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Macro exams

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The legal requirement that commercial banks hold required reserves equal to some fraction of their deposits a. limits the ability of banks to expand the money supply by extending additional loans. b. prevents runs on banks by depositors who fear that banks have insufficient assets to meet the claims of their depositors. c. prevents the Fed from controlling the money supply since commercial banks can always offset the actions of the Fed. d. limits the ability of the Treasury to expand the national debt.

The primary source of purchasing power used to buy imported goods is a. the exports of a nation. b. the balance of payments deficit. c. taxation and other revenue-generating activities. d. the monetary sector.

U.S. imports are a. not added to U.S. GDP because they are produced abroad b. added to U.S. GDP because they are consumed domestically c. added to U.S. GDP because they represent an increase in inventories d. not added to U.S. GDP because they are intermediate goods e. added to U.S. GDP as government purchases because the government decides what goods may be imported

What does the expression "There's no such thing as a free lunch" mean? a. The use of resources to produce a good has an opportunity cost because of scarcity. b. Each person must pay for exactly what he or she receives. c. You cannot have a free lunch at the expense of someone else. d. If one person gains, someone else must lose.

What will happen if the demand for bicycles increases? a. Quantity supplied will increase. b. Equilibrium price will decrease and equilibrium quantity will increase. c. The quantity demanded will decrease. d. Equilibrium price will increases and equilibrium quantity will decrease. e. Quantity supplied will decrease.

What will people do because information is costly to acquire? a. They will rationally choose not to become fully informed when making decisions. b. They will generally choose to become as fully informed as possible when making decisions. c. They will generally choose to acquire no information that would be relevant to their decisions. d. None of the above are true.

When an economy is in long run equilibrium, a. the actual and natural rates of unemployment will be equal. b. the foreign exchange value of the dollar will tend to appreciate. c. the interest rate will decline. d. it will be impossible to sustain the current rate of output in the future.

When competition is present and property rights secure, people will be encouraged to a. provide others with things that they value in exchange for income. b. pay the lowest possible wages. c. Invest in other countries where markets are less competitive and property rights less secure. d. plunder the resources of others.

Which of the following attributes of fiscal policy will most likely be stressed by a supporter of supply-side economics? a. the impact of marginal tax rates on the supply and productivity of resources b. the impact of government spending on aggregate demand, output, and employment c. the impact of budget deficits on interest rates and aggregate demand d. the impact of budget deficits on the rate of taxation in the future

Which of the following is a major deficiency of fiscal policy as a stabilization tool? a. Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly. b. The Constitution requires the president to submit and Congress to pass a balanced budget. c. Congress is reluctant to make changes in either taxes or expenditures. d. A change in fiscal policy exerts major effects on the economy quickly.

Which of the following is true regarding private ownership? a. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others. b. With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource. c. Relative to common ownership, private ownership generally leads to less conservation of resources. d. Private ownership generally gives the owner little incentive to find ways to use the resource wisely.

Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources? a. Central planning and political bargaining will replace market forces. b. Individual preferences are of no importance. c. Economic equality will result. d. Decentralized decision making is inevitable.

Which of the following would be most likely to cause the per capita income of less-developed countries to rise? a. investment expenditures that enhance the human capital of labor force participants b. an international minimum wage law c. more rapid population growth d. development of strong labor unions

Which of the following would most likely increase the supply of beef? a. lower prices of grains used to feed cattle b. new medical research suggesting that beef causes more serious health problems than was previously thought c. an increase in the cost of transporting beef products to the consumer market d. lower prices for chicken, a substitute for beef

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output, a. lower resource prices and declining interest rates will direct the economy back to full employment. b. the natural rate of unemployment will increase. c. higher resource prices and rising interest rates will direct the economy back to full employment. d. long-run aggregate supply will increase.

which of the following most clearly distinguishes between positive and normative economics? a. Positive economics is the study of the facts; normative economics is concerned with what ought to be. b. Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products. c. Positive economics is the study of what ought to be; normative economics is concerned with the facts. d. Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce.

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago. Given this scenario, which of the following is true? a. Her real and nominal salary have fallen. b. Her real salary has fallen and her nominal salary has risen. c. Her real salary has risen and her nominal salary has fallen. d. Her real and nominal salary have risen.

According to data on GDP growth between 1980 and 2009, which of the following statements is true? a. Most of the world's rapidly growing countries were located in Africa. b. Many poor nations grew more rapidly than wealthy nations, while others continued to stagnate. c. Poor nations grew rapidly, while the rich nations stagnated. d. Poor nations stagnated, while the rich nations continued to grow.

As the dollar appreciates, which of the following is most likely to occur? a. American firms will reduce their purchases of financial assets abroad. b. More Americans will travel abroad. c. American imports will fall. d. More foreigners will visit the United States.

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is its ability to a. produce goods and services that people value. b. use coercive force against adults to modify their behavior or force them to pay for a good or service. c. direct resources in a manner that serves the public interest rather than the private interest of individuals. d. escape the constraints imposed by scarcity.

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates. a. lower; more rapid b. higher; more rapid c. lower; less rapid d. higher; less rapid

Democracy tends to best promote freedom when there is a. unrestrained executive and legislative majority power. b. constitutional protection of private property rights. c. a large and centralized government sector. d. all of the above.

Economic analysis suggests that gains from specialization and exchange a. will not be realized unless business firms employ economists when making decisions about the proper combination of resources to utilize in the production process. b. will be realized if individuals are allowed to pursue goals that are in their own self-interest. c. will not be realized unless a central planning authority requires that all goods be produced by the low opportunity cost supplier. d. will be realized if individuals place the public interest above the pursuit of their own self-interest.

For a college student who wishes to calculate the true costs of going to college, the costs of room and board a. should be counted in full, regardless of the costs of eating and sleeping elsewhere. b. should be counted only to the extent that they are more expensive at college than elsewhere. c. usually exceed the opportunity cost of going to college. d. plus the cost of tuition, equals the opportunity cost of going to college.

Government spending programs that create jobs are often popular because a. the benefits of job creation are always greater than the costs. Jobs are the key to economic progress. b. the created jobs are highly visible, while the secondary effects of lost jobs in other areas, higher interest rates, and higher future taxes are less visible. c. if a spending program is approved by Congress, it means that the value of what is produced is greater than the value of the resources used to produce it. d. when spending programs are funded by the government there are no secondary effects.

