KSU Econ 110 all test versions

41) Accumulating a greater number of inputs will ensure that an economy will experience economic growth. T F

f

39) The Federal Reserve's narrowest definition of the money supply is a. M0. b. M1. c. M2. d. M3.

b. M1.

45) An economic model is a simplified version of reality used to analyze real-world economic situations. T F

t

36) Which of the following is not a factor of production? A) an acre of farmland B) a drill press in a machine shop C) the manager of the local tire shop D) $1,000 in cash

D) $1,000 in cash

8) Refer to Table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A) $2,200. B) $1,600. C) $1,400. D) $1,200.

D) $1,200.

1) Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system? A) $75 B) $175 C) $250 D) $325

D) $325

12) Refer to Table above. Using marginal analysis, determine how many hours should Lydia extend her nail salon's hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours

D) 5 hours

6) Refer to Figure above. What area represents the increase in producer surplus when the market price rises from P1 to P2? A) B + D B) A + C + E C) C + E D) A + B

D) A + B

26) In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant? A) The demand curve shifts to the right. B) The quantity demanded increases. C) The quantity demanded decreases D) The demand curve shifts to the left.

D) The demand curve shifts to the left.

3) All of the following are true statements about the multiplier except A) The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. B) The larger the MPC, the larger the multiplier. C) The multiplier is the ratio of the change in real GDP to the change in autonomous expenditure. D) The multiplier makes the economy less sensitive to changes in autonomous expenditure.

D) The multiplier makes the economy less sensitive to changes in autonomous expenditure.

30) You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true? A) There was deflation between 1990 and 2011. B) The purchasing power of your salary fell between 1990 and 2011. C) The purchasing power of your salary remained constant between 1990 and 2011. D) The purchasing power of your salary increased between 1900 and 2011.

D) The purchasing power of your salary increased between 1900 and 2011.

3) Which of the following transactions represents the purchase of a final good? A) Starbucks purchases coffee beans. B) Delta buys a new European-made jetliner. C) Apple computer buys computer processors from Intel. D) Your father buys a new John Deere riding lawn mower.

D) Your father buys a new John Deere riding lawn mower.

12) Cyclical unemployment is the result of A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs. B) the search process of matching workers with jobs. C) the ups and downs in inflation. D) a slowdown in the economy.

D) a slowdown in the economy.

40) Which of the following would encourage economic growth through increases in the capital stock? A) a change from an income tax to a consumption tax B) an increase in household saving C) a decrease in the government deficit D) all of the above

D) all of the above

5) The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that A) the value of output in 2010 was around $14.6 trillion. B) total income in 2010 was around $14.6 trillion. C) total spending in 2010 was around $14.6 trillion. D) all of the above are true.

D) all of the above are true.

16) Which of the following policies would reduce frictional unemployment? A) a decrease in the minimum wage B) a job retraining program C) implementing an unemployment insurance policy D) building an on-line job database that helps workers find jobs

D) building an on-line job database that helps workers find jobs

9) Gross domestic product understates the total production of final goods and services because of the omission of A) exports. B) inflation. C) intermediate goods. D) household production.

D) household production.

23) The percent increase in the CPI from one year to the next is a measure of the A) GDP deflator. B) unemployment rate. C) real interest rate. D) inflation rate.

D) inflation rate.

28) The "new product bias" in the consumer price index refers to the idea that A) consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers. B) consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers. C) consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers. D) new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

D) new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

18) The Bureau of Labor Statistics would categorize a retiree who is not working as A) employed. B) unemployed. C) a discouraged worker. D) out of the labor force.

D) out of the labor force.

34) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except A) engage in mutually beneficial trade with other nations. B) increase the variety of products that it can consume with no increase in resources. C) consume a combination of goods that lies outside its own production possibilities frontier. D) produce a combination of goods that lies outside its own production possibilities frontier.

D) produce a combination of goods that lies outside its own production possibilities frontier.

24) A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket A) equaled $160 in 1996. B) equaled $160 in 1983. C) rose 160% from the cost of the market basket in the base year. D) rose 60% from the cost of the market basket in the base year.

