i'AM DeAD InSIde!!

Economic Growth is best defined as:

a sustained increase in real gross domestic product per capita

An implicit cost is:

an opportunity cost

in a perfectly competitive market, a firms price is equal to ________________

average revenue and marginal revenue

Number of Workers: 2, 3, 4, 5 Total Output: 12, 22, 28, 32 Which of the following is the marginal product of the fourth worker? a) 4 b) 5 c) 6 d) 28 e) 112

c) 6

Figure 5.3 shows a linear demand curve. Between points C and D, the demand is:

inelastic

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow

into the United States and the dollar will appreciate

when a firm in a perfectly competitive market and experiencing losses, one option that is NOT availible is

raising prices

an individual firm in a perfectly competitive market on a supply-demand curve is represented by

a horizontal line

An increase in aggregate demand will cause which of the following?

a movement along a given short-run phillips curve (note: this is not a shift, just movement along the curve)

Diminishing marginal utility means that:

as one consumes more of a good, other things constant, the additional satisfaction obtained from each additional unit of the good tends to fall

In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________.

shift rightward, decrease

Allocative efficiency occurs in markets when:

the marginal benefit that consumers attach to the last unit purchased equals the opportunity cost of the resources employed to produce that unit.

in the long run, only the _____________ benefit from cost reductions

consumers

decreasing cost industires

cost of producing a product decreases as the industry expands

Whic of the following statements is true about a firm that sells its output in a perfectly competitive market

the firm will earn zero economic profits in long-run equilibrium

the profit maximizing level of output is

where the difference between total revenue and total cost is greatest OR where marginal revenue equals marginal cost

An increase in which of the following would be most likely to increase long-run growth?

Subsidies to businesses for purchases of capital goods

Which of the following is true of marginal revenue earned by a non price-discriminating monopolist that charges a single price?

Marginal revenue earned by a monopolist is less than the price of its product

Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply?

They have different lag times between implantation of a policy and its effects on aggregate demand

profit

Total revenue- total cost

an increase in the international value of the United States dollar will tend to cause:

United States exports to fall

In an economy in which all prices, including wages, are completely flexible, an increase in labor productivity will result in which of the following changes in output and real wages?

[output] increase --- [real wages] increase

price taker

a buyer or seller who is unable to effect the market price of a product

A cartel is:

a group of oligopolistic firms that engage in collusion

Luxury goods are:

income elastic.

Which of the following government policies can reduce the rate of inflation in the short run?

Selling bonds on the open market

economic profit

a firms revenues minus all of its explicit and implicit costs

A high marginal propensity to consume implies which of the following?

a low marginal propensity to save

Which of the following is NOT a function of fiat money?

a source of intrinsic value

The vertical distance CF represents the

average fixed cost of producing Q1 units of output

Total fixed cost divided by the level of output yields the _____.

average fixed cost per unit

According to the law of _____, the marginal utility received from each additional unit of a good consumed declines, other things constant.

diminishing marginal utility

Crowding out occurs when

government borrowing to finance its spending decreases private sector investment

If the average total cost curve is above the demand curve, then this firm is

having economic losses

If the average total cost curve is above the demand curve, then this firm is:

having economic losses

To maximize cartel profit, members must allocate output so that the marginal cost for the final unit produced by each firm is:

identical.

Figure 5.10 shows two upward-sloping linear supply curves that pass through the origin. The price elasticity of supply between $20 and $40 on the supply curve S' is _____.

1

The difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is known as:

consumer surplus

A farmer produces peppers in a perfectly competitve market. If the price falls, in the short run, the farmer should

continue to produce only if the new price covers average variable costs.

Hyperinflation is typical caused by:

continuous expansion of the money supply to finance government budget deficits

Which of these is a similarity between a monopolist that does not practice price discrimination and a perfectly competitive firm?

Price equals average revenue at all output rates for both types of firms.

As long as scarcity exists, _____.

income and product prices should both be considered for consumers' utility maximization

An advance in technology will cause the:

long run aggregate supply curve to shift to the right

monoply

one firm that controls an entire market

If a leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the company is most likely trying to create a barrier to entry by:

crowding out new entrants

industries with downward sloping long run supply curves are called

decreasing cost industries

In the long run, the entry of new firms in a competitive industry:

eliminates economic profits

for any level of output, a firm's average revenue is _________

equal to the market price

In most cases, the supply curve for a perfectly competitive industry can be described as which of the following

more elastic in the long run than in the short run

whens firms in a market experience economic profit in the short run,

more firms will enter the market, increasing market supply and drive profits to zero in the long run

market supply curve can be calculated by

multiplying the amount of suppliers in the market by the amount produced per each supplier

In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if:

net exports were negative

on a supply demand curve, a firm breaks even when __________________

price is equal to average total cost

for a firm in a perfectly competitive market ______________

price is equal to marginal revenue

The figure below shows the cost and revenue curves faced by a profit-maximizing monopolist. If the monopolist engages in perfect price discrimination, the price of the monopolist's good will:

vary between $212 and $120

(Look at Graph on #6-7 in Packet) If marginal revenue is equal to P1, all of the following statements are true EXCEPT: a) Total revenue will equal total costs. b) The firm will produce Q1 units of output. c) The firm will produce the efficient level of output. d) The firm will earn a normal profit. e) The firm will increase production in the long run.

e) The firm will increase production in the long run.

21. Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market? a. An increase in the demand for Country A's currency b. An increase in the supply of Country B's currency c. A decrease in the supply of Country A's currency d. A decrease in the demand for Country B's currency e. A depreciation of Country A's currency

e. A depreciation of Country A's currency

Which of the following is true when the price of a good is zero?

A consumer will consume additional units of the good as long as marginal utility is positive

According to the short-run Phillips cure, lower inflation rates are associated with:

higher unemployment rates

If labor is a firm's only variable input, marginal cost ultimately depends on:

how much output each worker produces

On a short-run Phillips Curve, high rates of inflation coincide with:

low unemployment rates

to maximize economic profit, a firm should keep producing outputs until ________________

marginal cost is greater then or equal to marginal revenue

28) Assume that the nominal interest rate is 10%. If the expected inflation rate is 5%, the real interest rate is A) 0.5% B) 2% C) 5% D) 10% E) 15%

C) 5%

27. The short-run aggregate supply curve would be vertical if a. nominal wages adjust immediately to changes in the price level b. nominal wages adjust slowly when there is unemployment c. both nominal wages and prices adjust slowly to changes in aggregate demand d. the spending multiplier is very low e. investment demand is very responsive to changes in interest rates

nominal wages adjust immediately to changes in the price level

At a market price of $7, the profit-maximizing rate of output will result in

normal profits

In the narrowest definition of money, M1, savings accounts are excluded because they are:

not a medium of exchange

Which of the following statements is true?

If the marginal product of labor diminishes, the total cost rises at a diminishing rate.

A consumer's willingness to pay additional money for time-saving goods depends primarily on:

the opportunity cost of his or her time

productive effiency

the situation where a good or service is produced at the lowest possible cost

increasing cost industries

typically in areas where the supply of input is limited (natural resources, land, etc) the cost of producing a product increases as the industry expands

51. Rational expectations theory suggests that people a. do not estimate future inflation rates because it is impossible to do so b. believe that current inflation should be the same as last year's c. assume that current inflation will be the same for next year d. use all available information in forming their expectations about future inflation e. assume that current inflation will be equal to the average inflation of the past decade

use all available information in forming their expectations about future inflation

10. An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways? Demand for Money Nominal Interest Rates a. Increase Increase b. Increase Decrease c. Increase Indeterminate d. Decrease Increase e. Decrease Decrease

a. Increase Increase

29. The consumer price index (CPI) is criticized for a. overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change b. overstating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change c. understating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change d. understating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change e. overstatingthetrueburdenofinflation because it reflects the prices of both intermediate goods and final goods

a. overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

Suppose that the government decerase taxes and at the same time the central bank decrease the discount rate. The combined actions will result in :

an increase in the real gross domestic product and an indeterminate change in the interest rate

All of the following changes will shift the investment demand curve to the right EXCEPT:

an increase in the real interest rate

Which of the following will lead to a decrease in a nation's money supply?

an increase in the reserve requirements

Which of the following factors can cause a firm's cost curve to shift upward?

an increase in wages

Which of the following statements most accurately describes the relationship between marginal product (MP) and average product (AP) of labor in the short run? As the quantity of output increases: a) AP is always less than MP b) initially, AP < MP, then AP = MP, then AP > MR c) initially, AP > MP, then AP = MP, then AP < MR

b) MP intersects the AP maximum from above. MP is initially greater than. AR and then MP and AP intersect. Beyond this intersection, MP is less than AR (Hint: draw the curves.)

Which of the following statements is true for a perfectly competitive firm but NOT true for a monopoly? a) The firm's price is equal to its average revenue. b) The firm cannot affect the market price for its good. c) It is difficult for other firms to enter the industry. d) The demand for the firm's product is unit elastic. e) The firm must lower its price in order to sell more of its product.

b) The firm cannot affect the market price for its good.

43. The purchase of United States government bonds by Japanese investors will be included in Japan's a. current account b. financial account (formerly called capital account) c. trade deficit d. foreign direct investment e. imports

b. financial account (formerly called capital account)

What is a barrier to entry? Give some examples.

barriers to entry= prevent competitors from entering the market. ex. legal restrictions, control of physical resources, economies of scale leading to natural monopoly, predatory pricing

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's average fixed cost of producing 2 units of output? a) $24.00 b) $20.50 c) $12.00 d) $8.00 e) $7.50

c) $12.00

As a firm employs additional units of either labor or capital in its production process, holding the quantity of the other input constant, the firm is most likely to experience diminishing returns to: a) labor only b) capital only c) either labor or capital

c) Both labor and capital inputs are subject to the law of diminishing returns.

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes? Industry's Demand Curve Firm's Demand Curve a) Horizontal Downward sloping b) Horizontal Horizontal c) Downward sloping Horizontal d) Downward sloping downward sloping e) Vertical Hoizontal

c) Downward sloping; Horizontal

If the supply of a factor or production is fixed, which of the following will be true of its price? a) Supply is irrelevant to the determination of factor price. b) A positive factor price cannot be justified on economic grounds. c) Factor price will be determined by the demand for the fixed amount of the factor. d) Factor price will not be determined by supply and demand analysis. e) Factor price will be zero, since no payment is necessary to secure the services of the factor.

c) Factor price will be determined by the demand for the fixed amount of the factor.

In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have a) a higher price and higher output b) a higher price and lower output c) a lower price and lower output d) a lower price and lower output e) the same price and lower output

c) a lower price and lower output

(Look at Graph on #6-7 in Packet) The vertical distance CF represents the a) total cost of producing Q1 units of output b) average total cost of producing Q1 units of output c) average fixed cost of producing Q1 units of output d) average variable cost of producing Q1 units of output e) amount of the firm's loss resulting from producing Q1 units of output

c) average fixed cost of producing Q1 units of output

In a perfectly competitve industry, the market price of product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should a) decrease its selling price b) increase its selling price c) decrease output but keep producing d) shut down e) leave both price and output unchanged

c) decrease output but keep producing

11. Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? a. An open-market purchase of government securities by the central bank and a decrease in the federal funds rate b. An open-market sale of government securities by the central bank and an increase in the federal funds rate c. A decrease in taxes and an open-market purchase of government securities by the central bank d. An increase in government spending and an open-market sale of government securities by the central bank e. An increase in taxes and an increase in the federal funds rate

c. A decrease in taxes and an open-market purchase of government securities by the central bank

46. If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to a. sell securities on the open market b. increase bond prices c. increase income taxes d. decrease the discount rate e. decrease the required reserve ratio

a. sell securities on the open market

Which of the following best illustrates an improvement in a country's standard of living?

an increase in real per capita gross domestic product

Perfectly competitive firms will leave the industry that they are operating in if they _____.

are unable to cover their variable costs

A firm is using the profit-maximizing combination of labor and capital if the ratio of each input's marginal revenue product to its cost per unit is: a) maximized b) equal to one c) minimized

b) At the optimal combination of labor and capital (the combination that minimizes costs), the ratio of each input's marginal revenue product to its cost per unit is equal to one.

If a firm's long-run average total cost increases by 6% if output is increased by 6%, the firm is experiencing: a) economies of scale b) diseconomies of scale c) constant returns to scale

b) Increasing long-run average total cost as a result of increasing output demonstrates diseconomies of scale.

(Look at Graph in Packet for #18-19) In a competitive equilibrium, consumer surplus is the area of a) UVZ b) WYZ c) RVUT d) XVZY e) 0YZS

b) WYZ

A profit-maximizing firm will hire a) labor until its wage rate equals its average revenue product b) labor until its wage rate equals its marginal revenue product c) labor until its wage rate equals the interest rate d) capital until the interest rate equals the wage rate e) capital until the interest rate exceeds the wage rate

b) labor until its wage rate equals its marginal revenue product

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's marginal cost of producing the fourth unit of output? a) $54.00 b) $13.50 c) $7.50 d) $6.00 e) $1.50

d) $6.00

Marginal revenue product is best defined as the: a) addition to total revenue from selling one more unit of output b) additional output produced by using one more unit of a productive input c) addition to revenue from selling the output produced by using one more unit of an input

c) The marginal revenue product is the addition to total revenue gained by selling the marginal product (additional output) from employing one more unit of a productive resource.

(Look at Graph on Packet for #22) The relationship in the graph above best illustrates the economic concept of a) opportunity cost b) diminishing marginal utility in consumption c) diminishing marginal returns in production d) production possibilities e) comparative advantage

c) diminishing marginal returns in production

The table below represents points on an economy's current production possibilities curve. Good X Good Y 1,000 0 990 100 980 200 970 300 The opportunity cost of increasing the production of good Y from 0 to 200 is a) 1,000 units of X b) 980 units of X c) 200 units of X d) 20 units of X e) 5 units of X

d) 20 units of X

Marginal revenue is the change in revenue that results from a one-unit increase in the a) variable input b) variable input price c) output level d) output price e) fixed cost

c) output level

26. An increase in which of the following will most likely increase productivity? a. Population growth rate b. Aggregate demand c. Capital stock d. Consumption e. Employment

c. Capital stock

Which of the following statements is true of perfectly competitive firms in long-run equilibrium? a) Firm revenues will decrease if production is increased. b) Total firm revenues are at a maximum. c) Average fixed cost equals marginal cost. d) Average total cost is at a minimum. e) Average variable cost is greater than marginal cost.

d) Average total cost is at a minimum.

Interdependence among firms is a characteristic primarily associated with a) labor markets b) perfect competition c) monopsony d) oligopoly e) monopoly

d) oligopoly

14. An increase in which of the following would most likely result in an increase in aggregate supply? a. The price level b. Aggregate demand c. Unemployment compensation d. Labor-force participation rate e. The minimum wage

d. Labor-force participation rate

15. The main benefit of free trade between two countries is that a. income distribution in each country will become more equitable b. employment in each country will increase c. migration from one country to the other will increase d. each country can consume beyond its constraints of resources and productivity e. eachcountrywillbecomemore self-sufficient

d. each country can consume beyond its constraints of resources and productivity

For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the firm to maximize profits? Price of Labor Price of Capital a) $2 $5 b) $3 $20 c) $10 $10 d) $2 $25 e) $60 $100

e) $60; $100

If you owned a small farm, which of the following would be a fixed cost?

harvesting equipment

The table below shows the demand schedule for a monopolist. Marginal revenue associated with the sale of the fourth unit of output is _____.

$30

**** (Study Physical Problem) 19. Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent? (A) Bank A has no excess reserves. (B) Bank B has no excess reserves. (C) Bank B can increase its loans by $500. (D) Bank B can increase its loans by $40. (E) BankChasexcessreserves.

