double coincidence of wants is necessary: A) to use money. B) for barter exchanges. C) anytime credit cards or debit cards are used. D) to increase the number of exchanges taking place. If the cost of […]

A movement along the aggregate demand curve is caused by a(n): A) change in the aggregate price level. B) increase in consumer spending. C) fall in commodity prices. D) reduction in government spending. It is certain that the equilibrium quantity […]

Which of the following is an advantage to the recipient of foreign investment? A) Foreigners are content to receive lower profits and interest rates than are domestic investors. B) Foreigners don’t expect to receive profits and interest as often as […]

Figure: Demand and Supply of Gasoline Look at the figure Demand and Supply of Gasoline. When the supply curve shifted from the initial equilibrium, the new intersection of supply and demand has a price of _____ and quantity of 400. […]

The historical validation of Keynes’s theory came through the: A) expansion in aggregate demand resulting from drastic interest rate cuts in the early 1940s. B) successful application of his theories in the United States during the Great Depression in the […]

A positive short-run aggregate supply shock increases aggregate output and the aggregate price level. A) True B) False If deflation occurs and your income is fixed, your real income: A) will fall. B) will go up. C) will still be […]

Investment spending is spending on: A) productive physical capital. B) bonds. C) shares of stock. D) productive physical capital, bonds, and shares of stock. The exchange rate is the _____ between countries. A) interest rate differential B) balance of trade […]

When milk prices increased in 2008, one milk consumer stated that the reason he cut down on milk consumption was so that he could drive his car. This action represents a: A) movement along the demand curve for milk. B) […]

If the rate of exchange is €1 = US$2, then US$1 = A) €0.50. B) €2. C) $0.50. D) $2.00. If a bank has $2,000 in excess reserves and a 10% reserve requirement, the maximum potential increase in the money […]

Figure: Equilibrium in the Money Market Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____. A) demand for; rise B) […]

If a firm pays for investment spending out of retained earnings: A) the interest rate is irrelevant. B) past profits are adjusted downward. C) current profits are adjusted downward. D) the firm forgoes interest it could have received. Figure: Guns […]

Discretionary fiscal policy: A) is not subject to lags and therefore is effective at controlling business cycles. B) refers to changes in the money supply used to smooth out the economy’s ups and downs. C) is favored by monetarists. D) […]

When a country utilizes more physical capital per worker over time, there will be: A) lower and eventually zero growth rate of productivity. B) higher growth rates of productivity. C) no change in the growth rate of productivity. D) lower […]

When the U.S. government issues Treasury bills, its sells them directly to the Federal Reserve. A) True B) False If the slope of the aggregate expenditures curve is 0.8, the multiplier is: A) 1. B) 4. C) 5. D) infinity. […]

China has much higher rate of growth than the United States, but the average Chinese household is _____ a typical U.S. household. China’s real GDP per capita is _____ that of the United States. A) as well off as; catching […]

Assume that corn is an input in the production of beef but not in the production of pork. Further, beef and pork are substitutes in consumption. A decrease in the price of corn will _____ the supply of beef and […]

Which of the following was a proponent of supply-side economics? A) Herbert Hoover B) Franklin Roosevelt C) Jimmy Carter D) Ronald Reagan Diversification in investment is achieved when: A) the government invests in several projects of different lengths to increase […]

If a bank has assets of $100 million, according to practice, its liabilities should NOT exceed: A) $7 million. B) $70 million. C) $93 million. D) $107 million. Look at the table The Production Possibilities for Tractors and Crude Oil. […]

Firms pay an efficiency wage because: A) it reduces the risk of losing the best workers. B) it is required by law. C) they don’t have to offer health insurance if they pay efficiency wages. D) it reduces the employee’s […]

Positive unplanned inventory investment occurs when: A) actual depreciation is less than expected. B) actual sales are less than expected. C) actual depreciation is more than expected. D) actual sales are higher than expected. When an economy has debt deflation: […]