D) rose 60% from the cost of the market basket in the base year.

3) Marginal cost is A) the total cost of producing one unit of a good or service. B) the average cost of producing a good or service. C) the difference between the lowest price a firm would have been willing to accept and the price it actually receives. D) the additional cost to a firm of producing one more unit of a good or service.

D) the additional cost to a firm of producing one more unit of a good or service.

38) Which of the following is a flow in the circular flow model? A) the flow of goods and services from households to firms B) the flow of profit and the flow of revenue C) the flow of income earned by firms and the flow of expenditures earned by households D) the flow of revenue received by firms and the flow of payments to resource owners

D) the flow of revenue received by firms and the flow of payments to resource owners

2) Consumers are willing to purchase a product up to the point where A) the marginal benefit of consuming the product is equal to the marginal cost of consuming it. B) the consumer surplus is equal to the producer surplus. C) the marginal benefit of consuming the product equals the area below the supply curve and above the market price. D) the marginal benefit of consuming a product is equal to its price.

D) the marginal benefit of consuming a product is equal to its price.

24) The income effect of a price change refers to the impact of a change in A) income on the price of a good. B) demand when income changes. C) the quantity demanded when income changes. D) the price of a good on a consumer's purchasing power.

D) the price of a good on a consumer's purchasing power.

2) In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA A) simply counts the total number of goods produced in the market place and then adds them up. B) values goods at their market prices, multiplies them by the quantity produced, and then adds them up. C) simply counts the total number of goods and services produced in the marketplace and then adds them up. D) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

D) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

18) Which of the following is a result of a market economy? A) environmental protection B) an equal income distribution C) agreement on equity D) voluntary exchange

D) voluntary exchange

13) Society faces a trade-off in all of the following situations except A) when deciding who will receive the goods and services produced. B) when deciding what goods and services will be produced. C) when deciding how goods and services will be produced. D) when some previously unemployed workers find jobs.

D) when some previously unemployed workers find jobs.

25) Refer to Table above. Given the consumption schedule in the table above, the marginal propensity to save is a. 0.1. b. 0.4. c. 0.7. d. 0.9.

a. 0.1.

24) If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is a. 0.9. b. 0.8. c. 0.75. d. 0.6.

a. 0.9.

34) Which of the following is a true statement about the multiplier? a. The multiplier rises as the MPC rises. b. The smaller the MPC, the larger the multiplier. c. The multiplier is a value between zero and one. d. The multiplier effect does not occur when autonomous expenditure decreases.

a. The multiplier rises as the MPC rises.

18) Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred? a. There was an unplanned increase in inventories equal to $2 million. b. There was no unplanned change in inventories. c. There was an unplanned decrease in inventories equal to $2 million. d. There was an unplanned decrease in inventories equal to $19 million.

a. There was an unplanned increase in inventories equal to $2 million.

21) The five most important variables that determine the level of consumption are a. disposable income, wealth, expected future income, price level, and interest rate b. wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances c. government purchases, interest rates, income, taxes, and transfers d. government purchases, saving account balances, wealth, interest rates, portfolio balances

a. disposable income, wealth, expected future income, price level, and interest rate

15) The aggregate expenditure model focuses on the ________ relationship between real spending and ________. a. short-run; real GDP b. short-run; inflation c. long-run; real GDP d. long-run; inflation

a. short-run; real GDP

16) Actual investment spending does not include a. spending on consumer durable goods. b. spending on new capital equipment. c. spending on new houses. d. changes in inventories.

a. spending on consumer durable goods.

22) Examples of assets that are included in household wealth would be a. stocks, bonds, and savings accounts. b. stocks, loans owed, and savings accounts. c. stocks, bonds, and mortgages. d. stocks, credit cards, and savings accounts.

a. stocks, bonds, and savings accounts.

23) The slope of the consumption function is equal to a. the change in consumption divided by the change in disposable income. b. the change in consumption divided by the change in personal income. c. the change in disposable income divided by the change in consumption. d. the change in national income divided by the change in consumption.

a. the change in consumption divided by the change in disposable income.