(D) Bank B can increase its loans by $40.

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is :

20

Barney's Bait Company can sell all the lures it produces at the market price of $14. On the basis of the cost information in the table above, how many lures should the bait company make?

3

The table below shows the price and output combinations at different output levels for a non price-discriminating monopolist. The profit-maximizing output for this monopolist is _____.

3 units

Which of the following is an example of foreign direct investment?

A United States automobile manufacturer building a steel plant in Russia

Which of the following could be a current account transaction?

A United States firm sells $500 million of its products to a Chinese company.

The value of which of the following is counted in the United States gross domestic product?

A car produced in the United States and sold in Europe

Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation?

A decrease in reserves in the banking system.

A commercial bank's ability to create money depends on which of the following?

A fractional reserve banking system

If the demand for something increases as a person's income increases, then it is an example of:

A normal good

What would cause an unregulated monopolist to produce a more allocatively efficient level of output?

A subsidy that increases as output increases

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?

AD = decrease AS = no change

Which of the following will most likely occur as a result of an increase in labor productivity in an economy?

An increase in output and a decrease in inflation

60) In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways? Value of Currency........ Trade Deficit A) Appreciate........ Become smaller B) Appreciate........ Become larger C) Depreciate........ Become smaller D) Depreciate........ Become larger E) Not change........ Not change

B) Appreciate........ Become larger

An economy increases its level of physical capital per worker by increasing the level of investment spending. This can be achieved by:

Both having the domestic residents spend less of their income on consumption while increasing their domestic saving...and borrowing foreign savings from residents of other countries

If the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

Both will decrease in the short run

54) Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10%. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be A) $10 B) $100 C) $900 D) $1,000 E) $1,100

C) $900

A country can have an increased surplus in its balance of trade as a result of

Decling imports and rising exports

If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities

Which of the following is true at the quantity at which average total cost equals average revenue?

Economic profit is zero

John moved his office from a building he was renting downtown to the carriage house he owns behind his house. Which of the following statements shows how his costs change?

His explicit costs fall, while his implicit costs will rise.

Identify a statement that is true of a cartel.

In a cartel, firms with lower average costs often earn higher profits

Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession?

Increasing government spending and decreasing the Federal funds rate

Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession?

Increasing government spending and decreasing the federal funds rate

Which of the following groups would most likely gain from unanticipated inflation?

Individuals who have borrowed money at fixed interest rates

Assue that the world operates under a flexible exchange rate system. if the central bank of Mexico increases it's money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways?

Inflation rate: increase International Value of Peso: Depreciate

How is intellectual property different from other property?

Intellectual property is legal guarantee ownership of an idea rather than a physical item

By what legal mechanisms is intellectual property protected?

Intellectual property is protected by patents, trademarks, copyrights, and trade secrets

Which of the following is true of the long-run phillips curve?

It is vertical at the natural rate of unemployment

Which of the following is true of a horizontal aggregate supply curve?

It suggests that increases in output can occur without increases in price levels.

What is true about a firm's average variable cost?

It will equal average total cost when fixed costs are zero

An increase in which of the following would cause an increase in aggregate supply?

Labor productivity

Which of the following is the best example of a negative externality? a) An increase in the price of oil due to the imposition of environmental regulations b) An increase in the price of oil due to action taken by the Organization of Petroleum Exporting Countries (OPEC) c) A decline in oil stock prices as a result of bad management d) Oil leakages from drilling platforms in the Gulf of Mexico e) Declining restrictions on the importation of foreign-made cars

d) Oil leakages from drilling platforms in the Gulf of Mexico

The transaction demand for money is very closely associated with money's use as a:

Medium of exchange

Is a monopolist a price taker? Explain briefly.

No a monopolist is not a pricetaker

Based on the diagram above, what effect will an increase in the world supply of oil have on real gross domestic product and the aggregate price level?

Real Gross Domestic Product: Increase Price Level: Decrease

Under a flexible exchange rate system, the Indian rupee will appreciate against the Japanese yen when:

Real interest rates in India increase relative to those in Japan

One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease?

Real value of assets

If a certain combination of goods or services lies outside the production possiblities curve of an economy, which of the following is true?

Resources are not available to achieve that combination of goods or services.

Which of the following has been most important in driving long-run economic growth?

Rising labor productivity or output per worker

Which of the following characteristics does perfect competition share with monopolistic competition?

Tacit collusion occurs in industries that:

Which of the following would most likely stimulate economic growth?

Technological progress

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?

The United States consumer price index

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?

The automatic stabilizing effect of fiscal policy will be eliminated

Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following is likely to happen?

The firm will not be able to sell any of its output

The shifting of a country's production possibilities curve to the right will most likely cause:

The long-run aggregate supply curve to shift to the right

If a reduction in aggregate demand, is followed by an increase in aggregate demand, which of the following will definitely occur?

The price level will increase

Suppose that the consumer prie index rises from 100 to 200. From this information we may conclude that:

The prices in an average consumers market are doubled

Which of the following is true when the production of a good results in negative externalities?

The private market price will be too low

An increase in government budget deficit is most likely to increase which of the following?

The real interest rate

A major fruit juice manufacturer fails in its attempt to engage in price discrimination between students and all other consumers of fruit juice. Which of the following explanations is most likely to account for this failure?

The students resold the juice to other consumers.

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____.

$5,700

The average total cost to the firm of producing 2 units of output is

$95

28. An increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the following ways? Capital Output per Worker, per Worker (A) Increase , Increase (B) Increase , Decr (C) No change , Incr (D) Decrease , Incr (E) Decrease , Decr

(A) Increase , Increase

11. Which of the following combinations of changes in government spending and taxes is necessarily expansionary? Government Spending, Taxes (A) Increase, Increase (B) Increase, Decrease (C) Decrease, Not Change (D) Decrease, Increase (E) Decrease, Decrease

(B) Increase, Decrease

22. Which of the following are the most likely short-run effects of an increase in government expenditures? Unemployment Rate,Inflat,RGDP (A) Increase, Inc, Inc (B) Increase, Inc, Decr (C) Decrease, Inc, Inc (D) Decrease, Decr, Inc (E) No change, Decr, Inc

(C) Decrease, Inc, Inc

58. If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways? Real Output Price Level a. Increase Increase b. Increase Decrease c. Increase Not change d. Not change Increase e. Not change Not change

d. Not change Increase

16. Which of the following will lead to a decrease in a nation's money supply? (A) A decrease in income tax rates (B) A decrease in the discount rate (C) An open market purchase of government securities by the central bank (D) An increase in reserve requirements (E) Anincreaseingovernmentexpenditures on goods and services

(D) An increase in reserve requirements

Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. The minimum amount of revenue per year that would make it worthwhile, financially, for Maryann and Don to run the deli is _____.

$76,000

33. Which of the following best explains the increase in national income that results from equal increases in government spending and taxes? (A) Consumers do not reduce their spending by the full amount of the tax increase. (B) The government purchases some goods that consumers would have purchased on their own anyway. (C) Consumers believe all tax cuts are transitory. (D) The increase in government spending causes adecreaseininvestment. (E) Consumersareawareoftaxincreasesbutnot of increases in government spending.

(A) Consumers do not reduce their spending by the full amount of the tax increase.

24. A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy? Fiscal Policy , Monetary Policy (A) Increase taxes, Sell Gov Bonds (B) Decrease taxes, Buy Bonds (C) Decrease taxes, Lower Margin Req (D) Decrease gov spending, Lower Discount Rate (E) Increasegov spending, Raise Discount Rate

(A) Increase taxes, Sell Gov Bonds

49. Which of the following occurs as investment becomes more responsive to changes in the interest rate? (A) Monetary policy becomes more effective at changing real gross domestic product. (B) Fiscal policy becomes more effective at changing real gross domestic product. (C) Monetary policy becomes more effective at changing interest rates. (D) Fiscal policy becomes more effective at changing interest rates. (E) Thereisnochangeintheeffectivenessof either monetary or fiscal policy.

(A) Monetary policy becomes more effective at changing real gross domestic product.

56. In the narrowest definition of money, M1, savings accounts are excluded because they are (A) not a medium of exchange (B) not insured by federal deposit insurance (C) available from financial institutions other than banks (D) a store of purchasing power (E) interest-payingaccounts

(A) not a medium of exchange

58. Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by (A) $4,000 (B) $8,000 (C) $9,000 (D) $10,000 (E) $14,000

(B) $8,000

46. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of (A) $800 (B) $900 (C) $1000 (D) $1100 (E) $1,200

(B) $900

31. If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true? (A) Alpha' s currency will have appreciated relative to Beta's currency. (B) Alpha's currency will have depreciated relative to Beta's currency. (C) Alpha will have had lower nominal interest rates than Beta. (D) Alpha will have had slower growth in the money supply than Beta. (E) Alpha'seconomywillhavegrownatafaster rate than Beta's.

(B) Alpha's currency will have depreciated relative to Beta's currency.

26. The table below shows the production alternatives of Country A and Country B for producing com- puters and cars with equal amounts of resources that are fully and efficiently employed. Country Computers Cars A 24 0 0 12 B 45 0 0 15 Which of the following is true according to the data in the table? (A) Country A has an absolute and comparative advantage in the production of computers. (B) Country B has an absolute and comparative advantage in the production of computers. (C) Country B should import computers and export cars. (D) Since Country B has an absolute advantage in the production of both goods, it will not trade with Country A. (E) Neithercountrycanbenefitfromtrade.

(B) Country B has an absolute and comparative advantage in the production of computers.

42. A barter economy is different from a money economy in that a barter economy (A) encourages specialization and division of labor (B) involves higher costs for each transaction (C) eliminates the need for a double coincidence of wants (D) has only a few assets that serve as a medium of exchange (E) promotesmarketexchanges

(B) involves higher costs for each transaction

20. Which of the following will most likely lead to a decrease in inflationary expectations? (A) A decrease in the marginal propensity to save (B) A decrease in imports (C) A decrease in the money supply (D) An increase in the government budget deficit (E) Anincreaseinthepricesofrawmaterials

(C) A decrease in the money supply

14. With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways? Consumption, Real GDP (A) Increase, Increase (B) Increase, Decrease (C) Decrease, Increase (D) Decrease, Decrease (E) No change, Increase

(D) Decrease, Decrease

17. An increase in which of the following would cause the aggregate demand curve to shift to the left? (A) Consumer optimism (B) Population (C) Cost of resources (D) Income taxes (E) Netexports

(D) Income taxes

34. Which of the following statements is true of unanticipated inflation? (A) It decreases the economic well-being of all members of society proportionately. (B) It decreases the economic well-being of all members of society equally. (C) It increases the economic well-being of net creditors. (D) It increases the economic well-being of net debtors. (E) Itincreasestheeconomicwell-beingof workerswithlong-termlaborcontracts.

(D) It increases the economic well-being of net debtors.

3. The transaction demand for money is very closely associated with money's use as a (A) store of value (B) standard unit of account (C) measure of value (D) medium of exchange (E) standardofdeferredpayment

(D) medium of exchange

57. For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply? Unemployment Rate, Inflation Rate (A) 10% 2% (B) 10% 5% (C) 10% 10% (D) 5% 5% (E) 5% 10%

(E) 5% 10%

59. Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following? (A) Price level (B) Unemployment rate (C) Level of exports (D) Level of imports (E) Long-run real gross domestic product

(E) Long-run real gross domestic product

***PPC X,Y, and W are on or outside curve, Z is inside 45. The diagram above shows the production possi- bilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT: (A) Producing at point Z results in the underutilization of resources. (B) The combination represented by point Y is unattainable, given the scarcity of resources. (C) Resources are fully utilized at points W and X. (D) Producing at point X will result in greater economic growth than will producing at point W. (E) Point X represents the most efficient combination of the two goods that can be produced by this economy.

(E) Point X represents the most efficient combination of the two goods that can be produced by this economy.

54. An increase in which of the following would LEAST likely increase labor productivity? (A) Physical capital (B) Human capital (C) Technological improvements (D) Educational achievement (E) The labor force

(E) The labor force

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money supply is:

$2,000 billion

Table 10.1 shows the output, price, and total cost for a monopolistic competitor. The profit-maximizing price for the firm is:

$21

In a closed economy with only lump-sum taxation, if the marginal propensity to consume is equal to .75, a $70 billion increase in government spending could cause a maximum increase in output of :

$280 billion

Figure 10.5 shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm. The profit-maximizing (or loss-minimizing) price for the firm is _____.

$3.25

Refer to the above cost data. The total cost of 4 units of output is

$310

The figure below shows the cost and revenue curves for a monopolist. Assume that the monopolist does not shut down production in the short run. The profit-maximizing price and output for this non-price discriminating monopolist are:

$4 and 7 units, respectively.

Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The accounting profit earned by Ernie was _____.

$40,000

Refer to the above cost data. If the firm closed down and produced zero units of output, its total cost would be

$50

Which of the following is the firm's marginal cost of producinng the 4th unit of output?

$6

Refer to the above cost data. The total cost of 5 units of output is:

$78

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by:

$8,000

Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. if the marginal propensity to consume is .75, equilibrium gross domestic product will change by a maximum of:

$8.0 million

Refer to the above cost data. The marginal cost of the 5th unit of output is

$80

Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decided to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of:

$900

Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be:

$900

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200 consumption spending will increase by:

$960

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200, consumption spending will increase by

$960

National Economic Figures (**See test (billions of dollars) Consumption $ 3,000 Gov Purchases 1,000 Gross Ig 700 Depreciation 300 Exports 300 Imports 500 Indirect Business Taxes 0 32. Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars? (A) $4,500 (B) $4,700 (C) $4,900 (D) $5,150 (E) $5,950

(A) $4,500

Which of the following will cause the United States dollar to depreciate to the Euro?

(A) An increase in household income in the United States.

6. Which of the following best illustrates an improvement in a country's standard of living? (A) An increase in real per capita gross domestic product (B) An increase in nominal per capita gross domestic product (C) Price stability (D) A balanced budget (E) An increase in the consumer price index

(A) An increase in real per capita gross domestic product

52. One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease? (A) Real value of assets (B) Prices of foreign goods (C) Prices of substitute goods (D) Expectations of future prices (E) Government deficit

(A) Real value of assets

5. The value of a country's currency will tend to appreciate if (A) demand for the country's exports increases (B) the country's money supply increases (C) the country's citizens increase their travel abroad (D) domestic interest rates decrease (E) tariffs on the country' s imports decrease

(A) demand for the country's exports increases

15. According to the short-run Phillips curve, lower inflation rates are associated with (A) higher unemployment rates (B) higher government spending (C) larger budget deficits (D) greater labor-force participation rates (E) smaller labor-force participation rates

(A) higher unemployment rates

4. Unlike a market economy, a command economy uses (A) more centralized planning in economic decision making (B) consumer sovereignty to make production decisions (C) its resources more efficiently (D) price signals in economic decision making (E) the popular vote in making resource allocation decisions

(A) more centralized planning in economic decision making

40. A commercial bank's ability to create money depends on which of the following? (A) The existence of a central bank (B) A fractional reserve banking system (C) Gold or silver reserves backing up the currency (D) A large national debt (E) The existence of both checking accounts and savings accounts

(B) A fractional reserve banking system

1. A country's government runs a budget deficit when which of the following occurs in a given year? (A) The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations. (B) Government spending exceeds tax revenues. (C) The debt owed to foreigners exceeds the debt owed to the country's citizens. (D) The amount borrowed exceeds the interest payment on the national debt. (E) Interest payments on the national debt exceed spending on goods and services.

(B) Government spending exceeds tax revenues.