If Shawn can produce more donuts in one day than Sue can produce in one day, then a. Sue has a comparative advantage in the production of donuts. b. Shawn has an absolute advantage in the production of donuts. c. Shawn has a comparative advantage in the production of donuts. d. Shawn should produce donuts and Sue should spend her time on a different activity.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made? a. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. b. The country will be an importer of the good. c. The country will be an exporter of the good. d. The country will be neither an exporter nor an importer of the good.

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment? a. The unemployment rate will increase, causing the economy's aggregate supply curve to shift to the right. b. Resource prices will increase, causing the SRAS curve to shift to the left c. Improvements in technology will the shift the LRAS curve to the right. d. Interest rates will decline, shifting the aggregate demand curve to the right.

If the Fed unexpectedly decreases the money supply, real GDP a. increases because the resulting decrease in the interest rate leads to an increase in investment. b. decreases because the resulting increase in the interest rate leads to a decrease in investment. c. decreases because the resulting decrease in the interest rate leads to an increase in investment. d. increases because the resulting increase in the interest rate leads to a decrease in investment. e. decreases because the resulting increase in the interest rate leads to an increase in investment.

The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes a. people to be extremely reluctant to "waste" their votes on a third-party candidate. b. voters to have little incentive to become informed about candidates and political issues. c. voters to spend a great deal of effort becoming informed about candidates and political issues. d. the percent of people who actually turn out to cast a vote on election day to be very high.

The fallacy of composition is the incorrect view that a. when two events are associated, the one observed first must have caused the second. b. if something is true for an individual, then it must also be true for the group. c. everything else is always held constant when a change occurs. d. a small change in an economic variable will have unrecognizable but significant consequences on the economy.

The major overall purpose of the Federal Reserve System is to a. regulate the levels of excess reserves held by member banking institutions. b. regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy. c. insure the deposits of persons holding funds with banking institutions. d. keep the discount rate flexible.

The shortsightedness effect suggests that a. voters will tend to weigh future costs and benefits more heavily than current costs and benefits. b. politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future. c. legislators will be unwilling to trade votes on issues, especially when those issues benefit only special interest groups. d. politicians have a strong incentive to support projects that yield benefits in the distant future, especially when the costs of the project must be paid for in the current period.

The theory of comparative advantage suggests that nations should produce a good if they a. have the most resources. b. have the lowest opportunity cost. c. can produce more of the good than any other nation. d. have the lowest wages.

What is the effect on GDP if a used car dealer purchases a used car for $3,000, refurbishes it, and sells it for $8,000? a. The dealer contributes nothing to production because only existing goods are involved. b. The dealer contributes value added equal to $5,000, and consequently $5,000 is added to GDP. c. The dealer contributes value added equal to $5,000, but nothing is added to GDP. d. The dealer contributes value added equal to $8,000, but only $5,000 is added to GDP.

When an expansionary monetary policy leads to an acceleration in the rate of inflation, it will also result in a. lower money wages. b. higher nominal interest rates. c. an appreciation of the dollar in the foreign exchange market. d. lower nominal interest rates.

When output is greater than the economy's long-run capacity, which of the following is most likely to occur? a. A reduction in the general level of prices. b. Increases in real interest rates and real resource prices. c. A reduction in imports. d. An abnormally high rate of unemployment.

When the economy is operating at an output rate less than full-employment capacity, a. a strong demand for resources will cause resource prices to rise. b. weak demand for investment will place downward pressure on real interest rates. c. actual unemployment will be less than the natural rate of unemployment. d. the rate of inflation will tend to rise.

Which of the following about international trade is true? a. Most international trade is between the governments of different nations. b. In recent decades, the volume of U.S. international trade has been increasing as a share of the economy. c. As transportation costs decline, the volume of international trade will also tend to decline. d. If one party to an international exchange gains, the other party must lose a similar amount.

Which of the following best describes the economic way of thinking? a. A set of historical generalizations that indicates what goods should be produced. b. A set of basic concepts that helps one understand human choices. c. A body of statistical data that indicates how an economy should be organized. d. A set of complex, highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make.

Which of the following best explains why high marginal tax rates reduce GDP? a. High marginal tax rates will encourage foreign investment. b. High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently. c. High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods. d. High marginal tax rates will reduce budget deficits and lower interest rates.

Which of the following best represents the effects of a decrease in the price of tomato juice, other things being equal? a. A rightward shift in the demand curve for tomato juice. b. A downward movement along the demand curve for tomato juice. c. A leftward shift in the demand curve for tomato juice. d. An upward movement along the demand curve for tomato juice.

Which of the following is a major implication of the invisible hand concept? a. Prosperity cannot be achieved unless the selfish nature of people can be changed. b. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. c. Competition is harmful to the health of an economy because it results in wasteful duplication. d. Government-operated firms tend to have higher efficiency and lower costs than private sector firms.

Which of the following is true of private ownership? a. Private owners can do anything they want with the things they own regardless of the damage it does to the property of others. b. Private ownership links responsibility with the right of control. c. Private owners have little incentive to conserve natural resources for the future. d. Private owners have little incentive to develop and use their assets in ways others value.

Which of the following is true regarding the concept of full employment? a. It is based on the premise that an economy with an efficient labor market will experience no unemployment. b. It reflects the "shopping" of employees looking for employment and of employers seeking to hire workers. c. It indicates that full employment is present when the actual rate of unemployment is below the natural rate. d. It reflects the impact of an economic contraction.

Which of the following is true when an economy is operating at its full employment rate of output? a. The rate of unemployment will be zero. b. The actual rate of unemployment will equal the natural rate. c. The economy's potential rate of output will exceed actual GDP. d. Output will exceed the economy's maximum sustainable rate.

Which of the following statements about exchange is true? a. Exchange always results in one party being made better off and the other being made worse off. b. Exchange tends to move each good toward those individuals who value the good more highly. c. If everyone starts off with the same quantities of each good, it would be impossible to realize gains from trade. d. For trade to occur, everyone must start off with the same value of the good that is traded.

Which of the following statements about real GDP per person is true? a. Real GDP per person in the current period minus real GDP per person from the previous period equals the growth rate of real GDP per person. b. Real GDP per person provides more meaningful comparisons across time and countries than real GDP. c. Real GDP per person provides a less useful measure of the standard of living than nominal GDP per person. d. All of the above are correct.

