Econ 101 Final Exam
The formula to compute the spending multiplier is: Correct! 1 / (1 − MPC). 1 / (1 − MPS). 1 / (C + I). 1 / (MPC + MPS)
1 / (1 − MPC).
Given the market supply & demand curves and the quota illustrated below: -16 units will be supplied at a price of $3.25 -Correct! 13 units will be supplied at a price of $ 2.50 -16 units will be supplied at a price of $ 1.75 -16 units will be supplied at a price of $ 2.50
13 units will be supplied at a price of $ 2.50
The Federal Reserve System was founded in: 1913. 1935. 1929. 1933.
1913.
Exhibit 21-1 Production possibilities curves In Exhibit 21-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. Suppose Nabia produces at point A on its PPC. How many units of wheat is the country able to produce? Correct Answer 20. 60. 15. You Answered 40
20
This function describes the: -The demand curve -Marginal revenue curve -Correct! The production function -Marginal cost curve
The production function
The presence of discouraged workers may cause: -the employment rate to be understated. -the unemployment rate to be overstated. -Correct! the unemployment rate to be understated. -GDP to be too large.
the unemployment rate to be understated.
Which of the following is a public good? -The Ohio and Kansas turnpikes (toll roads) -a flu shot -Correct! A city park -A Delta airline flight
A city park
Monopolistic Competition is characterized by: -A homogeneous product -A unique product -Either a homogeneous or differentiated product -Correct! A differentiated product
A differentiated product
Macroeconomics may be defined as: -A focus on the individual economic unit. -An exclusive focus on how major corporations work. -An exclusive focus on how government spending and taxes work. -Correct! A focus on the understanding of the operations of the economy as a whole.
A focus on the understanding of the operations of the economy as a whole.
A public good is defined as: -A good or service with two properties: Users collectively pay for the good and there is no way to bar people who do not pay (free riders) from consuming the good or service. -Any good or service produced by the government. -A cost or benefit imposed on someone other than the producer or consumer of the good or service -Correct! A good or service with two properties: users collectively consume benefits, and there is no way to bar people who do not pay (free riders) from consuming the good or service.
A good or service with two properties: users collectively consume benefits, and there is no way to bar people who do not pay (free riders) from consuming the good or service.
A public good is defined as: -Any good or service produced by the government. -Correct! A good or service with two properties: users collectively consume benefits, and there is no way to bar people who do not pay (free riders) from consuming the good or service. -A cost or benefit imposed on someone other than the producer or consumer of the good or service -A good or service with two properties: Users collectively pay for the good and there is no way to bar people who do not pay (free riders) from consuming the good or service.
A good or service with two properties: users collectively consume benefits, and there is no way to bar people who do not pay (free riders) from consuming the good or service.
Perfect Competition is characterized by: -You Answered A unique product -A differentiated product -Either a homogeneous or differentiated product -Correct Answer A homogeneous product
A homogeneous product
A quota is defined as; -Correct! A legally established restriction on how much of a good can be produced or imported. -A legally established maximum price a seller can charge for a good or service. -A capacity restriction on the quantity of a good sellers can produce. -A legally established minimum price a seller can be paid for a good or service.
A legally established restriction on how much of a good can be produced or imported.
Which of the following is not one of the assumptions Monetary Theory makes? -Correct! Demand creates supply -Increases in the money supply will affect output first. -The velocity of money is stable and predictable -Monetary flows are responsible for how the economy operates
Demand creates supply
Market failure may be defined as: -A situation in which the price is too high. -A situation in which the market does not provide the price or quantity buyers or sellers want. - A situation in market equilibrium results in too few or too many resources being used in the production of a good or service. -A situation in which their is a shortage in the marketplace.
A situation in market equilibrium results in too few or too many resources being used in the production of a good or service.
Which of the following graphs correctly describes the Classical long run aggregate supply curve?
ADAS Classical AS test.jpg
A decrease in the interest rate, other things being equal, causes a(n): -rightward shift of the demand curve for money. -You Answered A decrease in quantity demanded for money, a movement along the demand curve for money. -leftward shift of the demand curve for money. -Correct Answer An increase in the quantity demanded for money, a movement along the demand curve for money.
An increase in the quantity demanded for money, a movement along the demand curve for money.
According to the monetarists, which of the following is true? -Correct Answer Instability in the money supply is the primary cause of economic instability. -You Answered A reduction in the money supply will cause a proportional reduction in wages and prices, leaving output unchanged. -A reduction in the money supply will cause consumers to increase spending. -A rapid growth rate of the money supply will lead to a rapid growth rate of real GDP.
Answer Instability in the money supply is the primary cause of economic instability.