31) Refer to Figure above. If the economy is at a level of aggregate expenditure given by point K, a. the economy is in equilibrium. b. production is greater than spending. c. production is less than spending. d. inventories will increase above their desired level.

a. the economy is in equilibrium.

20) If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? a. Inventories will decline, and GDP and employment will decline. b. Inventories will rise, and GDP and employment will decline. c. Inventories will decline, and GDP and employment will rise. d. Inventories will rise, and GDP and employment will rise.

b. Inventories will rise, and GDP and employment will decline.

17) If inventories decline by more than analysts predict they will decline, this implies that a. actual investment spending was greater than planned investment spending. b. actual investment spending was less than planned investment spending. c. actual investment spending was equal to than planned investment spending. d. there is no relationship between actual investment spending and planned investment spending.

b. actual investment spending was less than planned investment spending.

27) If firms are more optimistic that future profits will rise and remain strong for the next few years, then a. investment spending will fall. b. investment spending will rise. c. investment spending will remain unaffected. d. investment spending will rise and then fall.

b. investment spending will rise.

30) On the 45-degree line diagram, for points that lie below the 45-degree line, a. planned aggregate expenditure is greater than GDP. b. planned aggregate expenditure is less than GDP. c. planned aggregate expenditure is equal to GDP. d. planned aggregate expenditure is less than aggregate income.

b. planned aggregate expenditure is less than GDP.

38) Which of the following functions of money would be violated if inflation were high? a. unit of account b. store of value c. certificate of gold d. medium of exchange

b. store of value

19) At macroeconomic equilibrium, a. total investment equals total inventories. b. total spending equals total production. c. total consumption equals total production. d. total taxes equal total transfers.

b. total spending equals total production.

2) A general formula for the multiplier is A) . B) . C) . D) .

c

37) Which of the following is one of the most important benefits of money in an economy? a. Money allows for the exchange of goods and services. b. Money allows for the accumulation of wealth. c. Money makes exchange easier, leading to more specialization and higher productivity. d. Money encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability.

c. Money makes exchange easier, leading to more specialization and higher productivity.

28) ________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding. a. Consumer spending b. Planned investment c. Net Exports d. Unplanned investment

c. Net Exports

26) If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will a. increase consumption by $7,500. b. increase consumption by $2,500. c. decrease consumption by $7,500. d. decrease consumption by $2,500

c. decrease consumption by $7,500.

33) If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then a. the multiplier is 0.125. b. the multiplier is 3.5. c. the multiplier is 8. d. the multiplier is 50.

c. the multiplier is 8.

32) Refer to Figure above. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP? a. $9 million b. $10 million c. $90 million d. $100 million

d. $100 million

40) Refer to Scenario above. M2 in this simple economy equals a. $3,000. b. $8,000. c. $14,000. d. $21,000.

d. $21,000.

36) In economics, money is defined as a. the total value of one's assets in current prices. b. the total value of one's assets minus the total value of one's debts, in current prices. c. the total amount of salary, interest, and rental income earned during a year. d. any asset people generally accept in exchange for goods and services.

d. any asset people generally accept in exchange for goods and services.

14) The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by a. investment spending. b. export spending. c. government spending. d. the level of aggregate expenditure.

d. the level of aggregate expenditure.

35) John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending, a. this may benefit the economy in the short run, but not in the long run. b. the economy will benefit in the short run and benefit by an even greater amount in the long run. c. this will have a major negative impact on the economy in both the short run and in the long run. d. this may benefit the economy in the long run, but could be counterproductive in the short run.

d. this may benefit the economy in the long run, but could be counterproductive in the short run.