60. If economic agents perfectly anticipate policy changes and if all prices, including wages, are completely flexible, which of the following will be true in the long run? (A) The price level will be constant. (B) There will be no trade-off between inflation and unemployment. (C) The unemployment rate will be less than the natural rate of unemployment. (D) The unemployment rate will be greater than the natural rate of unemployment. (E) Changesinthemoneysupplywillnotleadto changes in the price level.

(B) There will be no trade-off between inflation and unemployment.

25. Which of the following is likely to occur following the depreciation of the United States dollar? (A) United States imports will increase. (B) United States exports will increase. (C) Demand for the United States dollar will decrease. (D) United States demand for foreign currencies will increase. (E) UnitedStatesgoodswillbecomemore expensive in foreign markets.

(B) United States exports will increase.

7. Hyperinflation is typically caused by (A) high tax rates that discourage work effort (B) continuous expansion of the money supply to finance government budget deficits (C) trade surpluses that are caused by strong protectionist policies (D) bad harvests that lead to widespread shortages (E) a large decline in corporate profits that leads to a decrease in production

(B) continuous expansion of the money supply to finance government budget deficits

36. A country can have an increased surplus in its balance of trade as a result of (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in capital inflow (E) anappreciatingcurrency

(B) declining imports and rising exports

9. The official unemployment rate understates the unemployment level in the economy because the official unemployment rate (A) ignores the duration of unemployment (B) ignores underemployed and discouraged workers (C) includes jobs created by the underground economy (D) excludes all unemployed teenagers (E) excludesfrictionallyunemployedworkers

(B) ignores underemployed and discouraged workers

13. For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production? (A) Households are producers of goods and services and consumers of resources. (B) Households are users of resources, and businesses are sources of saving. (C) Households are suppliers of resources and consumers of goods and services. (D) Businesses are users of taxes, and households are sources of taxes. (E) Businessesaresuppliersofresourcesand consumers of goods and services.

(C) Households are suppliers of resources and consumers of goods and services.

43. In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations? Bond Prices, Interest Rates (A) No change, Increase (B) Increase, Increase (C) Increase, Decrease (D) Decrease, Increase (E) Decrease, Decrease

(C) Increase, Decrease

18. Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good? Supply, Demand (A) Increase, Increase (B) Increase, No change (C) No change, Decrease (D) Decrease, Increase (E) Decrease, Decrease

(C) No change, Decrease

27. Which of the following individuals is considered officially unemployed? (A) Chris, who has not worked for more than three years and has given up looking for work (B) Kim, who is going to school full-time and is waiting until graduation before looking for a job (C) Pat, who recently left a job to look for a different job in another town (D) Leslie, who retired after turning 65 only five months ago (E) Lee, who is working 20 hours per week and is seeking full-time employment

(C) Pat, who recently left a job to look for a different job in another town

39. An increase in which of the following would be most likely to increase long-run growth? (A) Pension payments (B) Unemployment compensations (C) Subsidies to businesses for purchases of capital goods (D) Tariffs on imported capital goods (E) Tariffsonimportedoil

(C) Subsidies to businesses for purchases of capital goods

38. An increase in the government budget deficit is most likely to result in an increase in which of the following? (A) The marginal propensity to consume (B) Exports (C) The real interest rate (D) The money supply (E) Thesimplemultiplier

(C) The real interest rate

53. Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply? (A) They are automatic stabilizers. (B) They are tools of discretionary fiscal policy. (C) They have different lag times between implementation of a policy and its effects on aggregate demand. (D) They are favored equally by both classical and Keynesian economists to fine-tune the economy. (E) All are controlled by the Federal Reserve system.

(C) They have different lag times between implementation of a policy and its effects on aggregate demand.

8. All of the following changes will shift the investment demand curve to the right EXCEPT (A) a decrease in the corporate income tax rate (B) an increase in the productivity of new capital goods (C) an increase in the real interest rate (D) an increase in corporate profits (E) an increase in real gross domestic product

(C) an increase in the real interest rate

12. The hold in the form of cash will (A) be unaffected by any change in interest rates or the price level (B) increase if interest rates increase (C) decrease if interest rates increase (D) increase if the price level decreases (E) decreaseifthepricelevelremainsconstant

(C) decrease if interest rates increase

21. With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely (A) reduce the price level (B) reduce the level of nominal gross domestic product (C) increase real gross domestic product (D) shift the short-run aggregate supply curve to the right (E) shiftboththeaggregatedemandcurveand the long-run aggregate supply curve to the left

(C) increase real gross domestic product

Monopolistically competitive firms do not achieve allocative efficiency in the long run because:

price is greater than marginal cost

A buyer or seller that is unable to affect the market price is called a __________.

price taker

Economists assume that firms seek to:

maximize economic profit

a firm facing short term losses faces what two options

-continue to operate at a loss -stop production by shutting down temporarily

The following table shows the total utility and marginal utility derived from the consumption of scones. The first column of the table represents the number of scones a consumer consumes in a day. The second column of the table presents the total utility derived from that consumption, and the third column shows the marginal utility of each additional scone. The total utility derived from the consumption of five scones is _____ units.

30

Suppose that real GDP grows at 2% per year, for real GDP to approximately double it will take?

35 years because the rule of 70 states that the number of years it takes for a variable to double is equal to 70 divided by the annual growth rate of the variable

Assume that the nominal interest is 10 percent. If the expected inflation rate is 5%, the real interest rate is

5%

Assume that the nominal interest rate is 10 percent. if the expected inflation rate is 5 percent, the real interest rate is:

5%

Which of the following goods will have a higher price elasticity of demand?

A good with many substitutes. (The price elasticity of demand is higher the more substitutes a good has, the larger the share of the consumer's budget spent on the good, and the longer the adjustment period)

A monopolistically competitive firm is allocatively inefficient because the firm will:

Charge a price greater than marginal cost

Which of the following is most likely produced in a monopolistically competitive market?

Fast food

Whenever the production of a good creates negative externalities, an unregulated market will result in a) too little of the good being produced b) an optimal amount of the good being produced c) society's marginal cost being higher than the firm's marginal cost d) the firm's marginal cost being higher than society's marginal cost e) the firm's marginal cost being equal to society's marginal cost

c) society's marginal cost being higher than the firm's marginal cost

If an increase in the price of peanut butter causes a decline in the demand for jelly, then:

the goods are complements

Based on the economic figures in the table above , what is the value of the GDP in billions of dollars?

$4,500

Profit formula

(Price - average total cost) X Q

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

6

Based on the information in the table above, what is the unemployment rate for Country X?

6.0%

point d

According to the graph the shut-down point corresponds to:

When firms restructure their operations to decrease production costs, the aggregate supply curve, the price level, and real output will change in which of the following ways?

Aggregate Supply Curve- shift to the right Price Level -Decrease Real output- Increase

Aggregate demand may be measured by adding:

Consumption, investment, government spending, and net exports

What is not a characteristic of a monopolistically competitive market?

Long-run economic profits

Sometimes rival firms will match price decreases but not increases in an:

Oligopoly

In an oligopoly, the demand curve facing an individual firm depends upon the:

behavior of competing firms

firms in perfectly competitive markets ___________ the price of the product

cannot control

profit maximization can be achieved when

marginal revenue = marginal cost

According to the information provided in the table below, marginal revenue from the sixth unit of output is:

‒$40

Which of the following is most likely to be considered a natural monopoly?

A municipal water company

The consumer price index (CPI) is designed to measure changes in:

Cost of a select market basket of goods and services

Which of the following individuals is considered officially unemployed?

Pat, who recently left a job to look for a different job in another town

If the Federal Reserve sells a significant amount of government securities in the open market, which of the following will occur?

The total amount of loans made by commercial banks will decrease

A good that takes up a very large percentage of a consumer's budget will tend to have:

an elastic demand

53. If the required reserve ratio is 10 percent, actualreserves are $10 million, and currency in circulation is equal to $20 million, M1 will at most be equal to a. $20 million b. $30 million c. $90 million d. $120 million e. $150 million

d. $120 million

31. If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of a. $40.00 b. $100.00 c. $133.33 d. $400.00 e. $500.00

d. $400.00

profit maximizing level of output

level of output where marginal revenue equals marginal cost

The figure below shows the cost and revenue curves faced by a monopolist. The demand curve faced by the monopolist at the profit-maximizing output is:

price elastic.

Which of the following is most likely to occur if the Federal Reserve engages in open market operation to reduce inflation?

A decrease in the reserves in the banking system

The required reserve ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply?

A decrease of $5 million

Which of the following individuals is classified as unemployed?

A recent college graduate who is looking for her first job

37) Which types of unemployment would increase if workers lost their jobs because of a recession? A) Cyclical B) Frictional C) Seasonal D) Search E) Structural

A) Cyclical

5) If the exchange rate between the US dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would A) depreciate, making US imports from Britain more expense B) depreciate, making US imports from Britain cheaper C) appreciate, making US imports from Britain more expensive D) appreciate, making US imports from Britain cheaper E) purchase 3 times more British goods than before the change occurred

A) depreciate, making US imports from Britain more expense

four units of output, although it would suffer a loss from doing so

According to the data in the table, when the price is $4, the firm would produce:

the firm earns 0 economic profit

According to the graph, if a perfectly competitive firm is producing at point A, which of the following is true?

no other firms will enter this market

According to the graphs, which of the following is likely to happen in this market in the long run?

If maginal business tax rates are decreased, how will aggregate supply and employment change in the long run?

Aggregate Supply: Increase Employment: Increase

Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?

Aggregate demand will decrease because the demand for United States exports decreases

59. If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run? a. Aggregate demand will decrease. b. Aggregate demand will increase. c. Aggregate supply will decrease. d. Both aggregate demand and aggregate supply will decrease. e. Both aggregate demand and aggregate supply will increase.

Aggregate demand will decrease.

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?

Aggregate demand will increase

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following?

Alpha: 1 ton of steel; Beta: 2 tons of steel

If country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alphas currency will have depreciated relative to Beta's currency

Amanda, age 6, opens a lemonade stand. She makes all the lemonade from a mix she found in her parents' pantry. Her stand is an old box she found in the garage. The pitcher and paper cups were taken from the kitchen. Which of the following is true?

Amanda's explicit costs are zero.

Which of the following statements is true?

An aggregate production function indicates how output per worker depends on the level of physical capital per worker, human capital per worker, and the state of the technology

Which of the following changes would cause an economy's aggregate demand curve to shift to the right?

An increase in autonomous consumption spending

Which of the following will cause the United States dollar to depreciate relative to the Euro?

An increase in household income in the United States

Which of the following is true when the velocity of money falls?

An increase in the money supply will have less effect on nominal gross national product

Assume that an economy is currently in long-run equilibrium, and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following in the economy in the short run?

An increase in the price level and a decrease in the real wage

A decrease in the prices of inputs will cause which of the following to occur in the short run?

An increase in the short-run aggregate supply and a decrease in the price level

In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve. If no policy action were taken, which of the following changes would move the economy to it's long run equilibrium?

An increase in wages

Which of the following is most likely to be an increasing-cost industry?

An industry that is a major buyer in the markets for the inputs it uses

If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has:

Approximately increased by 10%

The figure below shows the cost and revenue curves faced by a profit-maximizing monopolist. Which of the following areas shown in the figure given below represents consumer surplus under monopoly?

Area a

the firm will decrease its output and suffer losses

As the market demand shifts to the left, how will the firm's level of output change?

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium

Acc. to the graph above, WOTF is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following?

1 ton of steel in Alpha AND 2 tons of steel in Beta

The diagram below shows a linear production possibilities curve for a country. If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?

10

Suppose real GDP in Macroland was $400 billion in 2011 and $450 billion in 2012. Then the growth rate of real GDP between 2011 and 2012 was:

12.5%

If the market price is $11, how many widgets should this profit-maximizing firm produce?

15,000

At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5 S

At what real exchange ratio , also reffered to as the Terms of trade,between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5S

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the third unit of labor.

25 pairs of shoes

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor.

25 pairs of shoes

The following table shows the total utility and marginal utility derived from the consumption of scones. The first column of the table represents the number of scones a consumer consumes in a day. The second column of the table presents the total utility derived from that consumption, and the third column shows the marginal utility of each additional scone. The marginal utility of the fourth scone is _____ units.

4

The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is:

8 percent

The figure below shows the cost and revenue curves for a monopolist. The output level that is most likely to achieve allocative efficiency in this market is _____.

884 units

Which of the following would cause the short-run aggregate supply curve to shift to the right?

A decrease in the expected price level.

Which of the following will most likely lead to a decrease in inflationary expectations?

A decrease in the money supply

Which of the following most undermines the ability of a nations currency to store value?

A decrease in the purchasing power of the currency

Which of the following would best explain an inward shift of the production possibilities curve?

A decrease in the quality of human capital

$250

At which price in this graph is the perfectly competitive firm earning negative economic profit?

40) Assume that the economy is at full employment. Policymakers wish to maintain the price level but want to encourage greater investment. Which of the following combination of monetary and fiscal policies would best achieve this goal? Monetary Policy........ Fiscal Policy A) No change........ Contractionary B) Expansionary........ No change C) Expansionary........ Contractionary D) Expansionary........ Expansionary E) Contractionary........ Expansionary

C) Expansionary........ Contractionary

51) Under rational expectations, an announced expansion in the money supply will change nominal and real gross domestic products (GDP) in which of the following ways? Nominal GDP........ Real GDP A) Increase........ Increase B) Increase........ Decrease C) Increase........ No change D) No change........ Decrease E) No chnage........ No change

C) Increase........ No change

25) If the federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result? A) Inflation will increase. B) Tax revenues will increases. C) Interest rates will decrease D) Unemployment will decrease E) The international value of the dollar will increase

C) Interest rates will decrease

53) In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways? Real GDP........ Price Level A) Decrease........ Decrease B) Decrease........ Increase C) No change........ Decrease D) Increase........ Decrease E) No change........ Increase

C) No change........ Decrease

AN increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the of the following ways?

Capital per worker= Increase Output per worker= Increase

Using equal amounts of labor hours, Country X and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true?

Countries X and Y can engage in mutually advantageous trade by exchanging 1 watch for 1 radio

Which type of unemployment would increase if workers lost their jobs because of the recession?

Cyclical

If the exchange rate between the United States dollar ($) and the British Pound (#) changed from $2 per #1 to $3 per #1, and domestic prices in both countries stayed the same, then the United State dollar would

Depreciate, making US imports from Britain more expensive

If the exchange rate between the US dollar ($) and the British Pound changed from 2 dollars per 1 pound to 3 dollars per 1 pound, and domestic prices in both countries stayed the same, then the United States dollar would:

Depreciate, making the United States imports from Britain more expensive

Which of the following is true of firms in monopolistic competition and perfect competition?

Firms can enter and leave the industry with relative ease.

Differentiate between perfect competition and an oligopoly?

Firms in an oligopoly earn economic profit in the long run, whereas firms in perfectly competitive market earn zero economic profit in the long run.

If the production of a good results in positive externalities, the government might be able to improve economic efficiency in this market by:

Granting a subsidy to private producers

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what rang of real gross domestic product is the economy currently producing?

Greater than Y2

The profit-maximizing output level produced by an unregulated monopoly is

Greater than the socially optimal level, since the price paid by consumers exceeds the firm's marginal cost

Which of the following statements about the simple circular flow model of a market economy is correct?

Households are on the demand side of the product market and supply side of the resource market

For an economy consisting of households and businesses only, which of the following is consistent which the circular flow of income and production?

Households are suppliers of resources and consumers of goods and services

The table above indicates labor-hours needed to produce a single unit of each of two commodities in each of two countries. If labor is the only factor used to produce the commodities, which of the following statements must be correct?