From the standpoint of economic efficiency, competitive markets provide: -You Answered more of a public good than would be efficient. -an efficient amount but at a higher cost. -Correct Answer less of a public good than would be efficient. -exactly the amount of a public good that is efficient.
Answer less of a public good than would be efficient.
When building a model, an economist must: -Correct Answer make simplifying assumptions. -provide a complete description of reality. -You Answered adjust for exceptional situations. -develop a set of behavioral equations
Answer make simplifying assumptions.
Comparative advantage indicates that: -You Answered countries should export products for which they are high-opportunity cost producers. -a nation can gain from trade only when its trading partners are not low-wage countries. -Correct Answer specialization and exchange will permit trading partners to maximize their joint consumption. -a nation can gain from trade only if it is not at an absolute disadvantage in producing all goods.
Answer specialization and exchange will permit trading partners to maximize their joint consumption.
Market Failure will happen when: -prices are changing in the marketplace There are surpluses in the marketplace - Any of the underlying assumptions of Perfect Competition are broken. -There are shortages in the marketplace
Any of the underlying assumptions of Perfect Competition are broken.
The Macroeconomic model that focuses on interest rates, and the supply and demand for loanable funds (among other things) is; -Classical Theory -Keynesian Theory -Monetary Theory -Correct! Austrian School of Economics
Austrian School of Economics
Which of the following functions on the graph below is Marginal Cost: -C -A -D -Correct! B
B
To sum up the Austrian School Business Cycle Theory, it would suggest: -Business cycle fluctuations are natural and immune from any human intervention. -Business cycles are an illusion because of flawed and misleading statistics. -Business cycle fluctuations are the result of the inevitable unemployment of resources. -Correct! Business cycle fluctuations are the result of mal-investments caused when the interest rate sends "incorrect" signals.
Business cycle fluctuations are the result of mal-investments caused when the interest rate sends "incorrect" signals.
From the graph below, which function represents Fixed Cost. -B -A -None of these functions are fixed cost -Correct! C
C
M2 is made up of; -Correct! Coin and Currency in circulation and checking deposits plus savings accounts, money market mutual funds, and time deposits < $100,000 -Coin and Currency in circulation and checking deposits -Coin and Currency in circulation and in the possession of banks, checking deposits plus savings accounts, money market mutual funds, and time deposits < $100,000 -Coin and Currency in the hands of banks
Coin and Currency in circulation and checking deposits plus savings accounts, money market mutual funds, and time deposits < $100,000
The economic system that answers the What, How and For Whom questions using prices determined by a dictator or central authority is a: -Traditional economy -Private economy -Market economy - Command economy
Command economy
Which of the following correctly describes the difference between commodity money and fiat money? -Commodity money can only be used to buy commodities such as grains or lumber, while fiat money can be used to buy anything. -Fiat money has value based on the material from which it is made, while commodity money is accepted by law and not because of its tangible value. -Fiat money is used during times of emergency, such as hurricanes or war, when the existing stock of commodity money is inadequate to purchase needed goods and services. -Correct! Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not.
Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not.
Normative Economics may be defined as: -Making use of language that elicits an emotional response or infers a value judgement. -Discussions limited to the facts or description of economic models. - Discussions of economics that include appraisals of what is good or bad, right or wrong. -Making arguments that make selective use of the facts, generally by presenting only one side of the story.
Discussions of economics that include appraisals of what is good or bad, right or wrong.
Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, those initially entering the labor force, or those re-entering the labor force is; -Seasonal unemployment -Cyclical unemployment -Structural unemployment -Correct! Frictional unemployment
Frictional unemployment
Which of the following is a shortcoming of GDP? -GDP includes an estimate of the value of household services. -Correct! GDP does not account for the distribution of consumption across a country's population. -GDP includes an estimate of illegal transactions. -GDP measures nonmarket transactions.
GDP does not account for the distribution of consumption across a country's population.
Which of the following is not a component in the two sector circular flow model? -Real Flows -Correct! Government Sector -The Resource or Factor Market -Business Sector
Government Sector
An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps? - Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion. -None of these. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories. -Gather data on crude oil prices and seemingly unrelated variables to look for associations, then formulate a hypothesis based on those unexpected associations. -Ask people in Alaska why they are not purchasing oil.
Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion.
Which of the following is an example of expansionary fiscal policy? -Increase taxes and decrease government spending equally. -Decrease government spending. -Increase taxes. -Correct! Increase government spending
Increase government spending
Which of the following is an example of expansionary fiscal policy? -Correct! Increase government spending. Increase taxes. -Increase taxes and decrease government spending equally. -Decrease government spending.
Increase government spending. Increase taxes.