41) Any output combination outside a production possibility frontier is associated with unused or underutilized resources. T F

f

42) If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters. T F

f

42) Potential GDP is the maximum output a firm is capable of producing. T F

f

43) Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports. T F

f

43) If a country produces only two goods, it is possible to have a comparative advantage in the production of both those goods. T F

f

44) The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household. T F

f

45) Nominal income is equal to real income if the CPI is less than 100. T F

f

45) When the dollar becomes stronger compared to the Japanese Yen, then the Japanese imports from the U.S. will increase. T F

f

46) Economies cannot function without money. T F

f

46) One desirable outcome of a market economy is that it leads to a more equitable distribution of income. T F

f

47) Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy. T F

f

47) The amount of national income in an economy equals the money supply in an economy. T F

f

48) An increase in the number of firms in a market will cause the quantity of a good supplied to increase. T F

f

48) Liquidity increases as we move from the M1 to the M2 definition of the money supply. T F

f

49) Efficiency wage is another name for the minimum wage. T F

f

49) If gold is used as money in an economy, the money supply is easy to control. T F

f

50) Commodity money can be used only as a medium of exchange. T F

f

50) The minimum wage is an example of a price ceiling. T F

f

50) Transfer payments are subtracted from national income to get to personal income. T F

f

41) If the marginal propensity to save is 0.4, the multiplier is 2.5. T F

t

42) Money will fail to serve as a medium of exchange if it ceases to be a store of value. T F

t

43) An increase in the real interest rate will decrease consumption and investment. T F

t

44) In a free market there are virtually no restrictions, or at best few restrictions on how factors of production can be employed. T F

t

44) When Jack's income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to consume is 0.85. T F

t

46) If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant. T F

t

47) Chips and salsa are complements. If the price of salsa decreases, the demand for chips will increase. T F

t

48) The natural rate of unemployment consists of frictional unemployment plus structural unemployment. T F

t

49) If the demand curve for a product is vertical, any tax increase on the product is paid for entirely by the consumer. T F

t

7) Refer to Figure above. What is the value of the deadweight loss at a price of $18? A) $100 B) $180 C) $660 D) $1,040

A) $100

11) DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package? A) $20 B) $30 C) $60 D) $60 plus the value of his time

A) $20

34) If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita? A) 4.7% B) 10.5% C) 15% D) 21%

A) 4.7%

4) ________ consumption is consumption that does not depend upon the level of GDP. A) Autonomous B) Induced C) Voluntary D) Disposable

A) Autonomous

35) Refer to Figure above. Which country has a comparative advantage in the production of cotton? A) Indonesia B) They have equal productive abilities. C) Pakistan D) neither country

A) Indonesia

29) In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the U.S.? A) The supply curve shifted to the left. B) The supply curve shifted to the right. C) The demand curve shifted to the right. D) The demand curve shifted to the left.

A) The supply curve shifted to the left.

20) Which of the following is a macroeconomics question? A) What determines the inflation rate? B) What determines the production of DVDs? C) What factors determine the price of carrots? D) What determines the wage of auto workers?

A) What determines the inflation rate?

37) If consumers decide to be more thrifty and save more out of their income, then this will cause A) a shift in the supply curve for loanable funds to the right. B) a shift in the supply curve for loanable funds to the left. C) a movement to the right along the supply curve for loanable funds. D) a movement to the left along the supply curve for loanable funds.

A) a shift in the supply curve for loanable funds to the right.

25) If an increase in income leads to a decrease in the demand for popcorn, then popcorn is A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.

A) an inferior good.

22) The law of demand implies, holding everything else constant, that A) as the price of bagels increases, the quantity of bagels demanded will decrease. B) as the price of bagels increases, the demand for bagels will decrease. C) as the price of bagels increases, the quantity of bagels demanded will increase. D) as the price of bagels increases, the demand for bagels will increase.

A) as the price of bagels increases, the quantity of bagels demanded will decrease.

27) The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket. A) change; over-estimates B) change; under-estimates C) do not change; over-estimates D) do not change; under-estimates

A) change; over-estimates

11) A student who just graduated from college but has not found a job would most likely be A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) seasonally unemployed.

A) frictionally unemployed.

7) In the United States since the mid-1980s, consumption as a percentage of GDP has A) increased. B) slowly decreased. C) remained the same. D) dropped by more than half.

A) increased.