I. County A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat III. Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for one unit of wheat (both I and III, or letterD)

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?

Imports: decrease........Exports: increase

Identify a statement that is true of a cartel.In a cartel, firms with lower average costs often earn higher profits

In a cartel, firms with lower average costs often earn higher profits

point D is the short-run equilibrium and point C is the new long run equilibrium

In this graph, the market is initially in long-run equilibrium at point A. If this is a constant-cost industry, after the decrease in demand, which point is likely to be a short-run equilibrium and which point is likely to be the next long-run equilibrium?

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

Income and Employment both increase

An increase in which of the following would cause the aggregate demand curve to shift to the left?

Income taxes

Which of the following combinations of changes in government spending and taxes in necessarily expansionary?

Increase Government spending an Decrease Taxes

36. Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level? Output Price Level a. Decrease Decrease b. Decrease Increase c. Indeterminate Increase d. Increase Indeterminate e. Increase Increase

Increase Indeterminate

With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely

Increase real gross domestic product

A firm doubles all of its inputs and finds that it has more than doubled its output. This situation is an example of

Increasing returns to scale

In the short run in perfect competition, the industry's demand curve and firm's demand curve have which of the following slopes?

Industry's Demand Curve - Downward sloping Firm's Demand Curve - horizontal

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy?

Interest Rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease.

If the govemrnet simultaneously engages in expansionary monetary and fiscal policies, whci of the following is the likely effect on interest rates and unemployment?

Interest rates are indeterminate Unemployment decreases

If the Federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

Interest rates will decrease

Which of the following will most likely occur when the Federal Reserve buys government bonds on the open market?

Interest rates will decrease

If the Federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

Interest rates will decrease.

An increase in which of the following is most likely to promote economic growth?

Investment tax credits

54. For an economy that is operating inside its production possibilities curve, which of the following is true? a. It can increase the production of both goods. b. Its population is growing faster than the economy's ability to increase production. c. It is using all available resources efficiently. d. It cannot move to a point on the production possibilities curve with available technology. e. It lacks the resources to increase production beyond its current output.

It can increase the production of both goods.

WOTF is true about the marginal propensity to consume?

It determines the size of the simple spending mulitiplier.

Which of the following is true about marginal propensity to consume?

It determines the size of the simple spending multiplier

Which of the following his true of the quantity of money demanded?

It falls when interest rates rise, because the opportunity cost of holding money increases

Which of the following statements is true of unanticipated inflation?

It increases the economic well-being of net debtors

Which of the following is most likely to be true of a monopoly in long-run equilibrium if it enjoys a patent and earns economic profit in the short run?

It will earn a positive economic profit in the long run.

Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following?

Long-run real Gross Domestic Product

All of the following are examples of product differentiation except one. Which of the following is the exception?

Lowering the price of a good for a special sale

Which of the following best describes a perfectly competitive market?

Many small firmsl producing a homogeneous product and facing no significant barriers to entry.

Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm's short-run cost?

Marginal Cost - No Effect Average Total Cost - Increase AVerage Variable Cost - No effect

What is true for both monopolies and perfectly competitive firms?

Marginal cost decreases as production increases

A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be concluded about the firm's marginal revenue for this output level?

Marginal revenue is less than $10 but more than zero

Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good?

No change in supply; Decrease in the demand

Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?

Nominal interest rates: Increase Bond Prices: Decrease

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

Nominal national income

How is oligopoly different from perfect competition?

Oligopoly has a few firms compared to perfect competition with many

When an economy is operating below the full employment level of output, an appropriate monetary policy would be to increase which of the following?

Open market purchases of government bonds

In a economy in which all prices, including wages are completely flexible, an increase in labor productivity will result in which of the following changes in output and real wages?

Output and Real Wages both increase

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and price level would occur in the long run?

Output- increase Price Level -decrease

How is monopolistic competition different from perfect competition?

Perfect competition is when there are many sellers like perfect competition but they don't sell identical products

The supply curve for a perfectly competitive industry can be described as:

Perfectly in elastic in the short run

Which of the following will be counted as unemployment by the United States Bureau of Labor Statistics?

Persons who were fired from their previous jobs and are actively applying for work.

Economic analysis of product differentiation leads to all of the following conclusions except one. Which is the exception?

Product differentiation must be based on real, substantive differences among products

28. Increases in the real per capita income of a country are most closely associated with increases in which of the following? a. The labor force b. The price level c. The money supply d. Productivity e. Tax rates

Productivity

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease?

Purchases of government bonds by the central bank (expansionary monetary policy)

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease?

Purchases of government bonds by the central bank.

In the above diagram the range of diminishing marginal returns is:

Q1Q3

Which Federal Reserve action can shift the aggregate demand curve to the left?

Raising the discount rate

In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways?

Real GDP: no change Price Level: Decrease

Suppose that a national government increased deficit spending on good and services, increasing its demand for loanable funds. in the long run, this policy would most likely result in which of the following changes in this country?

Real interest rates increase, while investment decreases

The Federal Reserve can cause an increase in interest rates in an attempt to:

Reduce inflation

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Short-run Price - Increase Short-run Industry Output - Increase Movement of Firms - enter

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?

The United States consumer price index.

Assume that the inflation rate of Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market?

The demand curve for the currency will shift to the left and the currency will depreciate

Under which of the following circumstances is a firm experiencing economies of scale?

The firm doubles its inputs and output triples

What is true about a firm that sells its output in a perfectly competitive market?

The firm will earn zero economic profits in long run equilibrium

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?

The inflation rate was negative

An increase in which of the following would LEAST likely increase labor productivity?

The labor force

An outward shift in the production possibilities curve can be caused by an increase in:

The labor force

Which of the following would indicate that economic growth has occurred?

The long-run aggregate supply curve shifts to the right

Which of the following would indicate that economic growth has occurred?

The long-run aggregate supply curve shifts to the right.

"The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement?

The marginal utility of the second glass of water was positive

Which of the following are the most likely short-run effects of an increase in government expenditures?

Unemployment Rate= decrease Inflation Rate= increase Real Gross Domestic Product= increase

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply?

Unemployment rate of 5% AND Inflation rate of 10%

In an open economy, an increase in government budget defect tends to cause the international value of a country's currency and its trade defect to change in which of the following ways?

Value of Currency: Appreciates Trade Deficit: Becomes larger

If the real interest rates in the United States rise relative to rates in other countries, what will happen to the international value of the United States dollar and United States net exports?

Value of Dollar: Appreciate Net Exports: Decrease

negative economic profit

What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?

Which of the following statements concerning economic growth is true?

With long-run economic growth, there is an increase in aggregate supply

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will hcange in which of the following ways?

[IR]Decrease--[Q of $] Not Change

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

[Income]-Increase --- [Employment]-Decrease

sunk cost

a cost that has already been paid and cannot be recovered

Stagflation is caused by:

a decrease in aggregate supply

Stagflation is most likely caused by:

a decrease in aggregate supply

Stagflation is most likely to be caused by

a decrease in aggregate supply

when an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?

a decrease in the real rate of interest

as long as price is above average variable costs _____________

a firm will continue to stay in business in the short run

which of the following statements has to be true in a perfectly competitive market?

a firm's marginal revenue equals price

monopolistic competition

a large number of firms selling products that are differentiated

The concept of derived demand is described by which of the following? a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors. b) If the salaries of basketball players increase, the quantity of basketball players demanded will decrease. c) An increase in the income of consumers will increase the demand for opera tickets. d) An increase in the demand for movie tickets will decrease the demand for video rentals. e) A decrease in the price of movie tickets will increase the demand for movie tickets.

a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors.

Which of the following statements has to be true in a perfectly competitive market? a) A firm's marginal revenue equals price. b) A firm's average total cost is above price in the long run. c) A firm's average fixed cost rises in the short run. d) A firm's average variable cost is higher than price in the long run. e) Large firms have lower costs than small firms.

a) A firm's marginal revenue equals price

Which of the following inevitably causes a shift in the market demand for workers with a certain skill? a) An increase in the demand for goods produced by these workers b) A decrease in tax rates on the income of these workers c) An increase in the equilibrium wages received by these workers d) An increase in the supply of these workers e) The creation of a federally subsidized program to train new workers

a) An increase in the demand for goods produced by these workers

Which of the following events will cause the demand curve for hamburgers to shift to the right? a) An increase in the price of pizza, a substitute for hamburgers b) An increase in the price of french fries, a complement to hamburgers c) An increase in the price of hamburgers d) A decrease in the price of hamburgers e) A decrease in the cost of producing hamburgers

a) An increase in the price of pizza, a substitute for hamburgers

The following chart shows the total utility than Juan receives from consuming various amounts of chocolate candy bars each day. Number of Candy Bars Consumed per Day Total Utility 0 0 1 40 2 70 3 90 4 100 5 80 Which of the following statements about Juan's marginal utility is correct? a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar. b) His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar. c) His marginal utility increases at a constant rate. d) He first experiences diminishing marginal utility with the consumption of the fifth candy bar. e) His greatest marginal utility comes from his consumption of the fourth candy bar.

a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.

Marginal revenue is best interpreted as the: a) addition to total revenue from the next unit produced and sold b) increment to average revenue from the next unit produced and sold c) smallest increment of revenue that can be gained by producing and selling a unit

a) Marginal revenue is the addition to total revenue from producing and selling the next unit of a good.

A firm is considering whether to determine its profit maximizing quantity of output by maximizing the difference between total revenue and total cost or by producing up to the point where marginal revenue equals marginal cost. Which method is most likely to generate the greatest profit? a) Profit will be the same using either method b) Profit will be greater with the total revenue/total cost approach c) Profit will be greater with the marginal revenue/marginal cost approach

a) Maximum profit is the same using either approach

Which of the following statements is true for a monopolist at the profit-maximizing output level? a) Price exceeds marginal revenue. b) Marginal cost exceeds price. c) Demand is price inelastic. d) Price equals marginal cost, which equals average total cost. e) The demand curve intersects the supply curve.

a) Price exceeds marginal revenue.

Which of the following statements most accurately describes the shapes of theaverage variable cost (AVC) and average total cost (ATC) curves over a wide range of output? a) The AVC curve and the ATC curve are both U-shaped b) The AVC curve declines throughout; the ATC curve is U-shaped c) The AVC curve is U-shaped; the ATC curve increases initially then declines

a) The AVC curve is U-shaped. It declines at first due to efficiency gains, bur eventually increases due to diminishing returns. AFC decreases as output increases. The ATC curve is U-shaped because ATC is the sum of AFC and AVC.

If the price for a product produced in a competitive market increases, which of the following is most likely to occur in the labor market for workers who produce that product? a) The demand for labor and the number of workers hired both increase. b) The supply of labor and the number of workers hired both increase. c) The demand for labor and the number of workers hired both decrease. d) The supply of labor and the number of workers hired both decrease. e) There is a movement along the demand for labor curve, and firms hire more workers.

a) The demand for labor and the number of workers hired both increase.

If it were possibly to increase the output of military goods and simultaneously to increase the output of the private sector of an economy, which of the following statements about the economy and its current position relative to its production possibilities curve would be true? a) The economy is inefficient and inside the curve. b) The economy is inefficient and on the curve. c) The economy is efficient and on the curve. d) The economy is efficient and inside the curve. e) The economy is efficient and outside the curve.

a) The economy is inefficient and inside the curve.

In a perfectly competitive market, an individual farmer intending to increase her revenue decides to increase the price of her crop by 20 percent. As a result her total revenue will a) decrease b) stay the same c) increase by less than 20 percent d) increase by 20 percent e) increase by more than 20 percent

a) decrease

A natural monopoly occurs in an industry if a) economies of scale allow at most one firm of efficient size to exist in that market b) a single firm has control over a scarce and essential resource c) a single firm has the technology to produce the product sold in that market e) above-normal profits persist in the industry

a) economies of scale allow at most one firm of efficient size to exist in that market

Half of the inhabitants of an island oppose building a new bridge to the mainland since they say it will destroy the island's quaint atmosphere. The economic concept that is most relevant to the decision of whether or not to build the bridge is a) externalities b) natural monopoly c) economic rent d) imperfect competition e) perfect competition

a) externalities

The condition for allocative efficiency is violated when a) firms are price makers (price searchers) b) short-run profits exist in a competitive industry c) price equals average total cost d) the market demand curve is inelastic in a competitive industry e) the market demand curve is elastic in a competitive industry

a) firms are price makers (price searchers)

Private supply of public goods is most likely to result in a) less than the efficient level of output, due to the free-rider problem b) less than the efficient level of output, due to the problem of insufficient competition c) more than the efficient level of output, due to lower costs of private firms d) more than the efficient level of output, due to the existence of externalities e) an overuse of these goods

a) less than the efficient level of output, due to the free-rider problem

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner b) marginal benefit from cleaner water is maximized c) marginal benefit from cleaner water is zero d) total benefit from cleaner water is equal to the total cost of making the water cleaner e) total benefit from cleaner water is maximized

a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner

Assume that an electric power company owns two plants and that, on a particular day, 10,000 kilowatts of electricity are demanded by the public. In order to minimize the total cost of providing the 10,000 kilowatts, the company should allocate production so that a) marginal costs are the same for both plants b) average total costs are the same for both plants c) total variable costs are the same for both plants d) the sum of total variable cost and total fixed cost is the same for both plants e) only the plant with the lower average cost is used to produce the 10,000 kilowatts of electricity

a) marginal costs are the same for both plants

(Look at Graph in Packet for #46) The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing a) more future consumption in exchange for less current consumption b) more current capital goods in exchange for less future consumption c) more future and current consumption d) less future consumption in exchange for more current consumption e) less current capital goods in exchange for greater future consumption

a) more future consumption in exchange for less current consumption

Monopolistically competitive firms at a higher average cost than do perfectly competitive firms a) produce a lower level of output at a higher average cost than do perfectly competitive firms b) use production processes that are more capital intensive than do perfectly competitive firms c) face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue d) produce at that level of output where price equals marginal cost e) realize diseconomies of scale

a) produce a lower level of output at a higher average cost than do perfectly competitive firms

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is a) producing too little output b) producing where its marginal revenue is less than its marginal cost c) using too much of the variable input d) charging too high a price for its output e) not earning any economic profits

a) producing too little output

The demand curve for cars is downward sloping because an increase in the price of cars leads to a) the increased use of other modes of transportation b) a fall in the expected future price of cars c) a decrease in the number of cars available for purchased d) a rise in the prices of gasoline and other oil-based products e) a change in consumers' tastes in cars

a) the increased use of other modes of transportation

A country can consume beyond its present production possibilities curve when it a) trades with other countries, thus taking advantage of different opportunity costs b) reduces unemployment, thus increasing output c) experiences decreasing opportunity costs d) faces an upward-sloping production possibilities curve e) faces a downward-sloping production possibilities curve

a) trades with other countries, thus taking advantage of different opportunity costs

8. Dissaving occurs when disposable income is a. $620 b. $640 c. $660 d. $700 e. $1,000

a. $620

45. Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT a. Borrowers b. workers with fixed incomes c. savers holding non-interest-bearing money d. taxpayers shifted into higher tax brackets e. people whose incomes are not adjusted for inflation

a. Borrowers

24. Which of the following actions by the Federal Reserve of the United States increases the money supply? a. Buying government bonds on the open market b. Selling government bonds on the open market c. Increasing the reserve requirement d. Increasing the discount rate e. Increasing the federal funds rate

a. Buying government bonds on the open market

5. A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run? Nominal Interest Rate Aggregate Demand a. Increase Decrease b. Increase Increase c. Increase Not change d. Decrease Decrease e. Decrease Increase

a. Increase Decrease

Marginal utility is the:

additional satisfaction obtained from consuming one more unit of a good

According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by:

an increase in inflation

The law of diminishing marginal returns states that:

as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.