The long run Phillips curve: -Is a horizontal function. That is, there can be any unemployment rate associated with the inflation rate (primarily the natural rate of inflation) -Is an inverse relationship between the inflation rate and the unemployment rate. -Correct! Is a vertical function. That is, there can be any inflation rate associated with an unemployment rate (primarily the full employment unemployment rate) -Is a quadratic function. That is, as the inflation rate falls, at first the unemployment rate rises, but then begins to fall.
Is a vertical function. That is, there can be any inflation rate associated with an unemployment rate (primarily the full employment unemployment rate)
John Maynard Keynes is associated with; -Correct! Keynesian Theory -Austrian School of Economics -Monetary Theory -Classical Theory
Keynesian Theory
Which macroeconomic model suggests that unemployment is caused by a lack of aggregate demand? -Classical Theory -Monetary Theory -Correct! Keynesian Theory -Austrian School of Economics
Keynesian Theory
The Equation of Exchange is: -Correct! MV = PQ -GDP = C + I + G + XM -QM = PV -MX = Net Exports
MV = PQ
"The change in total utility from one additional unit of a good or service consumed." is the definition of: -Utility -You Answered Total Utility -Correct Answer Marginal Utility -The law of Diminishing Marginal Utility
Marginal Utility
This function describes the: -The marginal cost curve -The production function -A demand curve -Correct! Marginal product curve
Marginal product curve
The three functions of money are; -M1, M2 and M3 -Correct! Medium of exchange, Unit of account, Store of value -Medium of exchange, Unit of credit, Store of value -Coin, Currency, Checking Accounts
Medium of exchange, Unit of account, Store of value
Exhibit 21-1 Production possibilities curves In Exhibit 21-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. If both countries specialize in one good and trade for the other, : -the citizens of Nabia will consume only corn and the citizens of Pada will consume only wheat. -Nabia will be able to consume, at the most, the combination represented by point A. -Pada will be able to consume, at the most, the combination represented by point B. -Correct! Nabia and Pada will be able to consume at a point to the right of their respective production possibilities curves.
Nabia and Pada will be able to consume at a point to the right of their respective production possibilities curves
Firms will have an economic loss when: -P < AVC -P < MC -MR < ATC -Correct! P < ATC
P < ATC
Impediments to market function is something that: -Creates an "incorrect" market demand curve -You Answered Creates an "incorrect" market supply curve. -Correct Answer Prevents the supply curve and demand curve created by the model of the market from seeking equilibrium. -Results (always) in multiple prices in the marketplace
Prevents the supply curve and demand curve created by the model of the market from seeking equilibrium.
All firms will shut down in the short run when: -MR < ATC -MR < AVC -Price < ATC -Correct! Price < AVC
Price < AVC
All firms earn an economic profit when: -Price > MR -Price > AVC -Correct! Price > ATC -Price > MC
Price > ATC
When an external benefit is present: -Resources are under-allocated to the production of the good because the actual market supply curve is too far to the right. - Resources are over-allocated to the production of the good because the actual market supply curve is too far to the left. - Resources are under-allocated to the production of the good because the actual market demand curve is too far to the left. -Resources are over-allocated to the production of the good because the actual market demand curve is too far to the right.
Resources are under-allocated to the production of the good because the actual market demand curve is too far to the left.
Which of the following is true in a market economy? - Resources are used efficiently. -Information for production and distribution decisions pass directly to buyers from the government. -Central planners determine answers to the basic economic questions. -The distribution of wealth is equal.
Resources are used efficiently.
Which of the following market transactions of final goods and services are excluded from the computation of U.S. GDP? -Correct! Secondhand transactions, such as when a used car is sold. -Purchases of products such as wine, beer, hard liquor, and cigarettes. -New purchase that a resident of one state makes in a different state. -Purchases of necessities such as groceries and rent
Secondhand transactions, such as when a used car is sold.
The basic components of the circular flow model include: -Correct! Sectors, markets, flows -Sectors and markets -markets and Goods & Services -People, markets, flows
Sectors, markets, flows
Unemployment caused by a mis-match of skills the individual has compared to the skills the economy needs is; -Correct! Structural unemployment -Seasonal unemployment -Frictional unemployment -Cyclical unemployment
Structural unemployment
Which of the following is the best example of a firm operating in a monopolistically competitive market? -U.S. Postal Service. -Boeing, an aircraft manufacturer -Correct! TGI Fridays, a family restaurant. -A Kansas wheat farmer.
TGI Fridays, a family restaurant.