1) During a business cycle expansion, total production ________ and total employment ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A) increases; increases

13) A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A) increases; increases

36) The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds. A) lower; greater; greater B) lower; smaller; greater C) greater; greater; greater D) greater; smaller; greater

A) lower; greater; greater

32) Since 1900, real GDP in the United States has grown A) more rapidly than the population. B) more slowly than the population. C) as rapidly as the population. D) in a random unpredictable manner relative to the population.

A) more rapidly than the population.

30) If a firm has an incentive to increase supply now and decrease supply in the future, the firm expects that the A) price of its product will be lower in the future than it is today. B) price of its product will be higher in the future than it is today. C) price of inputs will be lower in the future than they are today. D) demand for the product will be lower in the future than it is today.

A) price of its product will be lower in the future than it is today.

13) If cyclical unemployment is eliminated in the economy, then A) the economy is considered to be at full employment. B) the unemployment rate is below the natural rate of unemployment. C) the unemployment rate is above the natural rate of unemployment. D) the economy is at less than full employment.

A) the economy is considered to be at full employment.

21) The average price of goods and services in the economy is also known as A) the price level. B) the inflation rate. C) a market basket. D) the cost of living.

A) the price level.

23) A change in all of the following variables will change the market demand for a product except A) the price of the product. B) population and demographics. C) income. D) tastes.

A) the price of the product.

26) If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on A) the producer price index. B) the consumer price index. C) the GDP deflator. D) the household price index.

A) the producer price index.

27) If, in the market for oranges, the supply has increased then A) the supply curve for oranges has shifted to the right. B) the supply curve for oranges has shifted to the left. C) there has been a movement upwards along the supply curve for oranges. D) there has been a movement downwards along the supply curve for oranges.

A) the supply curve for oranges has shifted to the right.

29) To reduce the bias in the consumer price index, the Bureau of Labor Statistics A) updates the market basket every two years, rather than every 10 years. B) updates the market basket every 10 years, rather than every two years. C) incorporates substitutions by consumers when prices of specific products rise rapidly. D) incorporates substitutions by consumers when prices of specific products fall rapidly.

A) updates the market basket every two years, rather than every 10 years.

9) Bank reserves include A) vault cash and deposits with the Federal Reserve. B) loans to bank customers and deposits with the Federal Reserve. C) vault cash and loans to bank customers. D) customer checking accounts and vault cash.

A) vault cash and deposits with the Federal Reserve.

10) Refer to Figure above. What is the value of consumer surplus after the imposition of the ceiling? A) $120,000 B) $230,000 C) $270,000 D) $430,000

B) $230,000

4) Refer to Table above. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals A) $7,400. B) $6,400. C) $5,800. D) 2,440 units.

B) $6,400.

21) What is the difference between an "increase in demand" and an "increase in quantity demanded"? A) There is no difference between the two terms; they both refer to a shift of the demand curve. B) An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve. C) There is no difference between the two terms; they both refer to a movement downward along a given demand curve. D) An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve.

B) An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.

39) Refer to Figure above. One segment of the circular flow diagram in the figure shows the flow of goods and services from market C to economic agents A. What is market C and who are economic agents A? A) C = factor markets; A = households B) C = product markets; A = households C) C = factor markets; A = firms D) C= product markets; A = firms

B) C = product markets; A = households

5) How does a decrease in government spending affect the aggregate expenditure line? A) It shifts the aggregate expenditure line upward. B) It shifts the aggregate expenditure line downward. C) It increases the slope of the aggregate expenditure line. D) It decreases the slope of the aggregate expenditure line.

B) It shifts the aggregate expenditure line downward.

38) Refer to Figure above. Which of the following is consistent with the graph depicted above? A) An expected recession decreases the profitability of new investment. B) Technological change increases the profitability of new investment. C) The government runs a budget surplus. D) Households become spendthrifts and begin to save less.

B) Technological change increases the profitability of new investment.