Whic of the following statements is true of perfectly competitive firms in long-run equilibrium?

average total cost is at a minimum

on a supply-demand curve, a firm is making economic profit if _______________

average total revenue is greater than average total cost

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's average total cost of producing 3 units of output? a) $48.00 b) $16.00 c) $14.00 d) $13.50 e) $7.00

b) $16.00

If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm should a) not hire the worker b) hire the worker c) hire the worker only if another worker leaves d) hire the worker only if the worker can rise the firm's productivity e) reduce the number of workers employed by the firm

b) hire the worker

47. Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true? a. Country A has an absolute advantage in the production of wheat. b. The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn. c. The cost of producing a bushel of wheat in Country A is greater than 2.5 bushels of corn. d. Country A is producing inside its current production possibilities curve. e. Country A needs to use more resources to produce wheat than to produce corn.

b. The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn.

38. Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates? a. Country B's government gives more investment tax credits. b. The labor force of Country A is becoming more skilled than the labor force of Country B. c. The natural rate of unemployment is higher in Country A. d. Country A's central bank is less effective at controlling the inflation rate. e. Although the populations of Countries A and B are the same, Country A has twice as many people who are retired

b. The labor force of Country A is becoming more skilled than the labor force of Country B.

7. Of the following, the most liquid asset is a. mutual funds b. currency c. time deposits d. demand deposits e. savings deposits

b. currency

Demand for a necessity, such as food, is:

both income and price inelastic.

In the measurement of gross domestic product, investment includes spending by:

business on capital goods and changes in inventories

The Federal Reserve decreases the federal funds rate by:

buying government bonds on the open market

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately a) $0.20 b) $3.00 c) $5.00 d) $15.00 e) $45.00

c) $5.00

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? a) $2 b) $5 c) $7 d) $9 e) $12

c) $7

Quantity Produced: 0, 1, 2, 3, 4, 5 Total Cost: $5, 17, 28, 41, 61, 91 Barney's Bait Company can sell all the lures it produces at the market price of $14. On the basis of the cost information in the table above, how many lures should the bait company make? a) 1 b) 2 c) 3 d) 4 e) 5

c) 3

Which of the following is true in the elastic range of a firm's demand curve? a) The firm should expand output to increase economic profits. b) An increase in price will also lead to an increase in total cost. c) A decrease in price will likely lead to an increase in total revenue. d) Marginal revenue is negative. e) The firm is maximizing total revenue.

c) A decrease in price will likely lead to an increase in total revenue.

In a perfectly competitive labor market for nurses, all of the following statements are true EXCEPT: a) The imposition of an effective minimum wage will result in unemployment. b) An increase in the marginal product of nurses will increase the demand for nurses and increase wages. c) An increase in the supply of nurses will create unemployment and leave wages unchanged. d) An increase in the demand for health care will increase the demand for nurses and increase wages. e) Revoking work permits for foreign nurses will increase wages of domestic nurses.

c) An increase in the supply of nurses will create unemployment and leave wages unchanged.

A firm's average revenue is greater than its average variable cost and less than its average total cost. If the firm does not expect price to change, the firm should: a) shut down in the short run and in the long run b) shut down in the short run but operate in the long run c) operate in the short run but shut down in the long run

c) If a firm is generating sufficient revenue to cover its variable costs and part of its fixed costs, it should continue to operate in the short run. If average revenue is likely to remain below average total costs in the long run, the firm should shut down.

Which of the following situations best illustrates the law of demand? a) As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased. b) Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine. c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased. d) The increase in the price of quality health foods has increased the revenues of firms producing these goods. e) As the demand for computers has increased, the number of workers in the computer industry has increased.

c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased.

Which of the following best describes a perfectly competitive market? a) Many small firms producing differentiated products and facing significant barriers to entry b) Many small firms producing homogenous product and facing significant barriers to entry c) Many small firms producing a homogenous product and facing no significant barriers to entry d) A single large firm producing a unique product and facing significant barriers to entry e) A few large firms producing a differentiated product and facing no significant barriers to entry

c) Many small firms producing a homogenous product and facing no significant barriers to entry

Suppose that an effective minimum wage is imposed in a certain labor market above the equilibrium wage. If labor supply in that market subsequently increases, which of the following will occur? a) Unemployment in that market will increase b) Quantity of labor supplied will decrease. c) Quantity of labor demanded will increase. d) Market demand will increase. e) The market wage will increase.

d) Market demand will increase.

Assume that products X and Y are substitutes. If the cost of producing X decreases and the price of Y increases, which of the following will occur to the equilibrium price and quantity of X? a) Price of X: Increase; Quantity of X: Increase b) Price of X: Increase; Quantity of X: Decrease c) Price of X: Increase; Quantity of X: Increase or decrease d) Price of X: Increase or decrease; Quantity of X: Increase e) Price of X: Decrease; Quantity of X: Decrease

d) Price of X: Increase or decrease; Quantity of X: Increase

Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel and act as a profit-maximizing monopoly? a) Price: Decrease; Quantity: Decrease b) Price: Decrease; Quantity: Increase c) Price: Increase; Quantity: Increase d) Price: Increase; Quantity: Decrease e) Price: Increase; Quantity: No change

d) Price: Increase; Quantity: Decrease

Reducing the tariff on the Canadian beer sold in the United States will most likely have which of the following effects on the market for beer produced and sold in the United States? a) The quantity of United States beer purchased will increase. b) Total expenditure of United States beer will increase. c) The supply of United States beer will increase. d) The price of the United States beer will decrease. e) More workers will be employed in the production of United States beer.

d) The price of the United States beer will decrease.

Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr. Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs? a) The wages of farm workers and movie theater employees increase. b) A technological improvement results in less expensive and more efficient harvesting of corn. c) The introduction of new fat-free potato chips provides new competition in the snack-food market. d) The release of three summer movies sets records for movie attendance. e) New government regulations force movie theaters to hire more security guards at each theater.

d) The release of three summer movies sets records for movie attendance.

An effective price floor introduced in the market for rice will result in a) a decrease in the price of rice and an increase in the quantity of rice sold b) a decrease in the price of rice and a decrease in the quantity of rice sold c) a decrease in the price of rice and an excess demand for rice d) an increase in the price of rice and an excess supply of rice e) an increase in the price of rice and an excess demand for rice

d) an increase in the price of rice and an excess supply of rice

A firm doubles all of its inputs and finds that it has more than doubled its output. This situation is an example of a) increasing marginal returns b) diminishing marginal returns c) constant returns to scale d) increasing returns to scale e) decreasing returns to scale

d) increasing returns to scale

In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will a) raise its price b) increase its output c) decrease its output slightly but increase its profit margin d) lose more by continuing to produce than by shutting down e) lose less by continuing to produce than by shutting down

d) lose more by continuing to produce than by shutting down

A city council is deciding what price to set for a trip on the city's commuter train line. if the council wants to maximize profits, it will set a price so that a) price equals marginal cost b) price equals average cost c) price equals marginal revenue d) marginal revenue equals marginal cost e) marginal revenue equals average total cost

d) marginal revenue equals marginal cost

All of the following are included in computing the opportunity cost of attending college EXCEPT a) interest paid on student loans b) wages the student gave up to attend college c) money spent on college tuition d) money spent on clothing expenses e) money spent on books and supplies

d) money spent on clothing expenses

A factor of production will NOT earn economic rent when its supply is a) elastic b) inelastic c) unit elastic d) perfectly elastic e) perfectly inelastic

d) perfectly elastic

60. Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will a. increase by $10,000 b. increase by $50,000 c. decrease by $10,000 d. decrease by $50,000 e. not change

d. decrease by $50,000

In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should

decrease output but keep producing

Which of the following would cause the official unemployment rate to understate the problem of unemployment?

discouraged workers

as firms enter a market, the market price ______________

drops

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is a) 5.00 b) 11.67 c) 13.33 d) 15.00 e) 20.00

e) 20.00

Which of the following best explains why it is difficult to maintain lasting collusive agreements? a) There is an unavoidable conflict in that a collusive agreement can increase the profits of some, but not all firms in the industry. b) There is little potential for gain from collusion unless there is a large number of consumers in the market. c) Each firm in the industry views it self as facing a vertical demand curve, even though the market demand curve is downward sloping. d) The firms in the industry have a common incentive to increase output to a more competitive level. e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.

e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.

In which of the following ways does the united states government currently intervene in the working of the market economy? I. It produces certain goods and services. II. It regulates the private sector to achieve a more efficient allocation of resources. III. It redistributes income through taxation and public expenditure. a) I only b) II only c) III only d) II and III only e) I, II, and III

e) I, II, and III

(Look at Graph in Packet for #35) The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon? a) A shortage of 900 million gallons b) A shortage of 200 million gallons c) A shortage of 100 million gallons d) A surplus of 100 million gallons e) Neither a surplus nor a shortage

e) Neither a surplus nor a shortage

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur? a) Short-run price: increase; short-run industry output: increase; movement of firms: enter b) Short-run price: increase; short-run industry output: decrease; movement of firms: exit c) Short-run price: decrease; short-run industry output: increase; movement of firms: exit d) Short-run price: decrease; short-run industry output: decrease; movement of firms: enter e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit

e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit

Which of the following must be true if the revenues of what farmers increase when the price of wheat increases? a) The supply of wheat is price elastic. b) The supply of wheat is income elastic. c) The supply of wheat is income inelastic. d) The demand for wheat is price elastic. e) The demand for wheat is price inelastic.

e) The demand for wheat is price inelastic.

Number of Workers: 2, 3, 4, 5 Total Output: 12, 22, 28, 32 Greta already employs 3 workers. if the price of jackets is $5 and the wage rate is $25, she should a) go out of business altogether b) lay off the third worker c) keep the third worker but not employ more workers d) hire two more workers e) hire one more worker

e) hire one more worker

When a perfectly competitive firm sells additional units of output, its total revenue will a) remain constant b) increase rapidly at first, then decline c) increase at a decreasing rate d) increase at an increasing rate e) increase at a constant rate

e) increase at a constant rate

An individual's labor supply curve is derived from that person's preferences about the trade-off between income and a) work b) wealth c) nominal wages d) productivity e) leisure

e) leisure

ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more worker and output increases by 5 units per day, the firm's profits will a) decrease by $5 b) decrease by $75 c) increase by $75 d) increase by $15 e) remain unchanged

e) remain unchanged

If a firm wants to produce a given amount of output at the lowest possible cost, it should use each resource in such a manner that a) it uses more of the less expensive resource b) it uses more of the resource with the highest marginal product c) each resource has just reached the point of diminishing marginal returns d) the marginal products of each resource are equal e) the marginal products per dollar spent on each resource are equal

e) the marginal products per dollar spent on each resource are equal

40. If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways? Money Multiplier Money Supply a. Increase Increase b. Increase Decrease c. Increase No change d. Decrease No change e. Decrease Decrease

e. Decrease Decrease

48. Which of the following is true of the opportunity cost of holding cash? a. It is zero. b. It is represented by the value of the dollar. c. It is equal to the price level. d. It decreases as the price level rises. e. It increases as the interest rate rises.

e. It increases as the interest rate rises.

what type of profit is the better indicator of a firms economic health?

economic profit

If demand is elastic, a decrease in price leads to a decrease in total revenue.

false

Monopolists can earn positive economic profits in the long run because they are more productively efficient than perfectly competitive firms

false

P = ATC

firm is breaking even

P > ATC

firm is making profit

if a firm decides to temporarily stop production, it will face losses equal to it's ________________

fixed costs (mortgage, employee wages, utilities,)

Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180. The $20 saved is:

his consumer surplus

If supply is perfectly elastic, the supply curve is:

horizontal

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate:

ignores underemployed and discouraged workers

When a perfectly competitive firm sells additional units of output, its total revenue will

increase at a constant rate

If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will lead to a proportional:

increase in the nominal output

The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will

increase output to 18 units because this is the output at which price equals marginal cost.

Productivity increases can be attributed to:

increases in physical capital or the amount of machinery and office space available to workers; increases in human capital or the level of a workers education; technological advances

If marginal utility is positive, then total utility is:

increasing

industries with upward sloping long run supply curves are called

increasing cost industries

Which of the following actions by the Federal Reserve reduces the ability of the banking system to create money?

increasing the reserve requirement

Elasticity is always _____.

independent of the units of measurement for price and quantity

If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is _____.

inelastic.

A short-run Phillips curve shows an inverse relationship between

inflation and unemployment

A short-run Phillips curve shows the inverse relationship between:

inflation and unemployment

A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause

interest rates to rise

A barter economy is different from a money economy in that a bater economy

involves higher costs for each transaction

The total revenue curve for a perfectly competitive firm_____.

is a straight line that starts from the origin and slopes upward

The demand curve facing a non-discriminating monopolist:

is the same as its average revenue curve

as long as a firms revenue is greater than its variable costs_________________

it should continue to operate to minimize losses

Which of the following is true about a firm's average variable cost?

it will equal average total cost when fixed costs are zero

if a firm in a perfectly competitive market tries to raise the price of a product__________________

it will lose sales because consumers will buy from other firms for a lower price

a perfectly competitive firm's marginal cost curve is equal to ________________

its supply curve

33. On the graph above, stagflation will be caused by a a. leftward shift in the short-run aggregate supply curve only b. rightward shift in the short-run aggregate supply curve only c. leftward shift in the aggregate demand curve only d. rightward shift in the aggregate demand curve only e. rightward shift in both the short-run aggregate supply and aggregate demand curves

leftward shift in the short-run aggregate supply curve only

For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is:

less than $140

An advance in technology will cause the

long-run aggregate supply curve to shift to the right

In the short run, if the product price of a perfectly competitive firm is less than the minimus average variable cost, the firm will

lose more by continuing to produce than by shutting down

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to:

lower the discount rate and buy bonds in the open market to generate an increase in output

The price that represents the shutdown point for a perfectly competitive firm corresponds to the _____.

lowest point on the average variable cost curve

When total utility falls, marginal utility is _____.

negative

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

nominal national income

50. In the long run, an increase in aggregate demand due to an expansion in the money supply will increase a. price level and real output b. nominal output and real output c. nominal output but not the price level d. nominal output and the price level e. real output but not the price level

nominal output and the price level

The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering services from Raton to Santa Fe. It has estimated that the total cost of the trip will be $400, of which $150 is the fixed cost, which it has already paid. The company expects an increase in revenue by $275 from the trip. The Hound Dog Bus Co. should:

offer this service because the additional revenue exceeds the additional cost of this service

In the short run, the firm should:

operate if price > average variable cost

Marginal revenue is the change in revenue that results from a one-unit increase in the

output level

Long-run economic growth requires

political stability and respect for property rights

What is predatory pricing?

predatory pricing= firm uses sharp but temporary price cuts to discourage new competition

In perfect competition, the marginal revenue is the same as:

price

firms should always continue to operate ______________________

price is above variable cost

on a supply demand curve, a firm experiences an economic loss when, _______________

price is below average total cost

A firm in perfect competition earns profit if:

price is greater than average total cost

Crowding out refers to the decrease in

private investment due to increased borrowing by the government.

To achieve allocative efficiency, firms:

produce the output consumers value most.