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case? a. The multiplier effect b. The crowding-out effect c. Expansionary monetary policy d. None of the above is correct.

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply? a. An increase in the natural rate of unemployment. b. An increase in real GDP. c. An increase in the actual rate of unemployment. d. An increase in the general level of prices.

Which of the following would be expected if the tariff on foreign-produced automobiles were increased? a. The domestic price of automobiles would fall. b. The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise. c. The number of unemployed workers in the domestic automobile industry would rise. d. The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations.

Which of the following would cause prices and real GDP to rise in the short run? a. Aggregate demand shifts left. b. Aggregate demand shifts right. c. Short-run aggregate supply shifts right. d. Short-run aggregate supply shifts left.

Which of the following would most likely cause both a decrease in the price of plasma screen TVs and a decrease in the number sold? a. a decrease in the supply of plasma screen TVs b. a decrease in the demand for plasma screen TVs c. an increase in the demand for plasma screen TVs d. an increase in the supply of plasma screen TVs

Why is GDP not a perfect measure of welfare? a. It double counts the value of leisure time b. It treats a dollar spent on candy bars the same as a dollar spent on education c. It treats a dollar spent on exports the same as a dollar spent on imports d. It double counts depreciation e. It counts illegal activities in the underground economy

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy? a. Instituting a tax policy encouraging consumption at the expense of investment b. Instituting a tax policy encouraging investment at the expense of consumption c. An increase in the marginal income tax rate, which would reduce the work effort of individuals d. Passage of legislation reducing the workweek to 30 hours

A shift to a more expansionary monetary policy will a. Stimulate output and employment, but only after a time lag that is generally long and variable. b. reduce the future rate of inflation. c. increase the long-term growth rate of the economy. d. Stimulate output and employment almost immediately.

According to Adam Smith, individual self-interest a. is a powerful force for economic progress when it is directed by competitive markets. b. is a powerful force for economic progress when individuals are wisely directed by a strong central government. c. could be either a positive or negative force for economic progress, depending on the moral influences of political leaders. d. is a major factor in retarding the economic progress of humankind

According to the Economic Freedom of the World measure, the United States was a. the third freest economy in the world, behind only Hong Kong and Singapore during 1980-2000. b. the freest economy in the world during 1980-2000. c. less free than Australia and Canada throughout the 1980-2000 era. d. less free than the large economies of Western Europe throughout the 1980-2000 era.

According to the invisible hand principle, competitive markets generally a. bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent. b. require central direction; otherwise, the actions of self-interested individuals will conflict with the general interests of society. c. bring the self-interest of individuals into harmony with the efficient allocation of resources when the behavior of individuals is directed by democratic centralized planning. d. promote the economic welfare of self-interested producers at the expense of unorganized groups such as consumers and taxpayers.

An individual should continue to spend time searching for a job as long as a. the marginal benefit expected from additional search exceeds the marginal cost. b. all salary offers are below what the person expected. c. information is available that the individual has not yet collected. d. job openings are available in the individual's field.

Because of a late night out with friends, Libby decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was a. rational if Libby values sleep more highly than the benefit she expects to receive from attending the class. b. irrational, because oversleeping is not in Libby's self-interest. c. irrational, because economic analysis suggests you should always attend classes that you have already paid for. d. rational only if Libby has not missed any other classes.

Economic debates that focus on the distribution of a nation's income are generally associated with which basic economic question? a. For whom will the goods be produced? b. How is production going to be organized? c. What resources will be utilized in the productive process? d. What goods will be produced?

From the standpoint of society as a whole, rent seeking is a. counterproductive because it takes resources away from the creation of wealth in the private sector. b. counterproductive because it fails to alter public policy. c. productive because each interest group gains more than they spend on rent-seeking activities. d. productive because the resources used in rent seeking have no opportunity cost to society.

If a surplus exists in a market we know that the actual price is a. above equilibrium price and quantity supplied is greater than quantity demanded. b. below equilibrium price and quantity demanded is greater than quantity supplied. c. above equilibrium price and quantity demanded is greater than quantity supplied. d. below equilibrium price and quantity supplied is greater than quantity demanded.

If the Fed unexpectedly increases the money supply, real GDP a. increases because the resulting decrease in the interest rate leads to an increase in investment. b. increases because the resulting increase in the interest rate leads to a decrease in investment. c. decreases because the resulting increase in the interest rate leads to a decrease in investment. d. decreases because the resulting increase in the interest rate leads to an increase in investment. e. decreases because the resulting decrease in the interest rate leads to an increase in investment.

If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will a. reduce the size of the deposit expansion multiplier. b. increase the size of deposit expansion multiplier. c. reduce the size of the deposit expansion multiplier during a period of inflation and increase it during a recession. d. reduce the money supply during a period of inflation and increase it during a recession.

In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects? a. Both the benefits and costs are widespread among voters. b. The costs are highly concentrated, and the benefits are widespread among voters. c. The benefits accrue primarily in the future, while the costs are more visible during the current period. d. The benefits are highly concentrated, and costs are widespread among voters.

In which one of the following situations is the political process most likely to result in both the acceptance of efficient (productive) programs and the rejection of inefficient (counterproductive) political activities? a. The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives. b. The benefits are highly concentrated, and the costs are widespread among voters. c. The benefits accrue primarily in the future, while the costs are more visible during the current period. d. The costs are highly concentrated, and the benefits are widespread among voters.

International trade does all the following except a. reduce world output. b. allow a country to specialize in producing certain goods and services. c. allow a country to move to higher consumption levels. d. increase world output.

Obstacles that restrict trade, either domestic or international, will a. reduce output, income, and the general living standard of the populace. b. help people achieve higher income levels. c. encourage domestic business firms to expand output so they can achieve larger gains from the adoption of mass production techniques. d. help promote high rates of economic growth.

One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2009? a. Per capita GDP increased more rapidly in China and India than in the high income industrial countries. b. China grew more rapidly than the high income industrial countries, but India grew less rapidly. c. India grew more rapidly than the high income industrial countries, but China grew less. d. Per capita GDP increased less rapidly in China and India than in the high income industrial countries.

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has a. caused GDP to rise. b. probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted. c. caused GDP to fall. d. not caused any change in GDP.