12) Open market operations refer to the purchase or sale of ________ to control the money supply. A) corporate bonds and stocks by the Federal Reserve B) U.S. Treasury securities by the Federal Reserve C) corporate bonds and stocks by the U.S. Treasury D) U.S. Treasury securities by the U.S. Treasury

B) U.S. Treasury securities by the Federal Reserve

6) An example of business fixed investment spending is A) a purchase of a home by a household. B) a purchase of a computer by an accounting firm. C) a purchase of a bond by General Electric Corporation. D) $200 million of unsold cars at a car dealership.

B) a purchase of a computer by an accounting firm.

6) Economies where goods and services are traded directly for other goods and services are called ________ economies. A) trade B) barter C) direct D) seigniorage

B) barter

29) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could A) raise the required reserve ratio. B) buy Treasury securities. C) raise the discount rate. D) lower bank taxes.

B) buy Treasury securities.

8) The largest proportion of M1 is made up of A) currency. B) checking account deposits. C) traveler's checks. D) savings account deposits.

B) checking account deposits.

37) The ________ demonstrates the roles played by households and firms in the market system. A) production possibilities frontier B) circular flow model C) theory of comparative advantage D) business cycle

B) circular flow model

10) A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will A) increase GDP and increase well being in the economy. B) increase GDP and decrease well being in the economy. C) decrease GDP and increase well being in the economy. D) decrease GDP and decrease well being in the economy.

B) increase GDP and decrease well being in the economy.

19) Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would A) increase the measured unemployment rate. B) increase the measured labor force participation rate. C) decrease the number of persons in the labor force. D) decrease the number of persons in the working-age population.

B) increase the measured labor force participation rate.

31) Technological advances generally result in A) decreased incomes. B) increased life expectancy. C) increased infant mortality rates. D) increased average number of hours worked per day.

B) increased life expectancy.

7) Fiat money has A) little to no intrinsic value but is backed by the quantity of gold held by the central bank. B) little to no intrinsic value and is authorized by the central bank or governmental body. C) value, because it can be redeemed for gold by the central bank. D) a great intrinsic value that is independent of its use as money.

B) little to no intrinsic value and is authorized by the central bank or governmental body.

11) If the central bank can act as a lender of last resort during a banking panic, banks can A) call in their loans to their customers and eventually restore the public's faith in the banking system. B) satisfy customer withdrawal needs and eventually restore the public's faith in the banking system. C) borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system. D) encourage the public to borrow directly from the central bank, and this will worsen the banking panic.

B) satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.

14) The advice to "retrain" would be most appropriate for which of the following types of unemployment? A) frictional unemployment B) structural unemployment C) cyclical unemployment D) core unemployment

B) structural unemployment

17) The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect A) it is more likely that an incumbent president will be re-elected. B) that stock prices are more likely to fall. C) that jobs are less difficult to find. D) that investors will be more optimistic about the economy.

B) that stock prices are more likely to fall.

40) The term "property rights" refers to A) the physical possession of a house or any other property which the owner legally purchased. B) the ability to exercise control over one's own resources within the confines of the law. C) the government's right to appropriate land from wealthy land owners to redistribute to peasants. D) the right of a business not to have its assets confiscated by the government in the event that the business is accused of committing fraud.

B) the ability to exercise control over one's own resources within the confines of the law.

5) The total amount of producer surplus in a market is equal to A) the difference between quantity supplied and quantity demanded. B) the area above the market supply curve and below the market price. C) the area above the market supply curve. D) the area between the demand curve and the supply curve below the market price.

B) the area above the market supply curve and below the market price.

28) One would speak of a change in the quantity of a good supplied, rather than a change in supply, if A) supplier expectations about future prices change. B) the price of the good changes. C) the cost of producing the good changes. D) prices of substitutes in production change.

B) the price of the good changes.

16) Who receives the most of what is produced in a market economy? A) lawmakers and other politically favored groups B) those who are willing and able to buy them C) everyone receives an equal amount D) people who earn the highest incomes

B) those who are willing and able to buy them

32) Refer to Figure above. If the economy is currently producing at point Y, what is the opportunity cost of moving to point W? A) 2 million tons of steel B) zero C) 9 million tons of paper D) 16 million tons of paper

B) zero

10) If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to A) $100. B) $1,000. C) $10,000. D) $100,000.