Bill has $10 to spend on a Superman, Batman, or an X-Men T-shirt. Bill buys the Superman T-shirt and the Batman shirt was a close second choice. What is the opportunity cost? - The Batman T-shirt. -The amount he spent, $10. -Nothing, since he got his preferred choice. -The X-Men T-shirt.
The Batman T-shirt.
The question "Should bank withdrawals be conducted by tellers or ATMs?" is an example of which fundamental economic question? -The What to Produce question. - The How to Produce question. -The Why to Produce question. -The For Whom to Produce question.
The How to Produce question.
Which fundamental economic question requires society to decide the mix and quantity of goods and services it will produce? - The What to Produce question. -The Why to Produce question. -The For Whom to Produce question. -The How to Produce question
The What to Produce question.
The two sector flow model represents a good way to see how GDP is counted. What are the two methods or approaches to counting GDP? -The income and saving approach -Correct! The incomes and expenditures approaches -The real and the nominal approaches -The expenditures and saving approaches
The incomes and expenditures approaches
When the demand curve shifted from D% to D#; -The price floor prevents the interaction of supply and demand to move to the new equilibrium, leaving a shortage in the economy. -Correct Answer The interaction of supply and demand allows the economy to move to the new equilibrium. -You Answered The price floor prevents the interaction of supply and demand to move to the new equilibrium, leaving a surplus in the economy. -The price in the marketplace remains at the floor without a surplus or shortage
The interaction of supply and demand allows the economy to move to the new equilibrium.
GDP may be defined as: -The dollar value of all intermediate and final goods and services produced in a nation during a period of time, usually a year. -The intrinsic value of all final goods and services produced in a nation during a period of time, usually a year. -The dollar value of all final goods and services produced in a nation during a period of time, including net income from foreign investments, usually a year. -Correct! The market value of all final goods and services produced in a nation during a period of time, usually a year.
The market value of all final goods and services produced in a nation during a period of time, usually a year.
Whaen the demand curve shifted from D# to D%; -The interaction of supply and demand allows the economy to move to the new equilibrium because demand will shift again so that equilibrium price equals the price floor. -Correct! The price floor prevents the interaction of supply and demand to move to the new equilibrium, leaving a surplus in the economy. -The interaction of supply and demand allows the economy to move to the new equilibrium because it causes a subsequent decrease in supply -The price floor prevents the interaction of supply and demand to move to the new equilibrium, leaving a shortage in the economy.
The price floor prevents the interaction of supply and demand to move to the new equilibrium, leaving a surplus in the economy.
The Mackinac Bridge (a toll bridge) that connects the upper and lower peninsula's of Michigan is not a public good because: -The bridge has an ultimate capacity so it is not collectively consumed. -Correct! The problem of people not paying to use the good has been overcome. -None of the other options can be selected - because the Mackinac Bridge is a public good. -Both the following situations exist simultaneously: The bridge has an ultimate capacity so it is not collectively consumed and the problem of people not paying to use the good has been overcome.
The problem of people not paying to use the good has been overcome.
Monetary policy may be defined as: -Correct Answer The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level. -You Answered The use of government spending only (by the federal government) to influence the nation's output, employment, and price level. -The use of government spending and taxes (by the FED) to influence the nation's output, employment, and price level. -The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level. The use of changes in the money supply (by the federal government) to influence the nation's output, employment, and price level.
The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level.
Monetary policy may be defined as: -The use of government spending and taxes (by the FED) to influence the nation's output, employment, and price level. -The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level. -Correct Answer The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level. -You Answered The use of changes in the money supply (by the federal government) to influence the nation's output, employment, and price level. -The use of government spending only (by the federal government) to influence the nation's output, employment, and price level
The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level. -You Answered The use of changes in the
Fiscal policy may be defined as: -The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level. -The use of government spending and taxes (by the FED) to influence the nation's output, employment, and price level. -Correct! The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level. -The use of government spending only (by the federal government) to influence the nation's output, employment, and price level. The use of changes in the money supply (by the federal government) to influence the nation's output, employment, and price level.
The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level.
Fiscal policy may be defined as: -The use of government spending and taxes (by the FED) to influence the nation's output, employment, and price level. -The use of government spending only (by the federal government) to influence the nation's output, employment, and price level. -Correct! The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level. -The use of changes in the money supply (by the FED) to influence the nation's output, employment, and price level. -The use of changes in the money supply (by the federal government) to influence the nation's output, employment, and price level.
The use of government spending and taxes (by the federal government) to influence the nation's output, employment, and price level.
Which of the following situations would not create a situation that leads to market failure? -The need to build a flood control and power plant dam on the Colorado River - There is unanticipated demand for "X-box's" at Christmas which leads to severe shortages at toy stores. -A monopoly -The creation of significant amounts of sulfur emissions by power plants.