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is

producing too little output

When the Federal Reserve increases the money supply to stimulate aggregate demand, workers believe that this action will cause inflation in the future and ask for higher wages to offset the expected increase in inflation. This is an example of:

rational expectations

The figure below shows the cost and revenue curves for a monopolist that does not practice price discrimination. The consumer surplus at the profit-maximizing level of output is:

represented by the area under the demand curve and above the price line corresponding to $136

18. An increase in the international value of the United States dollar will most likely benefit a. domestic producers of premium wines sold to people in other countries b. currency traders holding large quantities of yen c. German citizens vacationing in the United States d. Canadian citizens expecting to purchase real estate in the United States e. retired United States citizens living overseas on their social security checks

retired United States citizens living overseas on their social security checks

The following table shows the total utility derived from consumption of a good. The first column of the table shows the number of units of the good consumed in a day, and the second column of the table shows the total utility derived from that consumption. The marginal utility of an additional unit of the good diminishes after consumption of the _____ unit of the good.

second

A decrease in labor productivity wil shift the:

short run aggregate supply curve to the left

as more firms enter a market, the profit market for each individual firm will _______________

shrink

If oligopolists engaged in some sort of collusion, industry output would be _____ and the price would be _____ than under perfect competition.

smaller; higher

Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should:

stay with his new firm because his economic profit is positive.

If a good is offered free of charge, one would:

stop consuming it when its marginal utility has declined to zero

An industry historically used employees with specific skills. if the industry experiences technological advances the require new skills, there will most likely be :

structural unemployment

What is the term given to a cost that has already been paid and cannot be recovered?

sunk costs

If labor costs rise in the automobile industry, what will happen to the car prices and the quantity sold?

the car prices will increase and the quantity sold will decrease

Marginal revenue is defined as:

the change in total revenue divided by the change in quantity.

The price of one's nations currency expressed in terms of another nation's currency is called:

the exchange rate

The total revenue curve in the following figure reflects _____.

the fact that perfectly competitive firms are price takers

If the marginal revenue is equal to P1, all of the foloowing statements are true except

the firm will increase production in the long run

In the diagram above, if the marginal revenue is equal to P1, all of the following statements are true except:

the firm will increase production in the long run

marginal cost

the increase in total cost as result of producing another unit of output

long run competitive equilibrium point

the market price that will always eventually be restored as firms enter and exit a market

most individual firms in a perfectly competitive market don't have power over price in a market because _____________

the market supply curve will not shift enough to change the overall market price by even 1 cent

shutdown point

the minimum point on a firm's average variable cost curve. if the price drops to or below this point, the firm should temporarily stop production

The cost of consumption has two components, _____.

the money price and the time price

The true deadweight loss created by a monopolist that does not practice discrimination is most likely to be less than the loss indicated by the shaded area in the figure below, when:

the monopolist charges lower prices to discourage competition

A farmer in the Midwest who produces wheat faces a horizontal demand curve because:

the quantity supplied by him is so small relative to the market that it has no impact on the market price for wheat.

The concept of opportunity cost would no longer be relevant if

the supply of all resources were unlimited

The concept of opportunity cost would no longer be relevant if:

the supply of all resources were unlimited

Which of the following is a characteristic of a perfectly competitive market?

there is a large number of buyers and sellers

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the long run, the firm can expect:

to earn zero economic profit

Negative marginal utility implies that:

total utility decreases as additional units of a good are consumed

oligopoly

very few firms selling very similar products

The figure below shows the cost and revenue curves faced by a monopolist. If the monopolist practices perfect price discrimination, deadweight loss will be _____.

zero

Based on the balance sheets above for thee different banks, which of the following is true, if the reserve requirement is 10 percent?

Bank B can increase its loans by $40

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?

A decrease in taxes of $100

26) Which of the following will cause the United States dollar to depreciate relative to the euro? A) An increase in household income in the US B) An increase in interest rates in the US C) An increase in household income in Europe D) A decrease in interest rates in Europe E) A decrease in price level in the US

A) An increase in household income in the US

$2,400

According to the graph, what is the value of total fixed cost for this perfectly competitive firm?

demand curve 2

According to the graph, which demand curve is associated with the shutdown point for this perfectly competitive firm?

10) An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in which of the following? A) US interest rates B) The US consumer price index C) Demand for the dollar by US residents D) Exports from the US E) The tariff on goods imported into the US

B) The US consumer price index

The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed.

Country B has an absolute advantage and comparative advantage in the production of computers.

Which type of unemployment would increase if workers lost their jobs because of a recession?

Cyclical unmeployment

37. Which of the following will lead to a depreciation of a nation's currency? a. Lower inflation in the nation than in the rest of the world b. Higher required reserve ratio in the nation than in the rest of the world c. Decreased real interest rates in the nation compared with the rest of the world d. Increased demand for the nation' s currency e. Decreased supply of the nation' s currency

Decreased real interest rates in the nation compared with the rest of the world

Which of the following would be included as a liability on a commercial bank's balance sheet?

Demand Deposits

If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?

Demand for United States dollars and supply of euros

56) Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product? A) Government bonds B) Shares of a company stock C) Corporate bonds D) A new car for personal use E) A newly constructed home

E) A newly constructed home

59) A decrease in business taxes would lead to an increase in national income by increasing which of the following? A) The money supply B) Unemployment C) Aggregate demand only D) Aggregate supply only E) Both aggregate demand and aggregate supply

E) Both aggregate demand and aggregate supply

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

Interest rate will decrease and Quantity of money will not change

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy?

Interest rates would increase; investment and consumption spending would decrease; aggregate demand decreases; and output prices decrease.

Which of the following is true of the profit earned by a monopolist?

Normal profit is ensured where price is equal to average total cost

Which of the following is true for a monopolist that engages in perfect price discrimination?

Perfect price discrimination allows the monopolist to reap the entire gains from production.

Which of the flowing will be counted as unemployed by the United States Bureau of Labor Statistics?

Persons who were fired from their previous job and are actively seeking applying for work

Which of the following is lily to occur following the depreciation of the United States dollar?

United States exports will increase

Verify Key 30-60 30 E 31 B 32 A 33 A 34 D 35 E 36 B 37 D 38 C 39 C 40 B 41 E 42 B 43 C 44 D 45 E 46 B 47 D 48 E 49 A 50 D 51 E 52 A 53 C 54 E 55 E 56 A 57 E 58 B 59 E 60 B

Verify Key 1-29 1 B 2 E 3 D 4 A 5 A 6 A 7 B 8 C 9 B 10 D 11 B 12 C 13 C 14 D 15 A 16 D 17 D 18 C 19 D 20 C 21 C 22 C 23 E 24 A 25 B 26 B 27 C 28 A 29 C

8 shirts per minute

According to the graph, which level of output maximizes profit?

Which of the following is true of "cabin fever"?

Each additional cold day adds disutility.

8 units of output

According to the data in the table, what level of output maximizes profit?

Accounting profit is:

never less than economic profit.

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in WOTF ways in the short run?

AD- decrease AS-not change

Dale is willing to pay $300 for a pair of Rollerblades and he purchases them on sale for $200. His consumer surplus is valued at:

$100

The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The equilibrium price in this market is _____.

$100

Which of the following is the firm's average fixed cost of producing 2 units of output?

$12

Which of the following is the firm's average total cost of producing 3 units of output?

$16

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 %, the max increase in the money supply is

$2,000 billion

Refer to the above cost data. Total fixed cost is

$50

three charesteristics of a market

-number of firms in the industry -the similarity of the good and services produced throughout the industry -the ease with which new firms can enter the industry

Which of the following household purchases will be counted as a part of gross private investment in a country's gross domestic product?

A newly constructed home

In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations?

Bond prices would INCREASE Interest rates would DECREASE

To counteract a recession, the Federal Reserve should:

Buy securities on the open market and lower the discount rate

Expansionary monetary policy can affect the economy through which of the following chains of events?

Buying bonds increases the money supply, which lowers the interest rate

Suppose that the federal reserve is committed to keeping the nominal interest rate fixed. To maintain the interest rate target in the face of an expansionary fiscal policy, the Federal reserve can do which of the following?

Engage in open-market purchases

One justification for government regulation of a monopoly is that the unregulated monopoly:

Charges a price higher than a competitive market price

_____ can be used to compare the effects of different market structures, tax structures, and public programs on consumer well-being.

Consumer surplus

58) Which of the following would cause the short-run aggregate supply curve to shift to the right? A) An increase in the wage rate B) An increase in the interest rate C) An increase in the natural rate of unemployment D) A decrease in the capital stock E) A decrease in the expected price level

E) A decrease in the expected price level

Which of the following best explains the increase in national income the results from equal increases in government spending and taxes?

Consumers do not reduce their spending by the full amount of the tax increase

With an increaser in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?

Consumption will decrease while Real Gross Domestic Product Decreases

Which of the following can be expected to cause an increase in gross domestic product in the short run?

Equal increases in both taxes and government expenditures

Fernando allocates his lunch money between pizza and Coke. A slice of pizza costs $1.50 and a can of Coke costs $1. The marginal utility of the last slice of pizza Fernando ate that day was 30 units, and the marginal utility of the last can of Coke was 25 units. If Fernando decides to spend all of his lunch money, then identify the correct statement.

Fernando's total utility would have been greater if he had purchased more Coke and less pizza.

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

Fiscal Policy= increased taxes Monetary Policy= sell government bonds

WOTF will lead to an increase in the US gross domestic product?

Foreign companies build new assembly plants in the United States.

Which of the following will lead to an increase in the United States GDP?

Foreign companies build new assembly plants in the United States.

Table 7.4 shows labor, total product, and marginal product for a firm. In the table below, marginal returns increase with the hiring of up to _____ workers.

Four

An appropriate fiscal policy to combat a recession would be to increase which of the following?

Government spending

A country's government runs a budget deficit when which of the following occurs in a given year?

Government spending exceeds tax revenues

Dale spends his entire budget in such a way that the marginal utility per dollar spent on each good is identical. Which of the following is true?

He will reduce his utility if he reallocates his income

Which of the following is most likely to cause an increase in the international value of the United States dollar?

Higher United States real interest rates

Q3

In reference to the graph, at what level of output does this perfectly competitive firm maximize profit?

Which of the following is an example of fiscal policy?

Increasing government expenditures to build highways

A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?

Inlflationary expectations

In what sense is a natural monopoly "natural"?

It is natural because they arise when the marginal cost of adding an additional customer is low once fixed costs are in place

Which of the following is true about the national debt of the United States?

It is the accumulation of past and current budget deficits and surpluses

For which of the following goods is the value of income elasticity most likely to be negative?

Macaroni and cheese. (Goods with negative income elasticities are called inferior goods)

Which of the following is true for a perfectly competitive firm in long-run equilibrium?

Marginal revenue (MR) = Marginal cost (MC) = Average total cost (ATC)

What is true of a perfectly competitive market in long-run equilibrium?

Marginal revenue is equal to average total cost

Assume that the economy is at full employment. Policymakers which to maintain the price level but want to encourage greater investment. Which of the following combinations of monetary and fiscal policies would best achieve this goal?

Monetary Policy= expansionary Fiscal Policy= contractionary

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product

Unlike a market economy, a command economy uses:

More centralized planning in economic decision making

Which of the following are characteristics of a perfectly competitive industry?

New firms can enter the industry easily, there is no product differentiation, and the demand curve of and individual firm in the industry is perfectly elastic.

Under rational expectations, an announced expansion in the money supply will change nominal and real gross domestic products (GDP) in which of the following ways?

Nominal GDP: increase Real GDP: No change

How is a monopoly industry different from an industry with perfect competition?

Perfect competition is a industry where many firms produce identical products while monopoly is when there is only firm is in the industry

Which of the following characterizes a perfectly competitive market?

Perfect information

The diagram above shows the production possibilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT:

Point X represents the most efficient combination of the two goods that can be produced by this economy

IN the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP)?

Price Level would increase and the Real GDP would increase

Which is true of the profit-maximizing equilibrium of a monopolist who sets a single price?

Price is greater than marginal cost

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?

Price will increase to eliminate the shortage and restore equilibrium

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?

Price will increase to eliminate the surplus and restore equilibrium

If an affective price floor is removed from a market for a good, then the price and quantity of the good sold will change in which of the following ways?

Price: decrease Quantity: Increases

Crowding out refers to the decrease in:

Private investment due to increased borrowing by the government

If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the following is true?

Resources are not available to achieve that combination of goods or services

Which of the following would be the initial impact of an economy if wages were to increase more than worker productivity?

Short-run Aggregate supply curve would shift to the left, increasing the price level

Assume that Canadian consumers increase their demand for Mexican financial assets. How would the international supply of Canadian dollars, the value of the Mexican peso relative to the Canadian dollar, and Canadian net exports to Mexico change?

Supply of Canadian Dollars: increase Value of Peso: Increase Canadian Net Exports: Increase

A change in what will not cause a shift in the demand curve for a factor of production?

Supply of the factor

Gross Domestic Product has been criticized as a measure of well-being because it fails to take into account which of the following?

The distribution of Income

Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. What is likely to happen to a typical firm in the long run?

The equilibrium price will be higher in the long run

When is a firm experiencing economies of scale?

The firm doubles its input and triples its output

"I don't feel so good; I shouldn't have had that last doughnut." Which of the following supports this statement?

The marginal utility of the last doughnut was negative

profit in the short run

The perfectly competitive firm represented in the graph on the right is experiencing a __________.

If a firm is experiencing diminishing marginal returns to labor, then which of the following statements is true?

The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.

Which of the following is not a condition for price discrimination?

The presence of strong diseconomies of scale

If the nominal gross domestic product (GDP) of the nation of Hypothetica increased in 2007 relative to the previous year, it must be true that in Hypothetica in 2007:

The price level and/ or the real GDP has increased

The purchase of bonds by the Federal reserve will have the greatest effect of real gross domestic product if which of the following situations exists in the economy?

The required reserve ratio is low, and the interest rate has a large effect on investment spending

Which of the following best describes human capital?

The training and education of workers

An increase in which of the following would reduce the United States balance-of-trade deficit?

The value of foreign currency relative to the United States dollar

If every firm in a market is a price taker, then which of the following is true?

There are a large number of sellers in the market

If economic agents perfectly anticipate policy changes and if all prices including wages are completely flexible, which of the following will be true in the long run?

There will be no trade-off between inflation and unemployment.

How does the demand curve perceived by a monopolist compare with the market demand curve?

They are the same

Which of the following is true of units of utility?

They cannot be compared across consumers

Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run?

Unemployment

In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true?

When investment increases by $1, INCOME increases by a maximum of $5 ( to differentiate between other choices, this is the only solution containing four words that start with the letter I)

the graph on the left

Which graph best depicts an industry in which the firm's average costs decrease as the industry expands production?

What is the marginal cost of providing a pure public good to one or more consumers?

Zero

Which of the following statements most accurately describes the shape of the average fixed cost curve? a) It becomes relatively flat at large output levels b) It is always below the average variable cost curve c) It intersects the marginal cost curve at its minimum

a) Average fixed cost initially declines rapidly, but as output increases, it declines slowly because fixed cost is being averaged over a greater amount of output.

Which of the following best states the thesis of the law of comparative advantage? a) Differences in relative costs of production are the key to determining patterns of trade. b) Differences in absolute costs of production determine which goods should be traded between nations. c) Tariffs and quotas are beneficial in increasing international competitiveness. d) Nations should not specialize in the production of goods and services. e) Two nations will not trade if one is more efficient than the other in the production of all goods.

a) Differences in relative costs of production are the key to determining patterns of trade.

the market demand curve is determined by __________

adding up the quantity demanded by each consumer in the market at each price

the market supply curve is determined by _____________

adding up the quantity supplied by each supplier in the market at each price

Unlike implicit costs, explicit costs:

are actual cash payments.