Public choice theory assumes each voter will tend to support the political candidate who offers a. to provide the voter with the most personal benefits at the least personal cost. b. programs with the largest benefits to society. c. the highest potential for being a good leader in times of war. d. programs that create the most equal distribution of income.

Suppose demand increases and supply decreases. Which of the following will happen? a. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. b. The change in equilibrium price and quantity cannot be determined. c. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. d. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. e. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank? a. There is initially no change in the supply of money; your bank's excess reserves are reduced by $800. b. There is initially no change in the supply of money; your bank's excess reserves are reduced by $200. c. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $200. d. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $800.

Suppose, in dollar terms, nominal GDP increased approximately 4 percent during a given year, and real GDP decreased 1 percent. Which of the following best explains these events? a. Prices increased approximately 5 percent. b. The money supply increased approximately 4 percent. c. Prices increased approximately 4 percent. d. Prices decreased approximately 3 percent.

Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. a. The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent. b. The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 1 percent. c. The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. d. The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent.

The actual rate of unemployment will be greater than the natural rate of unemployment when a. the actual output is less than the economy's potential output. b. the inflation rate has been relatively constant for several years. c. the actual output is equal to the economy's potential output. d. the actual output is greater than the economy's potential output.

The crowding-out effect suggests that a. budget deficits that lead to higher interest rates reduce private investment spending. b. expansionary fiscal policy will be a highly effective weapon for fighting a recessionary downturn c. restrictive fiscal policy is an effective weapon against inflation. d. a budget surplus will cause the demand for loanable funds to decline, interest rates to rise, and aggregate demand to decrease.

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for a. a reduction in the ability of banks to extend additional loans. b. a gradual increase in the money supply, following the trend of the previous decade. c. a sharp contraction in the money supply, which is likely to increase the length and severity of the recession. d. a rapid increase in the money supply, potentially leading to inflation.

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that a. government policy can improve the performance of the economy. b. recessions will be lengthy, and high rates of unemployment will persist for a period of time even after the economy recovers. c. market economies are inherently unstable. d. a market economy has a self-correcting mechanism that will help guide it toward full employment.

The value of a good a. depends on the labor necessary to supply the good. b. can be measured objectively by a survey of manufacturers of the good. c. is determined by the cost of producing it. d. depends on many factors, including who uses it and under what circumstances.

What has income per person done during the past 200 years? a. It increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800. b. It increased in the developed countries of Western Europe and North America, but declined in the rest of the world. c. It declined in the developed countries of Western Europe and North America, but increased in the rest of the world. d. It increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.

When economists say the quantity demanded of a product has increased, they mean the a. demand curve has shifted to the left. b. demand curve has shifted to the right. c. price of the product has risen, and consequently, consumers are buying less of it. d. price of the product has fallen, and consequently, consumers are buying more of it.

When the consumer price index rises, the typical family a. can spend fewer dollars to maintain the same standard of living. b. can offset the effects of rising prices by saving more. c. finds that its standard of living is not affected. d. has to spend more dollars to maintain the same standard of living.

When the economy is operating at an output rate below its full-employment level, the a. current rate of output will tend to persist into the future. b. strong demand for resources will cause resource prices to rise. c. actual unemployment rate will be less than the natural rate of unemployment. d. actual level of unemployment will exceed the natural rate of unemployment.

Which of the following best expresses the central idea of countercyclical fiscal policy? a. Planned deficits are experienced during economic expansionary periods and planned surpluses during economic recessions. b. The balanced-budget approach is the proper criterion for determining annual budget policy. c. Actual deficits should equal actual surpluses during a period of deflation. d. Deficits are planned during economic recessions, and surpluses are utilized to restrain expansionary periods.

Which of the following indicates the primary mechanism by which the money supply expands? a. The U.S. government purchases additional gold. b. The U.S. Treasury prints additional currency. c. The public decides to hold more currency rather than checking deposits. d. The Fed purchases additional bonds, which increases the reserves available to the banking system.

Which of the following is a key characteristic of economic freedom? a. institutions and policies supportive of voluntary exchange b. freedom to compete c. protection of people and their property from aggressors d. all of the above

Which of the following is important if a country is going to achieve and sustain high rates of economic growth? a. investment in physical and human capital b. improvements in technology c. institutional and policy arrangements consistent with economic efficiency d. All of the above.

Which of the following is most likely to result in an increase in crony capitalism? a. An increase in the share of the population voting in elections. b. A reduction in the size of government. c. A reduction in entry barriers and an increase in the competitiveness of markets. d. An increase in government spending and growth of government regulation.

Which of the following is true of modern technology? a. Improvements in technology have propelled the production possibilities and living standards of people in North America, Western Europe, and several other parts of the world. b. In low-income countries, proven technologies can be either emulated or imported at a low cost. c. Often, perverse institutions and policies in low-income countries undermine the gains from improvements in technology. d. All of the above.

Which of the following occurs when a shortage occurs in the market for a good? a. Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. b. Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption. c. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. d. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

Which of the following provides the fuel for growth and achievement of high income levels? a. gains from trade b. entrepreneurial discovery c. capital formation d. all of the above

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy? a. It would raise the discount rate. b. It would force the Treasury to reduce the national debt. c. It would increase the reserve requirements. d. It would buy U.S. securities.

Which of the following would cause prices to fall and output to rise in the short run? a. Aggregate demand shifts left. b. Aggregate demand shifts right. c. Short-run aggregate supply shifts left. d. Short-run aggregate supply shifts right.

Why do political instability and insecure property rights retard economic growth? a. Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth. b. When property rights are insecure, foreign investors will be reluctant to invest in the country. c. Savings will tend to flow out of a country if individuals fear their property is insecure. d. All of the above are correct.

Why does a tax change affect aggregate demand? a. A tax change alters saving by an equal amount. b. A tax change alters government spending by an equal amount. c. A tax change alters imports and net exports. d. A tax change alters disposable income and consumption spending

Why must criteria for rationing goods and resources be established? a. Because of the inability of politicians to develop efficient forms of economic organization. b. Because of the use of capitalism as a form of economic organization. c. Because of the law of comparative advantage. d. Because scarcity is imposed by nature.