There is unanticipated demand for "X-box's" at Christmas which leads to severe shortages at toy stores.
Which of the following situations would not create a situation that leads to market failure? -The creation of a significant flood risk downstream from the construction of a 10 acre parking lot. -Firms competing in an Oligopoly -The need to rebuild the aging bridges on the nation's interstate highway system. -Correct! There is unanticipated demand for ice-melt as a result of blizzard forecasts that results in severe shortages at hardware stores
There is unanticipated demand for ice-melt as a result of blizzard forecasts that results in severe shortages at hardware stores
When the U. S. federal government runs a budget deficit, it borrows money by selling: -financial assets located in foreign banks. -Correct! Treasury bills, notes, and bonds. -its gold reserves. -publicly owned land.
Treasury bills, notes, and bonds.
Which of the following groups is not excluded from the civilian labor force? -Correct Answer Unemployed -Household workers -You Answered Students -Retirees
Unemployed
Which of the following is a property of a public good? -Correct Answer Users collectively consume benefits. -You Answered Free riders are excluded. -It is established by legislation. -It is determined by positive economics.
Users collectively consume benefits.
Which of the following is the best example of an action that imposes an external cost? Wear and tear on your car as the result of frequent use. -Deterioration in the average quality of a house you own as the result of poor maintenance. - A rose garden on your property from which your neighbor gets much enjoyment. - Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents.
Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents.
Suppose an economist collects the following data between May and December of a given year: gasoline prices rose sharply, consumer incomes remained constant, consumers purchases of fuel efficient vehicles remained constant from the previous year, the size of the population did not change, sales of gasoline decreased by 15 percent. Which of the following theories could be tested with this information? -When the population increases, purchases of fuel efficient vehicles increase. -No economic theory could be tested with this information. -When consumer incomes rise, gasoline purchases rise. -Correct! When the price of gasoline rises, gasoline purchases fall.
When the price of gasoline rises, gasoline purchases fall.
If a country has a lower opportunity cost of producing oranges, then this is: -Correct Answer a comparative advantage. an absolute advantage. -You Answered inefficient resource use. -a situation in which oranges should be imported
a comparative advantage. an absolute advantage.
In the classical range of the aggregate supply curve, greater spending for consumer and investment goods results in: -stagflation. -Correct! a higher price level. -greater output. -more unemployment.
a higher price level.
Which of the following is the best example of a quota? -a tax placed on all small cars sold in the domestic market -You Answered a subsidy from the U.S. government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits -Correct Answer a limit imposed on the number of men's suits that can be imported from a foreign country -a $100-per-car fee imposed on all small imported cars
a limit imposed on the number of men's suits that can be imported from a foreign country
Which of the following is the best example of a microeconomics topic? -the economy's growth rate - a price of a new home -forecasts of a recession next year - the inflation rate
a price of a new home
When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the: -dollar cost of the two cars with the potential income that the cars will generate. -benefits expected from two cars with the cost of both. - additional benefits of the second car with the additional cost of the second car. -additional benefits expected from a second car with the cost of the two cars.
additional benefits of the second car with the additional cost of the second car.
Without trade, the consumption possibilities for two nations are: -You Answered outside their production possibilities curve. -Correct Answer along their production possibilities curve. -at a point equal to the world production possibilities curve. -inside their production possibilities curve
along their production possibilities curve.
The aggregate demand curve slopes downward indicating that: -Correct! an increase in the general price level will reduce the aggregate quantity of goods and services demanded. -consumers substitute between domestic-made and foreign-made goods as their relative prices change. -a change in the interest rate will alter the aggregate quantity of goods and services demanded. -an increase in the general price level will increase the aggregate quantity of goods and services demanded.
an increase in the general price level will reduce the aggregate quantity of goods and services demanded.
The short run Phillips Curve illustrates that there is: -an inverse relationship between tax rates and the inflation rate -Correct! an inverse relationship between the unemployment rate and the rate of inflation. -a direct relationship between the unemployment rate and the rate of inflation. -a direct relationship between the unemployment rate and tax rate
an inverse relationship between the unemployment rate and the rate of inflation.
Human wants: -can be completely satisfied by advancing technology. - only apply to necessities. - can never be fully satisfied. -are unfilled only in the poorer countries of the world.
can never be fully satisfied. are unfilled only in the poorer countries of the world.
The monopolist, unlike the perfectly competitive firm, can continue to earn an economic profit in the long run because of: -collusive agreements with competitors. -Correct! extremely high barriers to entry. -cartels. -price leadership.
extremely high barriers to entry.
Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through: -Correct! decreasing government spending or increasing taxes. -expanding and contracting the money supply. -regulating net exports. -encouraging business to expand or contract investment.
decreasing government spending or increasing taxes.
The Monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on the: -indirect impact of changes on profit expectations. -direct impact of changes in fiscal policy on aggregate demand. -indirect impact of changes on the interest rate. -Correct! direct impact of changes in the money supply on aggregate demand.
direct impact of changes in the money supply on aggregate demand.
The large-number-of-sellers condition of perfect competition is met when -Correct! each firm is so small relative to the total market that no single firm can influence the market price. -there are more sellers than buyers in the market. -there are more than 50 firms in the industry. -there are more than 100 firms in the industry
each firm is so small relative to the total market that no single firm can influence the market price.
Which barrier to entry results in the creation of a natural monopoly? -legal barriers like government franchises -Correct! economies of scale -patents and copyrights -ownership of a vital resource
economies of scale
If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: -You Answered inelastic. -Correct Answer elastic. -perfectly elastic. -perfectly inelastic
elastic.
When a nation totally bans trade with another country, it is imposing a(n): quota. tariff. trade tax. Correct! embargo
embargo
When a nation totally bans trade with another country, it is imposing a(n): -quota. -tariff. -trade tax. -Correct! embargo.
embargo.
Exhibit 14-7 Aggregate supply and demand curves At point A in Exhibit 14-7, the aggregate demand AD2 and the aggregate supply curve reflect an economy in which -excess aggregate supply is created when there is a shift from AD1 to AD2. -Correct! excess aggregate demand forces prices up to P = 120. -excess aggregate demand causes prices to stabilize at P = 110. -full employment is at $1,000 billion GDP
excess aggregate demand forces prices up to P = 120.
Scarcity: -exists everywhere because human wants can never be satisfied. -is a problem only in poor economies. -is a problem only in industrialized economies. - is a condition measured by the quantity of goods available.
exists everywhere because human wants can never be satisfied.
A nation benefits from international trade if it: -exports more than it imports. -imports more than it exports. -imports goods for which it is a low opportunity cost producer. -Correct! exports goods for which it is a low opportunity cost producer.
exports goods for which it is a low opportunity cost producer.
The monopolist, unlike the perfectly competitive firm, can continue to earn an economic profit in the long run because of: -cartels. -collusive agreements with competitors. -price leadership. -Correct! extremely high barriers to entry
extremely high barriers to entry
Because an oligopoly is characterized by -a few sellers selling a differentiated product, each seller makes its price and output decisions independently. -Correct! few large sellers, each seller has some influence over the market price. -many small sellers, each firm must differentiate its product. -a single seller of a product that has few suitable substitutes, the seller is a price maker.
few large sellers, each seller has some influence over the market price.
A lower price elasticity of demand coefficient occurs when: -You Answered many substitutes exist. -the market is broadly defined. -Correct Answer few substitutes exist. -the quantity demanded is more responsive.
few substitutes exist.
A lower price elasticity of demand coefficient occurs when: -many substitutes exist. -Correct! few substitutes exist. -the market is broadly defined. -the quantity demanded is more responsive
few substitutes exist.
If imports of goods are greater than exports of goods, the nation is experiencing a: -negative balance on current account. -weakening of its currency. -Correct! goods trade deficit. -capital account imbalance.
goods trade deficit.
In the long run, price elasticities of demand are usually -the same as they are in the short run because tastes don't change. -less than they are in the short run because prices rise over time. -Correct! greater than they are in the short run because consumers have time to adjust. -less than they are in the short run because real prices fall over time.
greater than they are in the short run because consumers have time to adjust.
A monopoly may _______________ profits and may _____________ economic loses in the long run. -have economic, have -not have normal, have -not have economic, not have normal -Correct! have economic, not have
have economic, not have
An oligopoly may _______________ profits and may _____________ economic loses in the long run. -Correct! have economic, not have -have economic, have -not have economic, have -not have economic, not have
have economic, not have
The theory of comparative advantage suggests that nations should produce a good if they: -have the most resources. -have the lowest wages. -Correct! have the lowest opportunity cost. -can produce more of the good than any other nation.
have the lowest opportunity cost.
A monopoly may _______________ economic profits and may _____________ economic loses in the short run. -Correct Answer have, have -have, not have -not have, not have -You Answered not have, have
have, have
Monopolistic Competition monopoly may _______________ economic profits and may _____________ economic loses in the short run. -not have, not have -Correct Answer have, have -not have, have -You Answered have, not have
have, have
The Monetary Control Act of 1980 extended the Fed's authority to: -control the federal funds rate. -carry out a massive federal bailout of failed savings and loan institutions. -control the discount rate. -Correct! impose required-reserve ratios on all depository institutions.
impose required-reserve ratios on all depository institutions.