A consumer's utility is maximized when the marginal utilities derived from additional units of goods:

are exactly proportional to their market prices

firms in perfectly competitive markets ______________ to earn an economic profit in the long run

are unable

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, the extra or marginal product will decline beyond some point

optimal decisions are made ____________

at the margin

44. Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by a. $44 b. $56 c. $70 d. $80 e. $100

b. $56

Long-run equilibrium in perfect competition results in:

both allocative effiency and productive effiency

Economic profits are zero if: a) implicit costs equal explicit costs b) economic.depreciation equals zero c) total revenue equals the sum of all opportunity costs

c) Economic profit is equal to total revenue minus both explicit and implicit opportunity costs. When total revenues are just equal to opportunity costs (explicit and implicit, including normal profit), economic profit is zero.

If a price floor is set at X, the quantity demanded will a) increase from 0R to 0S b) increase from 0R to 0T c) decrease from 0S to 0R d) decrease from 0T to 0R e) not change

c) decrease from 0S to 0R

The marginal product of labor is the _____.

change in output from using one more unit of labor

marginal revenue formula

change in total revenue / change in quantity

If a firm in an industry achieves the minimum efficient scale at a low cost, then:

competition in the industry is likely to increase

A leftward shift in the supply curve of corn would result from a) decrease in the price of corn b) a decrease in the price of farm machinery c) an increase in the demand for corn bread d) an increase in the labor costs of producing corn e) an increase in consumers' incomes

d) an increase in the labor costs of producing corn

9. The marginal propensity to save for this economy is a. 4.0 b. 1.0 c. 0.8 d. 0.2 e. 0

d. 0.2

23. Potential gross domestic product will decrease under which of the following conditions? a. The growth rate of the population increases more rapidly than the growth rate of gross domestic product. b. Nominal gross domestic product increases more than real gross domestic product. c. The natural rate of unemployment decreases. d. The country's annual depreciation is greater than its annual gross investment. e. The monetary authorities adopt an easy monetary policy.

d. The country's annual depreciation is greater than its annual gross investment.

30. A rightward shift of the short-run Phillips curve is most likely due to a. an increase in aggregate demand b. a decrease in aggregate demand c. a decrease in the expected rate of inflation d. an increase in the expected rate of inflation e. an increase in aggregate supply

d. an increase in the expected rate of inflation

The amount of money that the public wants to hold in cash will

decrease if the interest rates increase

the marginal revenue curve for a perfectly competitive firm is the same as its _______________

demand curve

How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?

demand curve for perfectly competitive firm is a price taker so its a straight horizontal line while demand for a monopolist is not a price taker and is the same as the market demand curve

As the economy recovers from a recession, we should expect that the:

demand for inferior goods will fall and the demand for normal goods will rise

in the long run, a perfectly competitive market will supply whatever amount of a good consumers demand at a price ________________________

determined by the minimum point om the typical firms average total cost curve

1. Which of the following is the most fundamental issue that economics addresses? a. Choice of appropriate technology b. Reduction of unemployment c. Reduction of budget deficit d. Promotion of privatization e. Useofscarce resources

e. Useofscarce resources

16. Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will a. decrease by more than half b. decrease by half c. decrease by less than half d. exactly double e. increase by less than double

e. increase by less than double

Unlike perfectly competitive firms, monopolists:

earn long-run economic profits

allocative efficiency

every good or service is produced up to the point where the last unit provides a marginal benefit to the consumer equal to the marginal cost to produce it

Given the cost and demand schedules depicted above, if the firm increase output from q1 to q2, it would

experience a decline in profits

The theory of comparative advantage implies that Alpha would find it advantageous to

export grain and import steel

The theory of comparative advantage implies that Alpha would find it advantageous to:

export grain and import steel

If firms in an industry produce differentiated products, they are likely to:

face downward-sloping demand curves

P < ATC

firm is producing at a loss

When firms differentiate their products, they:

frequently create artificial or superficial differences among products, thus raising production costs.

Suppose the amount of human capital per and the state of the technology are held constant, As physical capital per worker increases, each additional increase in physical capital per worker leads to:

greater increases in output per worker

In a perfectly competitive market, an individual farmer intending to increase her revenue decides to increase the price of her crop by 20% As a result, her total revenue will

increase by 20%

Figure 5.3 shows a linear demand curve. As you move from point A to point B along the demand curve, total revenue _____ and the demand is _____.

increases; elastic

Whic of the following is ture if a perfectly competitve market is in long-run equilibrium?

marginal revenue is equal to average total cost

The use of game theory in studying the behavior of firms in an oligopoly implies that firms:

may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome.

when a firm is experiencing economic loss, maximizing profits means

minimizing losses

An inferior good is:

one that consumers buy less of as their income rises

accunting costs

only includes explicit costs

A leftward shift of the long-run aggregate supply curve is most likely consistent with an improvement in a country's standard of living if:

population decreases

Suppose a firm finds it is better off operating than shutting down in the short run. At the quantity at which marginal cost equals marginal revenue, _____.

profit is maximized

When a firm is experiencing diminishing marginal returns, its marginal cost _____.

rises

as firms exit a market, the market price _______________

rises

If marginal cost is:

rising, then average total cost could be either falling or rising

The price elasticity of demand helps determine the effect of price changes on a firm's:

revenue.

long run average cost curve

shows the lowest cost a firm is able to produce a given quantity of output in the long run

The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:

the cross-price elasticity of demand between film and cameras. (The responsiveness of the demand for one good to changes in the price of another good is called the cross-price elasticity of demand)

The outcome of a game among oligopolists is dependent upon:

the predicted response of competitors

During certain periods in the past few decades, if one of the three major breakfast cereal producers in the United States announced a price increase, the other two announced a similar price increase. This implies that the market for breakfast cereals is a good example of _____.

the price-leadership model of oligopoly

Whic of the following is true in a perfectly competitive industry is earning zero economic profits in the long run?

the resources invested in this industry are earning at least as high a return as they would in any alternative use

The price elasticity of demand for milk when quantity is measured in gallons will be _____ the price elasticity when quantity is measured in quarts.

the same as

long run competitive equilibrium

the situation in which entry and exit of firms has caused the typical firm in that industry to break even

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct

the total profit from selling 101 units is $2 greater than the total profit from selling 100 units

Refer to the above diagram. This firm's average fixed costs are

the vertical distance between AVC and ATC

a firm can reduce losses by continuing to operate if ____________

total revenue is greater than variable costs

Economic profit is defined as _____.

total revenue minus total costs

Suppose the price elasticity of demand for your economics textbook is −1. If the publisher raises the price by 5 percent:

total revenue will not change

economic loss

when a firm experiences total revenue less than its total cost, including all implicit costs

the decision to continue operations or shut down is determined by _________________

whether total revenue is greater or less than variable costs

an entire market for a product in a perfectly competitive market on a supply-demand curve is represented by

a downward sloping demand curve

perfectly competitive market

a large number of firms selling almost identical products with no barriers to competition

An increase in which of the following will most likely result in a long-run surplus of a product? a) The number of supplies of the product b) A price that is set by law above the equilibrium price c) The demand for the product d) The costs of resources used to produce the product e) The future expected price of the product

b) A price that is et by law above the equilibrium price

Problems faced by all economic systems include which of the following? I. How to allocate scare resources among unlimited wants II. How to decentralize markets III. How to decide what to produce, how to produce, and for whom to produce IV. How to set government production quotas a) I only b) I and III only c) II and III only d) I, II, and III only e) I, II, III, and IV

b) I and III only

Which of the following characteristics best describes a decreasing-cost industry? As the quantity supplied increases, the price per unit: a) decreases, and the long-run industry supply curve slopes upward b) decreases, and the long-run industry supply curve slopes downward c) increases, and the long-run industry supply curve slopes downward

b) In a decreasing-cost industry, input prices decrease as industry output increases, and the long-run industry supply curve is downward-sloping as a result.

The basic economic problem of all countries is the existence of a) tax increases and budget deficits b) limited resources and unlimited wants c) unemployment and inflation d) government and private industry e) unions and monopoly firms

b) limited resources and unlimited wants

In the United States, the federal government redistributes income primarily by a) setting up planning commissions to set wage rates b) taxing different income levels at different rates c) guaranteeing every person a minimum income through minimum-wage laws d) providing the same goods and services to all citizens e) relocating and retraining structurally unemployed people

b) taxing different income levels at different rates

In a market economy, public goods such as community police protection are unlikely to be provided in sufficient quantity by the private sector because a) private firms are less efficient at producing public goods than is the government b) the use of public goods cannot be withheld from those who do not pay for them c) consumers lack information about the benefits of public goods d) consumers do not value public goods highly enough for firms to produce them profitably e) public goods are inherently too important to be left to private firms to produce

b) the use of public goods cannot be withheld from those who do not pay for them

19. Which of the following will cause an increase in aggregate demand? a. An increase in the price level b. A decrease in income taxes c. An increase in the demand for money d. A decrease in the supply of money e. A decrease in government transfer payments

b. A decrease in income taxes

32. Frictional unemployment occurs when which of the following happens? a. A worker is replaced by robots on factory assembly lines. b. A worker voluntarily quits a job to search for a better one. c. A worker is laid off because of a downturn in economic activity. d. A worker undergoes on-the-job training. e. A worker switches from working full-time to part-time.

b. A worker voluntarily quits a job to search for a better one.

42. An increase in the price level will most likely cause which of the following? a. A leftward shift of the aggregate demand curve b. An increase in the demand for money c. An increase in the real interest rate d. A decrease in the nominal interest rate e. An increase in the supply of money

b. An increase in the demand for money

39. According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation? Short Run Long Run a. R to N M to N b. R to M R to N c. R to Q Q to N d. R to M R to Q e. R to N N to Q

b. R to M R to N

2. Inflation occurs when there is a sustained increase in which of the following? a. Real gross domestic product b. The average price level c. The price of any commodity d. Labor productivity e. Theunemployment rate

b. The average price level

17. The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by a. a decrease in taxes b. a decrease in the money supply c. an increase in government spending d. an increase in consumption spending e. an increase in the price level

b. a decrease in the money supply

25. If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur? a. Equilibrium price will increase. b. Equilibrium price will decrease. c. Equilibrium quantity will increase. d. Equilibrium quantity will decrease. e. Equilibrium quantity will remain the same.

c. Equilibrium quantity will increase.

52. Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand? Net Exports Aggregate Demand a. Decrease Decrease b. Decrease No change c. Increase Increase d. Increase Decrease e. Increase No change

c. Increase Increase

49. The natural rate of unemployment can be defined as the a. unemployment rate consistent with accelerating inflation b. unemployment rate of the least-skilled workers c. economy's long-run equilibrium rate of unemployment d. labor force participation rate plus the unemployment rate e. labor force participation rate minus the unemployment rate

c. economy's long-run equilibrium rate of unemployment

34. As a component of aggregate demand, investment refers to the a. purchase of raw land for later resale b. purchase of stocks and bonds c. purchase of new equipment and additional inventories d. difference between people's income and spending e. dividends paid out to shareholders

c. purchase of new equipment and additional inventories

41. In the short run, government deficit spending will most likely a. raise the unemployment rate b. lower the inflation rate c. raise nominal interest rates d. lower private savings e. raise net exports

c. raise nominal interest rates

13. If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of a. the unemployment rate b. real output c. the price level d. nominal interest rates e. real interest rates

c. the price level

If bologna is an inferior good, which of the following must be true? a) The demand curve for bologna is vertical. b) The demand curve for bologna is horizontal. c) An increase in the price of bologna will decrease the supply of bologna. d) An increase in consumer income will decrease the demand for bologna. e) A decrease in consumer income will decrease the supply of bologna.

d) An increase in consumer income will decrease the demand for bologna.

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the good reduces consumers' purchasing power. III. An increase in the price of the good increase consumers' utility from consuming that good. a) I only b) II only c) III only d) I and II only e) I and III only

d) I and II only

The market equilibrium price of home beating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for home heating oil? I. Quantity supplied in increase. II. Quantity demanded will increase. III. Quantity supplied will decrease. IV. Quantity demanded will decrease. a) II only b) I and II only c) I and IV only d) II and III only e) III and IV only

d) II and III only

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium? a) TUx = Tuy b) Mux = MUy c)Tux/Px = TUy/Py d) MUx/Px = MUy/Py (MUx)(Px) + (MUy)(Py) = 1

d) MUx/Px = MUy/Py

Which of the following is true if a perfectly competitive industry is earning zero economic profits in the long run? a) The level of investment in long-run equilibrium is greater than the efficient level. b) Relatively few firms are able to survive the competitive pressures in the long run. c) Some firms will be forced to transfer their resources to more lucrative uses. d) The resources invested in this industry are earning at least as high a return as the would in any alternative use. e) Firms will exit until economic profits become positive.

d) The resources invested in this industry are earning at least as high a return as the would in any alternative use.

Monopolies are inefficient compared to perfectly competitive firms because monopolies a) produce output with average total cost exceeding average revenue b) produce more output than is socially desirable c) charge a price less than marginal revenue d) charge a price greater than marginal cost e) charge a price less than average total cost

d) charge a price greater than marginal cost

20. If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full-employment level? a. Doing nothing, since there are automatic stabilizers b. The sale of bonds by the Federal Reserve c. An increase in the income tax d. An increase in government spending e. An increase in the discount rate

d. An increase in government spending

22. Which of the following will most likely cause an increase in real output in the long run? a. A decrease in the labor force participation rate b. An increase in the velocity of money c. An open-market sale of government bonds by the central bank d. An increase in immigration from abroad e. An increase in the price level

d. An increase in immigration from abroad

35. If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run? Nominal Interest Rate Employment a. Increase Increase b. Increase Decrease c. Decrease Decrease d. Decrease Indeterminate e. Indeterminate Decrease

d. Decrease Indeterminate

4. An increase in spending in an economy will cause a multiplied increase in gross domestic product because a. government spending is greater than zero b. investment is greater than zero c. investment increases as income decreases d. consumption increases as income increases e. taxes increase as income increases

d. consumption increases as income increases

If the economy was in a severe recession, the most expansionary fiscal policy would be to:

decrease personal income taxes and increase government spending by EQUAL amounts

If the reserve requirement is 25 percent and banks hold no excess reserves, an open market sale of $400,000 of government securities by the Federal Reserve will:

decrease the money supply by up to $1.6 million

The value of a country's currency will tend to appreciate if:

demand for the country's exports increase

A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _____.

demand is inelastic

A university administration's decision to raise tuition in order to increase revenue will be successful if:

demand is inelastic.

The term "monopolistic competition":

denotes an industry characterized by many sellers of differentiated products

A student who attends college would pay $10,000 annually for tuition, books, and fees. If the student next best alternative is to work and earn $15,000 a year, the opportunity of a year in college would be equal to a) zero, since the lost opportunity to earn income is offset by the opportunity to attend college b) $5,000 representing the difference between forgone income and college costs c) $10,000, since opportunity costs include only actual cash outlays d) $15,000 representing forgone income, since the costs of tuition, books, and fees will be more than offset by additional income earned after graduation e) $25,000, representing the sum of tuition, books, fees, and forgone income

e) $25,000, representing the sum of tuition, books, fees, and forgone income

In which of the following cases is the government's actions appropriate for reducing inefficiency? a) Taxation of the output of chocolate factory that emits an aroma that residents of the city enjoy b) Regulation that reduces the output of a monopoly c) A lump-sum tax on a monopolist d) A subsidy for the consumption of a good produced by a plant that emits a pollutant as a by-product e) A toll on a congested bridge

e) A toll on a congested bridge

Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm's short-run costs? a) MC: Increase; ATC: Increase; AVC: Increase b) MC: Increase; ATC: Increase; AVC: No effect c) MC: No effect; ATC: No effect; AVC: No effect d) MC: No effect; ATC: Increase; AVC: Increase e) MC: No effect; ATC: Increase; AVC: No effect

e) MC: No effect; ATC: Increase; AVC: No effect

(Look at Graph in Packet #3 for #17) The diagram above depicts cost and revenue curves for a firm. What are the firm's profit-maximizing output and price? a) Output: 0S; Price: 0D b) Output: 0R; Price: 0E c) Output: 0Q; Price: 0F d) Output: 0Q; Price: 0B e) Output 0P; Price 0G

e) Output 0P; Price 0G

(Look at Graph in Packet #3 for #48) The figure above shows cost and revenue curves for a public regulated power company and three possible prices for its output. Which of the following statements about those prices is most accurate? a) If P1 were approved, regulation would not be needed and the company would have every incentive to lower rates to P2. b) P1 is inefficient; it is better to have several utilities serve the area than to approve P1. c) P2 is ideal; it gives stockholders the maximum rate of return and protects consumers from exploitation. d) P3 would maximize consumer welfare; greater electric use at this low rate would guarantee stockholders a fair rate of return. e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.

e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.