Within the framework of the Keynesian model, a. changes in prices rather than changes in output direct the economy to equilibrium. b. the economy will continually be in equilibrium. c. changes in interest rates and resource prices will direct the economy to equilibrium. d. changes in output rather than changes in prices direct the economy to equilibrium.

According to the Economic Freedom of the World measure, between 2000 and 2009 what happened to the economic freedom of the United States? a. It decreased, but the U.S. was still the freest economy in the world in 2009. b. It was largely unchanged and the U.S. remained the third freest economy in the world, behind only Hong Kong and Singapore. c. It declined and its rank fell from third to tenth during this period. d. It increased, and the U.S. became the freest economy in the world during this decade.

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate? a. Balancing the budget. b. Reducing government expenditures. c. A planned increase in the budget deficit. d. A change in government spending and taxation that will lead to a budget surplus.

An unexpected increase in the supply of money will a. lead to a higher rate of unemployment in the short run. b. reduce aggregate demand and real output in the short run. c. reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses. d. increase only the general level of prices in the short run.

As methods of economic organization, the market and the public sector are similar in which of the following ways? a. In both sectors, economic exchange is completely voluntary. b. In both sectors, economic activity is undertaken only when it satisfies the criterion for economic efficiency. c. Someone must cover the cost associated with the provision of scarce goods in both sectors. d. Income and power are distributed equally in both sectors.

At a price of $5, Sam buys 10 units of a product; when the price increases to $6, Sam buys 8 units. Which of the following is correct about Sam's behavior? a. Sam's demand has increased, and his quantity demanded has decreased. b. Sam's demand has decreased. c. Sam's quantity demanded has decreased, and his demand has not changed. d. Sam's quantity demanded has increased, and his demand has increased. e. Sam's demand has increased.

Economic analysis suggests that bureaucrats and public-sector managers have a strong incentive to a. make sure that their budgets are as small as possible so more funds will be available for other government programs. b. ensure that their budgets are exactly the size that would be considered economically efficient. c. expand their budgets to sizes beyond what would be considered economically efficient. d. economize on their spending and return unspent funds to the general treasury.

Expansionary fiscal policy during a recession is most effective when it a. provides members of Congress with large political contributions. b. creates jobs, even if they are on unproductive projects. c. directs the economy to full employment and resources into productive projects. d. substantially changes the composition of aggregate demand.

Historically, Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because a. an increase in government spending can quickly be reversed once the economy has recovered. b. there are fewer adverse side effects to an increase in government spending. c. all of the spending will add to aggregate demand, but a portion of the tax cut will be saved. d. government spending will stimulate aggregate demand more quickly than a tax cut.

If Crusoe and Friday want to maximize their consumption possibilities, a. Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. b. Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. c. Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. d. both individuals should strive for self-sufficiency, which always maximizes output.

If Georgia experiences a late frost that damages the peach crop, we should expect the a. supply curve for peaches to shift to the right and the price of peaches to fall. b. demand curve for peaches to shift to the right and the price of peaches to rise. c. supply curve for peaches to shift to the left and the price of peaches to rise. d. demand curve for peaches to shift to the left and the price of peaches to fall.

If you deposit $100 of cash into a checking account at a bank, this action by itself a. increases the money supply. b. decreases the money supply. c. does not change the money supply. d. has an undetermined effect on the money supply; it may rise or it may fall.

Imagine that there are only two nations in the world, the United States and Mexico. Ceteris paribus, what will happen if Americans buy more goods made in Mexico? a. U.S. supply curve of Mexican pesos will shift leftward. b. U.S. demand curve for Mexican pesos will shift leftward. c. U.S. demand curve for Mexican pesos will shift rightward. d. U.S. supply curve of Mexican pesos will shift rightward.

In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product? a. government regulations b. licensing by industrial development agencies c. the profit or loss of the business d. the taxes paid to the government relative to the subsidies received

Public choice analysis indicates a. politicians under representative democracy are led as if by an invisible hand to adopt legislation that enhances the wealth of a nation. b. political structures consistent with economic efficiency tend to emerge naturally from the ordinary political process. c. constitutional rules establishing procedures and limiting the ability of the political process to engage in redistributive activities can improve the economic efficiency of government. d. all of the above are correct.

Public choice analysis indicates a. politicians will consistently oppose programs favored by rent seekers if those programs reduce the welfare of society. b. most income transfers will be directed toward the poor. c. rent seeking will be less attractive if the nation's legal (or constitutional) structure makes it difficult to use the political process to take the property or income of others. d. rent-seeking activities will improve the efficiency of resource allocation and promote economic growth

Steve values his Honda Accord at $10,000, and Jennifer values it at $14,000. If Jennifer buys it from Steve for $11,000, which of the following is true? a. Steve gains $10,000 of value, and Jennifer loses $14,000 of value. b. Steve and Jennifer both gain $11,000 of value. c. Steve gains $1,000 of value, and Jennifer gains $3,000 of value. d. Steve gains $11,000 of value, and Jennifer loses $11,000 of value.

Supply-side economics stresses that high marginal tax rates a. are the key to maintaining a balanced budget. b. encourage people to work, supply resources, and use them more efficiently. c. discourage people from working harder and using their resources productively. d. are an effective short-run countercyclical tool to promote recovery from a recession.

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy? a. A higher level of real output. b. A lower price level. c. A higher price level. d. A lower level of real output. e. Both a higher price level and a higher level of real output.

The expenditure multiplier indicates that a. an increase in saving will cause output to rise by a multiple of the additional saving. b. the marginal propensity to consume is greater than one. c. changes in investment, government, or consumption spending can trigger much larger changes in output. d. a market economy will be more stable than classical economists thought.

The term market always refers to a. a single buyer and seller of a particular good or service. b. an arrangement in which buyers and sellers meet at a specific time and place. c. a group of buyers and sellers of a particular good or service. d. an arrangement in which an auctioneer plays at least a limited role in setting prices.

Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate a. increases, and the labor-force participation rate decreases. b. decreases, and the labor-force participation rate is unaffected. c. increases, and the labor-force participation rate is unaffected. d. is unaffected, and the labor-force participation rate increases.

When full employment is present, a. the actual rate of unemployment will be less than the actual rate. b. the actual rate of unemployment will exceed the natural rate. c. the actual rate of unemployment will equal the natural rate. d. everyone who would like to have a job will be employed.