In international trade, an infant industry is one: -with a large number of very small firms. -Correct! in the early stages of its development. -that protects firms that produce products for infants. -in which the firms are experiencing very small profits.
in the early stages of its development.
Imposing a restrictive quota on imported plasma TVs will: -increase both the price of the plasma TVs and the quantity consumed. -leave the price and the quantity consumed of plasma TVs unchanged, because domestic producers will expand production to make up for the reduction in imports -leave the price of the plasma TVs unchanged but decrease the quantity consumed. -Correct! increase the price of the plasma TVs and decrease the quantity consumed
increase the price of the plasma TVs and decrease the quantity consumed
If the federal government were to run a budget deficit, this would: -increase the national debt only if the government also expands the supply of money. -reduce the size of the national debt. -Correct! increase the size of the national debt. -leave the size of the national debt unchanged
increase the size of the national debt.
The quantity of money demanded to satisfy transactions needs: -Correct! increases with the level of real GDP. -is unrelated to either national income or the interest rate. -is intended for unexpected expenditures. -decreases with the level of real GDP
increases with the level of real GDP.
Demand-pull inflation is associated with: -increasing costs of production (supply). -decreasing costs of production (supply). -decreasing total spending (demand). -Correct! increasing total spending (demand)
increasing total spending (demand)
If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is: -unitary elastic. -Correct! inelastic. -perfectly inelastic. -elastic.
inelastic.
The demand for money curve shows that there is an inverse relationship between the quantity of money demanded and the: -price level. -Correct! interest rate. -gross domestic product (GDP). -quantity of money supplied.
interest rate.
The services of farmers are an example of: - labor. Y- entrepreneurship. -a natural resource. -capital.
labor.
Opening trade between two nations would: -Correct! leave the production possibilities unchanged and increase their consumption possibilities. -shift their production possibilities curves outward. -leave the production possibilities unchanged and decreased their consumption possibilities. -shift their production possibilities curves inward.
leave the production possibilities unchanged and increase their consumption possibilities.
If the price elasticity of demand for a luxury is 2.6, then the price elasticity of demand for a necessity is expected to be -perfectly elastic. -You Answered greater than 2.6. -Correct Answer less than 2.6. -equal to 2.6.
less than 2.6.
The monopolistic competition market structure is characterized by: -few firms and a homogeneous product. -Correct! many firms and differentiated products. -few firms and similar products. -many firms and a homogeneous product.
many firms and differentiated products.
The study of microeconomics and macroeconomics differ in that: -microeconomics studies the actions of households and macroeconomics studies the actions of business firms. - microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy. -microeconomics is concerned with the domestic economy and macroeconomics is concerned only with the international economy. -microeconomics examines the whole economy while macroeconomics studies the individual units of the economy.
microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.
The amount of a good that must be given up to produce another good is the concept of: - opportunity cost. -efficiency. -scarcity. -specialization
opportunity cost.
A(n) ____ can be used to demonstrate why a competitive oligopoly tends to result in a low-price strategy that does not maximize mutual profits. -Correct! payoff matrix -herfindahl index -interdependence index -gini coefficient
payoff matrix
Price elasticity of demand refers to the ratio of the: -percentage change in price of a good to a percentage increase in income. -Correct! percentage change in the quantity demanded of a good to a percentage change in its price. -percentage change in the quantity demanded of a good to a percentage change in income. -percentage change in price of a good in response to a percentage change in quantity demanded.
percentage change in the quantity demanded of a good to a percentage change in its price.
Price elasticity of demand refers to the ratio of the: -percentage change in the quantity demanded of a good to a percentage change in income. -percentage change in price of a good in response to a percentage change in quantity demanded. -Correct! percentage change in the quantity demanded of a good to a percentage change in its price. -percentage change in price of a good to a percentage increase in income.
percentage change in the quantity demanded of a good to a percentage change in its price.
The demand for the product of a competitive price-taker firm is: perfectly inelastic. -greater than zero but less than one. -dependent on the availability of substitutes -for the firm's product. -Correct! perfectly elastic.
perfectly elastic.
In the short run, a firm will stay in business as long as: -price is less than average variable cost. -marginal revenue is greater than or equal to marginal cost. -price equals average revenue. -Correct! price exceeds average variable cost
price exceeds average variable cost
In a market economy: -the distribution of wealth is equitably distributed. -collective decision-making is more important than individual decision-making. -goods and services are distributed as if by an "invisible hand" to those who can not afford them. - profit provides an incentive to be productive.
profit provides an incentive to be productive.