In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both the equilibrium price and quantity to decrease? a) Supply curve shifts to the left; demand curve shifts to the right b) Supply curve shifts to the left; demand curve has no shift c) Supply curve shifts to the right; demand curve shifts to the right d) Supply curve has no shift; demand curve shifts to the right e) Supply curve has no shift; demand curve shifts to the left

e) Supply curve has no shift; demand curve shifts to the left

If an increase in the price of good X causes a drop in demand for good Y, good Y is a) an inferior good b) a luxury good c) a necessary good d) a substitute X e) a complement for good X

e) a complement for good X

Suppose that a family buys all its clothing from a discount store and treats these items as inferior goods. Under such circumstances, this family's consumption of discount store clothing will necessarily a) increase when a family member wins the state lottery b) increase when a family member gets a raise in pay at work c) remain unchanged when its income rises or falls due to events beyond the family's control d) decrease when a family member becomes unemployed e) decrease when a family member experiences an increase in income

e) decrease when a family member experiences an increase in income

Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that a) average cost is at a minimum b) price equals marginal revenue c) marginal revenue is greater than marginal cost d) price equals marginal cost e) price is greater than marginal cost

e) price is greater than marginal cost

Refer to the above diagram. The position of these five curves in relation to one another reflects:

economies and diseconomies of scale

Tariffs are different from assigned import quotas in that tariffs will:

generate additional revenue for the domestic government

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow:

into the United States and the dollar will appreciate

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.

true

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

true

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

true

When marginal product is negative, the slope of the total product curve must be negative.

true

Comparative advantage implies that:

two countries should benefit from trade unless each have equal opportunity costs in every good

The cross-price elasticity of demand is used to determine whether:

two products are substitutes or complements

29. If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to (A) pursue an expansionary monetary policy because it is required to do so by law whenever output is below the full- employment level (B) pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the full-employment level (C) lower the discount rate and buy bonds on the open market to generate an increase in output (D) lower the required reserve ratio and sell bonds on the open market to generate an increase in output (E) raisethediscountrateandlowertherequired reserve ratio to generate an increase in output

(C) lower the discount rate and buy bonds on the open market to generate an increase in output

44. Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of (A) $0.5 million (B) $1.5 million (C) $2.0 million (D) $8.0 million (E) $15 million

(D) $8.0 million

50. If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true? (A) A smaller number of goods would be available in each trading nation. (B) Total world production of goods would decrease. (C) Everyone within each nation would be better off. (D) Each nation would increase its consumption possibilities. (E) Onenationwouldgainattheexpenseofthe other nation.

(D) Each nation would increase its consumption possibilities.

10. If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur? (A) Output will increase. (B) Output will decrease. (C) Output will not change. (D) The price level will increase. (E) Thepricelevelwilldecrease.

(D) The price level will increase.

47. Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity? (A) There would be no initial impact, since neither the aggregate supply curve nor the aggregate demand curve would shift. (B) Employment would increase, causing a rightward shift in the aggregate demand curve. (C) The price level would increase, resulting in excess aggregate supply. (D) The short-run aggregate supply curve would shift to the left, increasing the price level. (E) Theaggregatedemandcurvewouldshiftto the left, increasing the price level.

(D) The short-run aggregate supply curve would shift to the left, increasing the price level.

37. Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run? (A) Gross domestic product (B) The labor force participation rate (C) The price level (D) Unemployment (E) Wage levels

(D) Unemployment

2. A high marginal propensity to consume implies which of the following? (A) A small change in consumption when income changes (B) A high savings rate (C) A high marginal tax rate (D) An equilibrium level of income near full employment (E) A low marginal propensity to save

(E) A low marginal propensity to save

30. Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run? (A) A decrease in the price level and a decrease in the nominal wage (B) A decrease in the price level and an increase in the nominal wage (C) An increase in the price level and an increase in the nominal wage (D) An increase in the price level and an increase in the real wage (E) An increase in the price level and a decrease in the real wage

(E) An increase in the price level and a decrease in the real wage

23. In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP) ? Price Level, Real GDP (A) Decrease, Incr (B) No change, Decr (C) Increase, No Change (D) Increase, Decr (E) Increase, Inc

(E) Increase, Inc

35. A simultaneous increase in inflation and unem- ployment could be explained by an increase in which of the following? (A) Consumer spending (B) The money supply (C) Labor productivity (D) Investment spending (E) Inflationaryexpectations

(E) Inflationaryexpectations

41. The consumer price index (CPI) is designed to measure changes in the (A) spending patterns of urban consumers only (B) spending patterns of all consumers (C) wholesale price of manufactured goods (D) prices of all goods and services produced in aneconomy (E) cost of a select market basket of goods and services

(E) cost of a select market basket of goods and services

55. Tariffs are different from assigned import quotas in that tariffs will (A) restrict imports (B) increase the price of imported goods (C) benefit domestic consumers of imported goods (D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government

(E) generate additional revenue for the domestic government

48. Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan (C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interestrates in India increase relative to those in Japan

(E) real interestrates in India increase relative to those in Japan

51. The shifting of a country's production possibil- ities curve to the right will most likely cause (A) net exports to decline (B) inflation to increase (C) the aggregate demand curve to shift to the left (D) the long-run aggregate supply curve to shift to the left (E) the long-run aggregate supply curve to shift to the right

(E) the long-run aggregate supply curve to shift to the right

44) Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate........ International Value of the Peso A) Increase........ Appreciate B) Increase........ Depreciate C) Increase........ No change D) Decrease........ Appreciate E) Decrease........ Depreciate

B) Increase........ Depreciate

7) An increase in which of the following is most likely to promote economic growth? A) Consumption spending B) Investment tax credits C) The natural rate of unemployment D) The trade deficit E) Real interest rates

B) Investment tax credits

38) Which of the following is true about the marginal propensity to consume? A) It is the percentage of total income that is spent on consumption B) It determines the size of the simple spending multiplier C) It increases as incomes increase because increases in income cause people to spend more D) It is the same as the money multiplier E) It is equal to the average propensity to consume for people with low incomes

B) It determines the size of the simple spending multiplier

A decrease in business taxes would lead to an increase in national income by increasing which of the following?

Both aggregate demand and aggregate supply

3) With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate............ Quantity of Money A) Increase........ Decrease B) Increase........ Not change C) Decrease........ Decrease D) Decrease........ Increase E) Decrease........ Not change

E) Decrease........ Not Change

4) An increase in aggregate supply will most likely cause income and employment to change in which of the following ways? Income........ Employment A) Decrease........ Decrease B) Decrease........ Increase C) No change........ Increase D) Increase........ Decrease E) Increase........ Increase

E) Increase........ Increase

47) Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. The combined actions will result in A) an increase in unemployment and a decrease in the interest rate B) an increase in unemployment and an increase in the interest rate C) an increase in the real gross domestic product and a decrease in the interest rate D) an increase in the real gross domestic product and an increase in the interest rate E) an increase in the real gross domestic product and an indeterminate change in the interest rate

E) an increase in the real gross domestic product and an indeterminate change in the interest rate

45) The Federal Reserve decreases the federal funds rate by A) decreasing the reserve requirement B) decreasing the discount rate C) increasing the discount rate D) selling government bonds on the open market E) buying government bonds on the open market

E) buying government bonds on the open market

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

Falling wages will shift the aggregate supply curve to the right, producing full employment.

Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation? a) A monopolist produces too little of the good, producing an output that minimizes the average cost of production. b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production. c) A monopolist is more likely to pollute the environment than are firms in a competitive industry. d) A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves. e) A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.

b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.

Suppose that the consumption of a certain product results in benefits to others besides the consumers of the product. Which of the following statements is most likely to be true? a) The demand for the product is price inelastic. b) A perfectly competitive industry will not produce the optimal quantity of the product. c) A perfectly competitive industry will not produce the product. d) Optimally requires that consumers of this product will be taxed. e) Producers of this product earn an economic profit.

b) A perfectly competitive industry will not produce the optimal quantity of the product.

If a normal good is produced in a competitive market, which of the following combinations of events could cause the price of the good to increase and the quantity to decrease? a) An increase in the average income of consumers and an increase in the number of producing firms b) An increase in the average income of consumers and an increase in the price of a variable input c) An increase in the price of a substitute good an an increase in the number of producing firms d) A decrease in the number of consumers and a decrease in the price of a variable input e) A decrease in the average income of consumers and an increase in the number of producing firms

b) An increase in the average income of consumers and an increase in the price of a variable input

(Look at Graph in Packet for #40) Which of the follow statements about the firm whose cost and revenue curves are shown above is correct? a) Its profit-maximizing price is $5. b) Its profit-maximizing output level is 200 units. c) Its maximum profit is $4,000. d) If it produces 250 units, it will earn no economic profits. e) At the profit-maximizing level of output, its total cost is $1,000.

b) Its profit-maximizing output level is 200 units.

If a perfectly competitive industry were monopolized without any changes in cost condition, the price and quantity produced would change in which of the following ways? a) Price: increase; quantity: increase b) Price: increase; quantity: decrease c) Price: increase; quantity: may increase or decrease d) Price: decrease; quantity: increase e) Price: decrease; quantity: decrease

b) Price: increase; quantity: decrease

(Look at Graph in Packet #3 for #26) Which of the following best explains the shape of the production possibilities curve for the two commodity economy shown above? a) The opportunity cost of producing an additional unit of each commodity expands. b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands. c) The opportunity cost of producing an additional unit of each commodity increases as production of the commodity expands. d) The quantity demanded of each commodity increases. e) The quantity demanded for each commodity increases as the production of the commodity expands.

b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands.

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct? a) The total revenue from selling 101 units is the same as the total revenue from selling 100 units. b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units. c) The total cost of producing 101 units is $2 greater than the total cost of producing 100 units. d) To sell 101 units, the firm must reduce its price below $20. e) To sell 101 units, the firm must raise its price above $20.

b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.

The vertical distance between the average total cost (ATC) curve and average variable cost (AVC) curve: a) increases as output increases b) decreases as output increases c) remains constant as output increases

b) The vertical distance between the average total cost curve and average variable cost curve is average fixed cost, which decreases as output increases because fixed costs are averaged over greater output.

The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing. Food - Gamma: 10; Omega: 5 Clothing - Gamma: 9; Omega: 3 Which of the following statements is true according to the chart above? a) Trade should take place, with Gamma specializing in clothing production and Omega specializing in food production. b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production. c) Each country should devote half of its resources to food production and half to clothing production and not trade. d) Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from trade with Gamma. e) Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit from trade with Omega.

b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.

An improvement in production technology for a certain good leads to a) an increase in demand for the good b) an increase in the supply of the good c) an increase in the price of the good d) a shortage of the good e) a surplus of the good

b) an increase in the supply of the good

The supply curve for automobiles will shift to the left in response to a) an increase in the efficiency of robot technology b) an increase in wages in the automobile industry c) a decrease in the number of consumers purchasing automobiles d) a decrease in the interest rates for automobile loans e) a decrease in consumers' income

b) an increase in wages in the automobile industry

The government is considering imposing a 3 percent tax on either good A or B. In order to generate the largest revenue, the tax should be imposed on the good for which a) demand is perfectly elastic b) demand is perfectly inelastic c) demand is unit elastic d) supply is perfectly elastic e) supply is unit elastic

b) demand is perfectly inelastic

In a given firm, the marginal product per hour worked for a skilled worker is twice as much as it is for an unskilled worker. Skilled workers earn $20 per hour, and unskilled workers earn $8 per hour. Based on this information, the firm should increase the: a) salary of skilled workers to attract more of them b) use of skilled workers or decrease the use of unskilled workers c) use of unskilled workers or decrease the use of skilled workers

c) To minimize costs, the firm should hire inputs so that MPskilled PsIdlled = unskilled / Punskilled. Because the MPskilled is twice the MPunskilied, and the Pskilled is more than twice the Punskilled, costs would be reduced by employing more unskilled labor and less skilled labor.

Assume that both input and product markets are competitive. If the product price rises, in the short run firms will increase production by increasing a) the stock of fixed capital until marginal revenue equals the product price b) the stock of fixed capital until the average product of capital equals the price of capital c) labor input until the marginal revenue product of labor equals the wage rate d) labor input until the marginal product of labor equals the wage rate e) labor input until the ratio of product price to the marginal product of labor equals the wage rate

c) labor input until the marginal revenue product of labor equals the wage rate

In the short run, a decrease in production costs of a product will shift a) both the demand curve and the supply curve to the right b) the demand curve to the left and the supply curve to the right c) only the supply curve to the right d) only the supply curve to the left e) only the demand curve to the left

c) only the supply curve to the right

The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because a) advertising costs make monopolistic competition b) the firms in the industry do not operate at the minimum point on their long-run average cost curves c) there are no restrictions on entering or exiting from the industry d) the firms in the industry are unable to engage in product differentiation e) there are close substitutes for each firm's product

c) there are no restrictions on entering or exiting from the industry

3. Which of the following is LEAST likely to promote economic growth? a. Investment in tools and machines b. Investment in training of labor c. Increase in consumption of nondurable goods d. Tax credit for technology improvement e. Increaseinthelaborforceparticipation rate

c. Increase in consumption of nondurable goods

6. If the economy is in a severe recession, which of the following policy actions is most appropriate? a. Keeping the money supply constant and reducing budget deficits b. Decreasing government spending and taxes by the same amount c. Increasing both the money supply and government spending d. Increasing both the federal funds rate and taxes e. Decreasing the money supply and increasing taxes

c. Increasing both the money supply and government spending

56. Which of the following is true of the Phillips curve? a. It is vertical in the short run, but is upward sloping in the long run. b. It is upward sloping in the short run, but is downward sloping in the long run. c. It is downward sloping in the short run, but is vertical in the long run. d. It shows trade-offs between unemployment and inflation in the long run but not in the short run. e. It is upward sloping both in the short run and in the long run if inflation is anticipated correctly.

c. It is downward sloping in the short run, but is vertical in the long run.

57. The diagram above shows three production possibilities curves (PPCs). If the current PPC is PPC1, which of the following changes indicates a recession? a. Movement from point X to point Y b. Movement from point Y to point X c. Movement from point Y to point Z d. Shift from PPC1 to PPC0 e. Movement from point Z to point X

c. Movement from point Y to point Z

12. In the circular flow diagram of a market economy, which of the following supplies the factors of production? a. The business sector b. The government c. The household sector d. Financial sector e. Theforeign sector

c. The household sector

Which of the following would necessarily cause a fall in the price of a product? a) An increase in population and a decrease in the price of an input b) An increase in population and a decrease in the number of firms producing the product c) An increase in average income and an improvement in production technology d) A decrease in the price of a substitute product and an improvement in production technology e) A decrease in the price of a substitute product and an increase in the price of an output

d) A decrease in the price of a substitute product and an improvement in production technology