Macroeconomics Final Exam Questions

If an agricultural market is perfectly competitive, then A. A farmer is a price taker. B. A farmer practices price discrimination. C. The market demand curve is perfectly elastic. D. Each firm's demand curve is perfectly inelastic.

A. A farmer is a price taker.

If economic profits are earned in a competitive market, then over time A. Additional firms will enter the market. B. The market supply curve will shift to the left. C. Equilibrium price will rise as more firms enter. D. Normal profit will fall to zero as more firms enter.

A. Additional firms will enter the market.

A power plant in Illinois produces electricity by burning coal. This results in acid rain that kills trees and wildlife in New York. This is an example of A. An external cost. B. Inequity. C. A public bad. D. A private cost.

A. An external cost

In a competitive market, economic profits will A. Cause existing firms to expand production. B. Potentially last a long time. C. Cause new firms to leave the market. D. Not be possible, even in the short run.

A. Cause existing firms to expand production.

If a firm can change market prices by altering its output, then it A. Has market power. B. Faces a flat demand curve. C. Is a price taker. D. Engages in marginal cost pricing.

A. Has market power.

Keynesians would recommend A. Higher taxes when there is excess aggregate demand. B. Lower government expenditures when there is a shortfall in aggregate demand. C. Reliance on the market rather than the government for adjustment when an undesirable level of aggregate demand occurs. D. Lower taxes when there is excess aggregate demand.

A. Higher taxes when there is excess aggregate demand.

Monopolistically competitive industries are characterized by all of the following except A. Homogenous products. B. Low entry barriers. C. Low concentration ratios. D. Independent production decisions.

A. Homogenous products.

A demand curve that is completely elastic is A. Horizontal. B. Vertical. C. Upward-sloping. D. Downward-sloping.

A. Horizontal.

A production function shows A. How a firm's production increases as it adds more labor. B. How a firm's costs of production increase as it produces more goods. C. How production changes as its unit costs go up. D. How total costs increase as labor is added.

A. How a firm's production increases as it adds more labor.

Marginal cost is the increase in total cost associated with a one-unit A. Increase in production. B. Decrease in production. C. Increase in input usage. D. Decrease in input usage.

A. Increase in production.

If the entire output of a market is produced by a single seller, the firm A. Is a monopoly. B. Faces perfectly inelastic demand. C. Can charge any price it wants and not lose customers. D. Is producing a new product.

A. Is a monopoly.

John Maynard Keynes argued that A. Macro failure is likely to occur, and it isn't likely to go away. B. Macro failure is unlikely to occur. C. Macro failure is likely to occur but will go away quickly. D. None of the choices are correct.

A. Macro failure is likely to occur, and it isn't likely to go away.

The doctrine of laissez faire is based on the belief that A. Markets are likely to do a better job of allocating resources than government directives. B. Government directives are likely to do a better job of allocating resources than markets. C. Government failure does not exist. D. Markets result in an unfair distribution of income.

A. Markets are likely to do a better job of allocating resources than government directives.

Utility refers to the A. Satisfaction obtained from a good or service. B. Additional satisfaction obtained from one more unit of a good or service. C. Willingness to buy specific quantities of a good or service at a particular price. D. Decrease in satisfaction as more of a good or service is consumed.

A. Satisfaction obtained from a good or service.

Which of the following gave the U.S. federal government the power to tax income? A. The Sixteenth Amendment to the Constitution. B. The Full Employment and Balanced Growth Act of 1978. C. The Social Security Act. D. The capital gains tax of the Bush administration.

A. The Sixteenth Amendment to the Constitution.

The principal mechanism for redistributing incomes is A. The tax-and-transfer system. B. Antitrust policy. C. Market power. D. The production of public goods.

A. The tax-and-transfer system.

If a manufacturer does not have to pay for its contribution to pollution, it will produce A. Too much output from a social viewpoint. B. Inefficiently from a private viewpoint. C. Unprofitably from a private viewpoint. D. At a price that is too high from a social viewpoint.

A. Too much output from a social viewpoint.

The best definition of GDP is A. The sum of the physical amounts of goods and services in the economy. B. A dollar measure of final output produced during a given time period. C. A measure of the per capita economic growth rate of the economy. D. A physical measure of the capital stock of the economy.

B. A dollar measure of final output produced during a given time period.

The term market power refers to A. A firm's ability to eliminate free riders. B. A firm's ability to alter the market price or quantity of a good or service. C. The government's ability to change market outcomes. D. The government's authority to tax businesses.

B. A firm's ability to alter the market price or quantity of a good or service.

According to Keynes, the level of economic activity is predominantly determined by the level of A. Aggregate supply. B. Aggregate demand. C. Unemployment. D. Interest rates.

B. Aggregate demand.

A natural monopoly is A. An industry that is dominated by a single firm. B. An industry in which one firm can achieve economies of scale over the entire range of market supply. C. An unregulated monopoly. D. A monopoly that always benefits society even when it is unregulated.