C) $10,000.

4) Refer to Figure above. If the market price is $1.00, what is Arnold's consumer surplus? A) $1.00 B) $2.00 C) $4.00 D) $8.00

C) $4.00

20) Refer to Table above. The labor force participation rate for this simple economy equals A) (1,000/1,100) × 100. B) (1,000/15,000) × 100. C) (1,100/15,000) × 100. D) (1,100/20,000) × 100.

C) (1,100/15,000) × 100.

35) Refer to Table above. Using the table above, what is the approximate average annual growth rate from 2008 to 2011? A) 1% B) 1.5% C) 2% D) 3%

C) 2%

25) Refer to Table above. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to A) 1.2 percent. B) 2.0 percent. C) 2.5 percent. D) 4.0 percent.

C) 2.5 percent.

8) ________ is maximized in a competitive market when marginal benefit equals marginal cost. A) Deadweight loss B) Marginal profit C) Economic surplus D) Selling price

C) Economic surplus

33) Refer to Table above. Which of the following statements is true? A) Haley has an absolute advantage in making both products. B) Serena has an absolute advantage in making both products. C) Haley has an absolute advantage in making bracelets and Serena in making necklaces. D) Haley has an absolute advantage in making necklaces and Serena in making bracelets.

C) Haley has an absolute advantage in making bracelets and Serena in making necklaces.

19) Which of the following is a positive economic statement? A) People should not buy SUVs. B) The government should mandate electric automobiles. C) Scarcity necessitates that people make trade-offs. D) Foreign workers should not be allowed to work for lower wages than the citizens of a country.

C) Scarcity necessitates that people make trade-offs.

9) Rent control is an example of A) a subsidy for low-skilled workers. B) a price floor. C) a price ceiling. D) a black market.

C) a price ceiling.

15) Which of the following would increase the unemployment rate? A) a law making it illegal to work more than 35 hours per week B) a cut in unemployment compensation C) an increase in unemployment insurance payments D) a decrease in the minimum wage

C) an increase in unemployment insurance payments

14) Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision? A) zero, since she will no longer be earning a salary B) It depends on the "going rate" for home-care providers. C) at least $125,000 D) the value she attributes to the satisfaction she receives from taking care of her parents

C) at least $125,000

22) The consumer price index is the A) cost of a market basket of goods and services typically consumed in the base year. B) cost of a market basket of goods and services typically consumed in the current period. C) average of the prices of the goods and services purchased by a typical urban family of four. D) average of the prices of new final goods and services produced in the economy over a period of time.

C) average of the prices of the goods and services purchased by a typical urban family of four.

15) The decision about what goods and services will be produced made in a market economy is made by A) lawmakers in the government voting on what will be produced. B) producers deciding what society wants most. C) consumers and firms choosing which goods and services to buy or produce. D) consumers dictating to firms what they need most.

C) consumers and firms choosing which goods and services to buy or produce.

39) The response of investment spending to an increase in the government budget deficit is called A) expansionary investment. B) private dissaving. C) crowding out. D) income minus net taxes.

C) crowding out.

17) Productive efficiency is achieved when A) firms add a low profit margin to the goods and services they produce. B) firms produce the goods and services that consumers value most. C) firms produce goods and services at the lowest cost. D) there are no shortages or surpluses in the market.

C) firms produce goods and services at the lowest cost.

33) If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011 A) is 3.0%. B) is 3.6%. C) is 3.75%. D) cannot be determined from the information given.

C) is 3.75%.

31) If society decides it wants more of one good and all resources are fully utilized, then A) it is unable to do this unless technology advances. B) additional resource supplies will have to be found. C) it has to give up some of another good and incur some opportunity costs. D) more unemployment will occur.

C) it has to give up some of another good and incur some opportunity costs.

1) If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP, then A) the MPC is 0.5. B) the MPC is 0.75. C) the MPC is 0.8. D) the MPC is 0.9.

C) the MPC is 0.8.