When is the economy considered to be at full employment? a. When frictional plus structural unemployment is less than the natural rate. b. When structural unemployment is zero. c. When the rate of cyclical unemployment is zero. d. When the actual rate of unemployment is less than the natural rate. e. When the leading economic indicators are unchanged for two consecutive quarters.

When the Federal Reserve System wants to increase the money supply, what does it typically do? a. It increases the required reserve ratio. b. It sells bonds on the open market. c. It purchases U.S. government securities. d. It increases the discount rate.

When the actual rate of unemployment is less than the natural rate of unemployment, the economy a. operates at its maximum sustainable output. b. operates at an output less than its long-run potential. c. operates at an output greater than its long-run potential. d. must also be experiencing stable prices (zero inflation).

Which of the following about trade is true? a. Countries will have a higher standard of living when they produce as many goods as possible domestically. b. Countries that have a lot of resources, like the United States, are always hurt by trade. c. Specialization and trade leads to mutual gains for countries. d. Protectionism (i.e., policies that limit trade in certain goods) promotes both economic prosperity and greater employment.

Which of the following arguments in support of trade restrictions limiting U.S. dependence on foreign suppliers of petroleum and aircraft is most valid when applied to the United States? a. the industrial diversity argument b. the infant-industry argument c. the national defense argument d. the comparative advantage argument

Which of the following is a basic problem with the infant-industry argument? a. The amount of the tariff is unlikely to have much impact on the success of an infant industry. b. Domestic consumers will continue to buy the foreign products anyway, regardless of the tariff. c. Political pressure will likely prevent the withdrawal of the tariff when the industry matures. d. Most industries need protection when they are mature, not when they are first established.

Which of the following is the strongest evidence of a shift toward a more expansionary fiscal policy? a. An increase in government spending as a share of the economy and a shift of the budget toward a surplus b. A reduction in government spending as a share of the economy and a shift of the budget toward a surplus c. An increase in government spending as a share of the economy and an expansion in the size of the budget deficit d. A reduction in government spending as a share of the economy and an expansion in the size of the budget deficit

Which of the following is true In an informed and voluntary exchange? a. Neither party can gain more than the other. b. One trader can gain only at the expense of the other. c. Both parties receive something they value more than what they gave up. d. Both parties place an equal value on what they received and what they gave up.

Which of the following is true for the developing countries that moved most rapidly toward economic freedom during 1980-2005 period? a. They grew less rapidly, but the reductions in the poverty rates were greater than those achieved in countries that were less free. b. They experienced both slower rates of economic growth and smaller reductions in poverty rates than countries that were less free. c. They experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free. d. They achieved higher rates of economic growth, but the reductions in their poverty rates were smaller than those for countries that were less free.

Which of the following is true if the actual price level is lower than the expected price level reflected in long-term contracts? a. The actual rate of unemployment will be less than the natural rate of unemployment. b. The natural rate of unemployment will rise. c. The actual rate of unemployment will exceed the natural rate of unemployment. d. The natural rate of unemployment will fall.

Which of the following most accurately indicates the political incentive to spend and/or tax? a. Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents. b. Voters will generally support higher taxes in order to eliminate budget deficits. c. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes. d. Politicians will find tax increases more attractive than increases in government expenditures.

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply? a. The dollar value of the bonds issued by the U.S. Treasury b. The federal funds interest rate that commercial banks pay (and receive) for short-term loanable funds c. The reserve requirements mandated by the Fed d. The number of commercial bank charters issued by the Fed

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization? a. a stable monetary system b. competitive markets c. imposition of tariffs and other barriers limiting international trade d. a legal structure that establishes secure property rights

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could a. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. b. decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. c. increase the interest rate paid on excess reserves encouraging banks to extend more loans. d. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.

If a customer deposits $1,000 cash into her checking account, the bank's a. assets rise by $1,000 and liabilities fall by $1,000. b. profits rise by $1,000. c. assets and liabilities both fall by $1,000. d. assets and liabilities both rise by $1,000. e. assets fall by $1,000 and liabilities rise by $1,000.

If a nation is going to achieve and sustain a high rate of economic growth, it must a. have an abundant domestic supply of low cost energy resources. b. prohibit low-wage foreign producers from supplying goods to the domestic market. c. impose regulations that will limit the intensity of competition among domestic firms. d. have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

If both borrowers and lenders anticipate the rate of inflation correctly, then a. lenders will lose real income. b. borrowers will lose real income. c. both borrowers and lenders will lose real income. d. neither borrowers nor lenders will lose real income.

If net exports are negative, then a. there will be net capital outflow, so foreign assets bought by Americans are greater than American assets bought by foreigners. b. there will be net capital outflow, so American assets bought by foreigners are greater than foreign assets bought by Americans. c. there will be net capital inflow, so foreign assets bought by Americans are greater than American assets bought by foreigners. d. there will be net capital inflow, so American assets bought by foreigners are greater than foreign assets bought by Americans.

If net exports are positive, then a. there will be net capital inflow, so foreign assets bought by Americans are greater than American assets bought by foreigners. b. there will be net capital outflow, so American assets bought by foreigners are greater than foreign assets bought by Americans. c. there will be net capital inflow, so American assets bought by foreigners are greater than foreign assets bought by Americans. d. there will be net capital outflow, so foreign assets bought by Americans are greater than American assets bought by foreigners.

If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent, the a. price level must have increased approximately 2 percent compared to the prior year. b. price level must have decreased approximately 50 percent compared to the prior year. c. unemployment rate must have increased during the year. d. price level must have decreased approximately 2 percent compared to the prior year.

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to a. reduce unemployment. b. increase inflation. c. increase real output. d. increase real interest rates.

If the Federal Reserve increases its bond purchases, the short-run effects will be a. an increase in the money supply and higher real interest rates. b. a decrease in the money supply and higher real interest rates. c. a decrease in the money supply and lower real interest rates. d. an increase in the money supply and lower real interest rates.

If the government cuts the tax rate, workers get to keep a. less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. b. more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. c. less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. d. more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

If there is both an increase in the supply of a good and a decrease in demand for a good, which of the following will definitely occur? a. The equilibrium quantity will decrease. b. The equilibrium quantity will increase. c. The price of the good will increase. d. The price of the good will decrease.