The Federal Reserve System: -never acts to control inflation. -was created by and is owned by the government. -Correct! pursues an independent monetary policy which can conflict with the government's economic policy. -pursues independent fiscal policy at the behest of Congress.
pursues an independent monetary policy which can conflict with the government's economic policy.
The term "balance of payments" refers to a nation's: -official reserves inflows minus outflows. -Correct! record of all international transactions. -capital inflows minus outflows. -goods exports minus imports
record of all international transactions.
Under both perfect competition and monopoly, a firm: -is a price taker. -will shut down in the short-run if price falls short of average total cost. -is a price maker. -Correct! sets marginal cost equal to marginal revenue.
sets marginal cost equal to marginal revenue.
The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is: twelve. none. Correct! seven. nine
seven.
Price ceilings set below the equilibrium create: -Correct! shortages. -externalities. -surpluses. -unemployment
shortages.
Which of the following best illustrates a perfectly competitive market? -electric power -breakfast cereal -jeans -Correct! soybeans
soybeans
Keynes called the money people hold in order to buy bonds, stocks, or other nonmoney financial assets the: -Correct! speculative demand for holding money. -unit of account demand for holding money. -precautionary demand for holding money. -transactions demand for holding money
speculative demand for holding money.
If the federal government runs a budget _______, then the national debt becomes __________. -deficit, smaller -Correct! surplus, smaller -surplus, larger -deficit, the size of the deficit
surplus, smaller
A tax levied on imported goods is called a(n): quota. foreign profits tax. excise tax. Correct! tariff
tariff
A tax levied on imported goods is called a(n): -quota. -Correct! tariff. -excise tax. -foreign profits tax
tariff.
What is the "store of value" function of money? -the function of money to be widely accepted I exchange for goods and services -a common measurement of the relative value of different goods and services -Correct! the ability of money to hold value over time -the quality of money not to be hoarded because of its commodity value
the ability of money to hold value over time
In economics, the term marginal refers to: - the change or difference from a current situation. -man-made resources as opposed to natural resources. -the satisfaction a consumer receives from a good. -holding everything else constant in the analysis.
the change or difference from a current situation.
One of the problems created by price floors set above the equilibrium is: -You Answered the effect on firm profitability. -how to cope with the shortages. -Correct Answer the creation of surplus. -firms don't have incentives to reduce costs
the creation of surplus.
GDP does not count: -spending for new homes. -state and local government purchases. -Correct! the estimated value of homemaker production. -changes in inventories
the estimated value of homemaker production.
The Keynesian analysis of fiscal policy argues that: -the federal budget should be balanced annually except during war. -fiscal policy should generally be restrictive except during inflationary booms. -You Answered fiscal policy should generally be expansionary except during periods of economic recession. -Correct Answer the federal budget should be used to maintain aggregate demand at a level consistent with full employment.
the federal budget should be used to maintain aggregate demand at a level consistent with full employment.
What is the "medium of exchange" function of money? -Correct! the function of money to be widely accepted I exchange for goods and services -a common measurement of the relative value of different goods and services -the ability of money to hold value over time -the quality of money not to be hoarded because of its commodity value
the function of money to be widely accepted I exchange for goods and services
Public goods are usually provided by: -private industry. -private citizens. -internal markets -Correct! the government.
the government.
A monopoly is: -Correct! the only seller of a good for which there are no good substitutes in a market with high barriers to entry. -the only buyer of a unique raw material. -the producer of a product subsidized by the government. -a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
When the value of our goods exports is less than the value of our goods imports, -there will be domestic unemployment. -Correct Answer there will be an unfavorable balance of trade. -the value of the dollar must fall. -You Answered foreign currency reserves must fall
there will be an unfavorable balance of trade.
If the free market is called upon to provide public goods, then: -the market will provide the optimal number of public goods. -Correct! there will be fewer public goods provided than is optimal. -the market price will be correct, and the optimal amount of output of public goods will be produced. -there will more public goods provided than is optimal
there will be fewer public goods provided than is optimal.
Losers from inflation include: -those on a fixed income and borrowers. -Correct! those on a fixed income and savers. -landlords and the government. -borrowers and the government.
those on a fixed income and savers.
A point outside the production possibilities curve represents a combination of goods that is: - unattainable. -efficient. -attainable. -inefficient.
unattainable.
Exhibit 21-2 Production possibilities curves for U.S. and Mexico As shown in Exhibit 21-2, the United States has a comparative advantage over Mexico in: -neither wheat nor cloth -Correct! wheat, but not in cloth. -both wheat and cloth. -cloth, but not in wheat.
wheat, but not in cloth.