Archives: Quiz

The CPI in 2010 was 218, while the CPI in 1980 was 82. If you had $5,000 in 1980, its equivalent purchasing power in 2008 would be $10,850. Holding all else constant, an economic expansion in Mexico should decrease the […]

For a person to have a comparative advantage in producing a product, he must be able to produce that product at a higher opportunity cost than his competitors. One example of physical capital is the amount of savings that you […]

Free trade refers to trade between countries without government restrictions. If prices rise on average in the U.S. economy, the purchasing power of a dollar declines. Answer: TRUE The saving and investment equation holds only when the federal budget is […]

A monopsony is a term used to refer to a firm that is the sole seller of a good or service. The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal […]

If the number of firms producing electric cars increases and consumer preference for electric cars increases, the equilibrium quantity of electric cars will definitely increase. An important reason why diseconomies of scale arise is because firms may have to hire […]

If inflation is higher than expected, this helps borrowers (by reducing the real interest rate they pay) and hurts lenders (by reducing the real interest rate they receive). Stagflation occurs when short-run aggregate supply decreases. Answer: TRUE A tariff is […]

An entry barrier exists when firms in an industry charge the lowest price possible for their products. An economic model is a complex version of reality used to analyze real-world economic situations. Answer: FALSE The productivity slowdown experience in the […]

A subgame is a simultaneous game embedded in a sequential game. Marketing refers to all the activities necessary for a firm to sell a product to a consumer. Answer: TRUE If nominal GDP is less than real GDP, then the […]

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did […]

Goodyear’s sales are now greater outside the United States than inside the United States. The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases. Answer: TRUE […]

Nominal GDP measures the value of all final goods and services at base-year prices. The unemployment rate is higher with a minimum wage law than it would be without a minimum wage law. Answer: TRUE In the circular flow diagram, […]

Net foreign investment is a measure of net capital outflows, equal to capital outflows minus capital inflows in a given period of accounting. If you purchase a share of stock from your friend who initially purchased the stock three years […]

The principal-agent problem that exists between shareholders and managers also exists between managers and workers. An decrease in the price level in the United States will shift the aggregate expenditure line downward. Answer: FALSE If economies of scale are significant, […]

The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports. Assume that price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is […]

Canada has a single-payer health care system in which the government provides national health insurance to all Canadian residents. If buyers of a monopolistically competitive product feel the products of different sellers have little differences between them, then the demand […]

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace. In the short-run, changes in output can only be brought about by a change […]

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier. Nominal GDP measures the value of all final goods and services at base-year prices. […]

In the United States, the typical person who has lost his or her job finds another one in a few months except during severe recessions. A commission system of compensation reduces the risk to workers during seasonal periods when business […]

If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase. Assume that price is greater than average variable cost. If a perfectly competitive firm is producing […]

If consumers believe the price of LCD televisions will decrease in the future, this will cause the demand for LCD televisions to increase now. Members of management serving on the board of directors of a corporation are referred to as […]

The Federal Reserve’s performance in the mid-to-late 1980s, 1990s, and early 2000s has received high marks from economists, even without inflation targeting. The airline industry routinely engages in price discrimination across time. Answer: FALSE On a diagram of a production […]

A decrease in supply is caused by a decrease in the price of the product. If in the long run a firm makes zero profit, it should exit the industry. Answer: FALSE The actual division of a tax between buyers […]

All economic questions arise from the fact that resources are unlimited. If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6. Answer: TRUE When the majority of voters have preferences very different […]

In the short run, changes in output can only be brought about by a change in the quantity of variable inputs. A prisoner’s dilemma leads to a noncooperative equilibrium. Answer: TRUE Increases in capital per hour worked cannot sustain high […]

One reason why McDonald’s charges a single price for its products is that it is difficult and costly for the company to determine each individual consumer’s willingness to pay. A real appreciation of the dollar is caused by either a […]

Consider a country that produces only two goods: bird feeders and binoculars. Suppose it is possible for this country to increase its production of bird feeders without producing fewer binoculars. In this case, its current output combination is inefficient. The […]

A decrease in quantity supplied is represented by a leftward shift of the supply curve. The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year. Answer: TRUE A network externality causes firms to sacrifice […]

An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries. Net foreign investment is a measure of net […]

Examining the conditions that could lead to economic growth is an example of macroeconomic topic. A characteristic of the long run that is not available in the short run is that a firm is free to vary its output. Answer: […]

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels. Retained earnings are sufficient to finance a firm’s rapid expansion in a high-growth economy. Answer: FALSE The tax multiplier is calculated […]

Retained earnings are sufficient to finance a firm’s rapid expansion in a high-growth economy. A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains […]

Market equilibrium occurs where supply equals demand. Inflation targeting, typically, has been accompanied by lower inflation. Answer: TRUE In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy dollars and increase the supply […]

One problem with deflation is that it can raise the real value of debt. The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real GDP and multiplied by 100. Answer: TRUE […]

If the Fed attempts to reach and maintain very low rates of unemployment, we would expect the rate of inflation to rise. A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level. Answer: FALSE […]

An increase in the price level causes a movement down the aggregate demand curve. An increase in the price of inputs will cause the supply curve for a product to shift to the right. Answer: FALSE The supply of money […]

An increase in government spending lowers interest rates and increases the rate of investment in new capital. By the 2000s, investment banks had become significant participants in the secondary market for mortgages. Answer: TRUE A decrease in the marginal income […]

A period of economic expansion ends with a business cycle trough. If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided. Answer: TRUE Government spending on transfer payments is included in government purchases when […]

If the opportunity cost of producing more of one good remains the same as more of that good is produced, then the production method is inefficient. The problem with inflation is that as prices rise, consumers can no longer afford […]

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 was increasing. As a result, in the market for animators, the […]

If a firm’s fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily. In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans. Answer: TRUE In economics, the term […]

If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided. If marginal product is equal to average product, then total product is at a maximum. Answer: FALSE The basis for trade is absolute advantage, […]

Ceteris paribus, an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar. To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage. Answer: […]

The labor productivity slowdown in the United States in the 1970s was due to declining quality of education in the United States, because no other industrialized country experienced the same labor productivity slowdown at the same time. The idea underlying […]

The most important barrier to entry is economies of scale. A cash withdrawal reduces deposits, reserves and excess reserves in the banking system. Answer: TRUE For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost. Answer: […]

In labor economics, the term “customer discrimination” refers to a situation where customers are charged different prices for services rendered by a firm. If production displays constant returns to scale, then all economies of scale have been exhausted. Answer: TRUE […]

In most circumstances, employees do not pay taxes on the value of health insurance their employers provide them. One of the main sources of comparative advantage is natural resources. Answer: TRUE Firms are more likely to find themselves in a […]

If the Gini coefficient for Cartland is 1, it means that income distribution is perfectly equal in this society. Rent control is an example of a price ceiling. Answer: TRUE Entrepreneurs who earn arbitrage profit are able to do so […]

Firms in perfect competition produce the productively efficient output level in the short run and in the long run. An increase in the real interest rate will decrease consumption and investment. Answer: TRUE A two-part tariff refers to a pricing […]

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently. According to Nobel laureate Douglass North, one reason why the Industrial Revolution occurred in England before many other countries was because […]

The National Football League has long-term leases with the stadiums in major cities. Control of these stadiums is an entry barrier to a potential new football league. When a business is set up as partnership, the owner of the business […]