In a competitive market economy, a resource in short supply will be allocated a. by government regulation. b. so that each firm gets enough to keep producing some portion of its output. c. according to how much each firm purchased before the shortage. d. to those firms that can make the most profitable use of it.

In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates, which of the following is likely to occur? a. There will be a net outflow of capital, which will cause the dollar to appreciate and net exports to decline. b. There will be a net outflow of capital, which will cause the dollar to depreciate and net exports to increase. c. There will be a net inflow of capital, which will cause the dollar to depreciate and net exports to increase. d. There will be a net inflow of capital, which will cause the dollar to appreciate and net exports to decline.

In order to achieve a high economic freedom rating, a country must a. provide secure protection of privately owned property and evenhanded enforcement of contracts. b. refrain from creating barriers that limit domestic and international trade. c. rely more fully on markets rather than governments to allocate goods and resources. d. all of the above.

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy? a. An increase in prices proportional to the increase in the money supply. b. A decrease in real output. c. An improvement in technology, which will stimulate growth in the long run. d. An increase in real output

In which statement(s) are "supply" and "quantity supplied" used correctly? (I) "An increase in the price of computers will increase the quantity supplied of computers." (II) "A technological advance that lowers the cost of producing computers will increase the supply of computers." a. in statement II only b. in neither statements I nor II c. in statement I only d. in both statements I and II

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find a. it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. b. it more attractive to raise taxes than to increase spending. c. budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion. d. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion.

Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises? a. The opportunity cost of producing alfalfa increases. b. There will be no change in the opportunity cost of producing hay. c. The opportunity cost of producing hay decreases. d. The opportunity cost of producing hay increases.

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the a. rejection of both productive and unproductive activities. b. acceptance of both productive and unproductive activities. c. rejection of productive activities and acceptance of unproductive activities. d. acceptance of productive activities and rejection of unproductive activities.

Suppose demand decreases and supply increases. Which of the following will happen? a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. b. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. c. The change in equilibrium price and quantity cannot be determined. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.

Suppose people gain more confidence in the banking system so they hold relatively less currency and deposit more into checking accounts. What will happen to bank reserves and the money supply? a. Bank reserves will decrease and the money supply will eventually increase. b. Bank reserves will increase and the money supply will eventually decrease. c. Bank reserves will decrease and the money supply will eventually decrease. d. Bank reserves will increase and the money supply will eventually increase.

The difference between positive economic statements and normative economic statements is that a. positive statements are based on opinion while normative statements are based on fact b. positive statements are true and normative statements are often false c. positive statements are often false and normative statements are true d. positive statements are based on fact while normative statements are based on opinion e. both b and d.

The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation can grow rapidly without which of the following? a. Adopting modern technology. b. Significant capital formation. c. Securely defined property rights. d. Abundant domestic natural resources.

Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage nations if a. labor productivity is higher in the low-wage nation b. skill levels are identical in the nations c. low-wage nations impose tariffs on U.S. made goods d. the U.S. reduces tariffs on imports e. labor productivity is higher in the U.S.

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if a. the government purchases goods with the additional revenue. b. the higher taxes lead workers to seek out a second job. c. the higher taxes cause people to save less. d. the government uses the additional revenue to retire some of the federal debt. e. the higher taxes cause workers to work less.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could a. increase the interest rate paid on excess reserves encouraging banks to extend more loans. b. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. c. decrease the interest rate paid on excess reserves encouraging banks to extend more loans. d. decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate a. by altering the size of the federal budget deficit or surplus. b. through its policy of open market operations. c. by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed. d. by having the U.S. Treasury fix this interest rate.

If the Federal Reserve wanted to expand the money supply in order to increase output, it should a. increase the discount rate, which will raise the market rate of interest; this will cause both costs and prices to rise. b. buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise. c. sell government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise. d. decrease taxes, which will reduce costs and cause prices to fall.

If the nominal interest rate was 12 percent and the inflation rate was 10 percent in 1980, while the nominal interest rate was 7 percent and the inflation rate was 2 percent in 2009, then a. credit was more expensive in 1980. b. real rates were higher in 2009. c. real rates were higher in 1980. d. credit was cheaper in 2009 because the nominal rate was lower.

If this year the CPI is 110 and last year it was 100, then a. the cost of the CPI basket of goods and services has increased this year by 110 percent. b. the price level as measured by the CPI has increased by 10 percent. c. the inflation rate for this year has increased by 10 percent over last year's inflation rate. d. All of the above are correct.

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take? a. Take milk from government storage and sell it. b. Encourage farmers to produce less milk. c. Subsidize purchases of dairy equipment. d. Encourage farmers to produce more milk.

In order to prosper, what must entrepreneurs do? a. Find ways to prevent technological change. b. Undertake projects that create wealth and increase the value of resources. c. Undertake projects that use resources that are more valuable than is the output they produce. d. Have their own wealth with which to finance projects that they want to undertake.

In the Keynesian view, equilibrium takes place when a. the money supply is growing at a constant rate. b. the level of total spending in the economy is equal to current output. c. current output is equal to the economy's long-run potential. d. the real and nominal interest rates are equal.

In which of the following situations is representative democracy most likely to lead to the adoption of an inefficient government program? a. Both the benefits and costs of the program are widespread among voters. b. The program provides substantial benefits to a small interest group, and the costs are widespread among voters. c. The program provides widespread benefits to all voters and imposes a significant cost on a small interest group. d. The program is financed by a user charge that makes the individuals who benefit from the program pay for its cost.

Monetary and price instability will a. encourage domestic citizens to increase their rate of saving. b. generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment. c. encourage businesses to invest and expand their future output. d. make it easier for both individuals and businesses to plan wisely for the future.

Other things being equal, the effect of a decrease in the price of orange juice would be illustrated by which of the following? a. A leftward shift in the demand curve for orange juice. b. An increase in the quantity demanded for orange juice. c. A rightward shift in the demand curve for orange juice. d. A decrease in the quantity demanded orange juice.

Other things constant, countries that invest more will grow a. at exactly 2% per year. b. more rapidly. c. less rapidly. d. at the same rate.

Public choice theory indicates that the behavior of people in government a. differs from the behavior of people in the private sector because they are motivated by the public interest rather than their own personal self-interest. b. is best understood by applying the same principles we use to predict the behavior of people in the private sector. c. differs from the behavior of people in the private sector because public sector decision roles do not allow people to pursue their own self-interests. d. is the same as people in the private sector only if decisions are made by majority vote.

Sally is on a temporary layoff from her factory job. If Sally participates in the BLS survey, she will be classified as a. employed and in the labor force. b. unemployed and in the labor force. c. employed and out of the labor force. d. unemployed and out of the labor force.

The GDP figures fail to count labor services and other household production. Once this omission is taken into account, a. the income differences between the high and low income countries are small. b. the income differences between the high and low income countries are still huge. c. the differences in living standards between the high and low income countries are small. d. the life expectancy in the high and low income countries is approximately the same.

The expansionary phase of the business cycle is characterized by a. decreasing real output and increasing unemployment. b. increasing real output and declining unemployment. c. increasing real output and increasing unemployment. d. decreasing real output and declining unemployment.

Which of the following statements concerning economic growth is true? a. Without foreign aid, poor countries are unable to break the cycle of poverty, low savings and investment, and economic stagnation. b. The United States is rich because it has democratic political institutions. c. Economic growth is primarily the result of gains from trade, discovery of better ways of doing things, and capital investment. d. Most all countries with an abundance of natural resources have been able to achieve rapid growth and high levels of per capita income.

Which of the following will most likely occur in the United States as the result of an unexpected rapid growth in real income in Canada and Mexico? a. A decrease in the natural rate of unemployment in the United States. b. A reduction in the price level. c. An increase in aggregate demand and output in the short run. d. An reduction in aggregate demand and output in the short run.

Why is globalization becoming more of a worldwide phenomenon? a. Trade hurts workers in poor countries. b. More countries want to become self-sufficient. c. Technological advancements are decreasing transportation costs. d. Less-developed countries are increasing their trade restrictions.

Why is the natural rate of unemployment not zero? a. Not every member of society is capable of participating in the labor force. b. Unemployment will always rise during the recessionary phase of the business cycle. c. The economy is characterized by dynamic change and imperfect information. d. Some workers will always have few skills.

if we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a. a decrease in the demand for the good. b. an increase in the supply of the good. c. an increase in the demand for the good. d. a decrease in the supply of the good.

According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery? a. Repayment of the debt can always be shifted to the future, making it possible to keep tax rates low and thereby strengthen the recovery. b. Higher interest payments will increase future government spending, and thereby promote a stronger the recovery. c. The increase in government spending will exert a multiplier effect on the economy, leading to a stronger recovery. d. Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery

According to the Keynesian view, if purchasers buy more goods and services than businesses expect, a. the current level of income would persist in the future. b. firms would reduce their investment, and the economy would fall into a recession. c. the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level. d. the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels

According to the Keynesian view, the proper response to a severe recession would be a. a shift toward a restrictive monetary policy to reduce aggregate demand. b. an increase in taxes in order to reduce the budget deficit. c. reliance on automatic stabilizers to direct the economy toward full employment. d. an increase in government spending financed by borrowing.

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve? a. A movement from a point on the curve to a point outside the curve b. A movement from one point to another point along the curve c. A movement from a point on the curve to a point inside the curve d. An outward shift of the curve

Compared to the no-trade situation, when a country imports a good, which of the following will occur? a. Domestic consumers gain, but domestic producers lose an equal amount. b. Domestic consumers gain, domestic producers lose, and the losses outweigh the gains. c. Domestic consumers lose, domestic producers gain, and the gains outweigh the losses. d. Domestic consumers gain, domestic producers lose, and the gains outweigh the losses.

Compared to those in low-income countries, the residents of countries with high per person incomes nearly always a. live longer. b. have a lower illiteracy rate. c. have a lower infant mortality rate. d. all of the above.

Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average, a. a large import sector. b. a large export sector. c. high rates of economic growth. d. low rates of economic growth.

Countries with more economic freedom during 1980-2009 tended to do which of the following? a. Grow more rapidly, but the 2009 income levels of the freer economies were still lower than those that were less free. b. Achieve higher levels of income but the growth rates of the less free economies have been more rapid in recent years. c. Grow less rapidly and the 2009 income levels of the freer economies were lower than those that were less free. d. Achieve both more rapid growth and higher income levels than those that were less free.

During an expansionary period, a. the actual rate of unemployment will equal the natural rate of unemployment. b. widespread unemployment will cause inflation to increase. c. the actual rate of unemployment will exceed the natural rate of unemployment. d. the output of the economy will exceed its long-run potential output.

Economic growth will have which of the following effects? a. Increase real output, but the real income level of the country will decline. b. Increase an economy's nominal income, but not its real income. c. Reduce the future real GDP of an economy. d. Expand the production possibilities of an economy.

Economically speaking, tariffs are a. a means to promote economic efficiency. b. necessary to keep the industries of an economy healthy. c. the same as import quotas. d. obstacles that limit voluntary exchange.

Economists use the term ceteris paribus to indicate which of the following? a. Supply and demand are in balance. b. Their conclusions are based on normative economics rather than positive economic analysis. c. The analysis is true for the individual but not for the economy as a whole. d. Other things are assumed to be constant.

For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be a. an increase in both the general level of prices and real output. b. a decrease in both the general level of prices and real output. c. an increase in real output and a decrease in the general level of prices. d. a decrease in real output and an increase in the general level of prices.

How do high marginal tax rates affect the economic prosperity of a nation? a. They reduce the incentive of individuals to earn reported income. b. They encourage the nation's most productive citizens to emigrate to countries where taxes are lower. c. They discourage foreigners from investing in the country. d. All of the above are correct.

How does an open capital market affect a nation's economic growth? a. It channels capital into productive projects and away from wasteful projects. b. It rewards investors who find the most productive projects and invest in them. c. It makes the lowest-cost capital available from around the world. d. All of the above.

How will increased usage of the Internet by employers and employees influence the job search process? a. It will make job-related information more costly and, therefore, tend to reduce the rate of unemployment. b. It will make job-related information less costly and, therefore, tend to increase the rate of unemployment. c. It will make job-related information more costly and, therefore, tend to increase the rate of unemployment. d. It will make job-related information less costly and, therefore, tend to reduce the rate of unemployment.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, which of the following conclusions can be made? a. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. b. The country will be neither an exporter nor an importer of the good. c. The country will be an importer of the good. d. The country will be an exporter of the good.

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