B. An industry in which one firm can achieve economies of scale over the entire range of market supply.

With greater deficit spending, ceteris paribus, A. Aggregate spending should fall. B. Any inflationary gap will become larger. C. There are greater leakages. D. There is inadequate information to tell what happens to aggregate spending.

B. Any inflationary gap will become larger.

Explicit costs A. Include only payments to entrepreneurship. B. Are the sum of actual monetary payments made for resources used to produce a good. C. Include the market value of all resources used to produce a good. D. Are the total opportunity costs of resources used to produce a good.

B. Are the sum of actual monetary payments made for resources used to produce a good.

The equilibrium price in a competitive market A. Ensures that anyone who wants the good can get it. B. Equates the demand for goods with the supply of goods. C. Remains unchanged forever. D. Remains unchanged only if demand doesn't change.

B. Equates the demand for goods with the supply of goods.

Deficit spending results whenever the government A. Issues bonds to finance the debt. B. Finances current expenditures that exceed current tax revenues. C. Refinances the debt. D. None of the choices are correct.

B. Finances current expenditures that exceed current tax revenues.

The use of government taxes and spending to alter economic outcomes is known as A. Monetary policy. B. Fiscal policy. C. Income policy. D. Foreign trade policy.

B. Fiscal policy.

When an economy is producing efficiently, it is A. Producing a combination of goods and services beyond the production possibilities curve. B. Getting the most goods and services from the available resources. C. Experiencing decreasing opportunity costs. D. Producing equal amounts of all goods.

B. Getting the most goods and services from the available resources.

Price elasticity of demand refers to A. How responsive producers are to a change in the cost of production. B. How sensitive buyers are to a change in price. C. How buyers respond to a change in income. D. How buyers react to a change in the price of a substitute good.

B. How sensitive buyers are to a change in price.

Which of the following is true for the agriculture market? A. The law of demand does not apply. B. Individual farmers face a horizontal demand curve. C. Individual farmers face a vertical demand curve. D. Farmers have market power.

B. Individual farmers face a horizontal demand curve.

Which of the following is true for a monopolist? A. It faces a perfectly elastic demand curve. B. It must lower its price on all of its units in order to sell any additional units. C. Its marginal revenue curve is equal to its demand curve. D. It faces many competitors.

B. It must lower its price on all of its units in order to sell any additional units.

Which of the following can be used to correct market failure? A. The market mechanism. B. Laws and regulations. C. Laissez faire price policies. D. Government failure.

B. Laws and regulations.

A concentration ratio measures the A. Proportion of industry output produced by all firms. B. Proportion of industry output produced by the largest firms. C. Dollar value of total industry output produced by all firms. D. Dollar value of total industry output produced by the largest firms

B. Proportion of industry output produced by the largest firms.

Adam Smith's invisible hand is now called A. Economic growth. B. The market mechanism. C. Opportunity cost. D. Laissez faire.

B. The market mechanism.

A demand curve that is perfectly inelastic is A. Horizontal. B. Vertical. C. Upward-sloping. D. Downward-sloping.

B. Vertical.

Which of the following is not one of the three core economic issues that must be resolved? A. How to produce the goods and services we select. B. What to produce with unlimited resources. C. Who should get the goods and services we produce. D. What to produce with limited resources.

B. What to produce with unlimited resources.

Implicit costs A. Include only payments to workers and lenders. B. Represent actual monetary payments made for resources used to produce a good such as oil. C. Are the costs to produce a good or service for which no direct payment is made. D. Are the total opportunity costs of resources and inputs used to produce a good.

C. Are the costs to produce a good or service for which no direct payment is made.

Assigning values to environmental damage is relatively A. Easy because of current scientific techniques. B. Easy because all items have a market value. C. Difficult because many items have intangible benefits and thus do not have a market price. D. Easy because the government has the legislative authority to assign prices.

C. Difficult because many items have intangible benefits and thus do not have a market price.

Accounting costs and economic costs differ because A. Accounting costs exceed economic costs whenever any factor is not paid an explicit wage. B. Accounting costs include implicit costs, and economic costs do not. C. Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays. D. Accounting costs include explicit costs, and economic costs do not.

C. Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

Which of the following is an investment decision in a competitive market? A. The shutdown decision. B. The rate of output to produce. C. Entry or exit. D. The price to charge.

C. Entry or exit.

In monopolistic competition, a firm A. Has no market power. B. Captures significant economies of scale. C. Has a downward-sloping demand curve. D. Has a standardized product that all firms produce.

C. Has a downward-sloping demand curve.

Economics can be defined as the study of A. For whom resources are allocated to increase efficiency. B. How society spends the income of individuals. C. How scarce resources are allocated on a macro level to best meet society's goals or on a micro level to best meet an individual's or firm's goals. D. None of the choices are correct.

C. How scarce resources are allocated on a macro level to best meet society's goals or on a micro level to best meet an individual's or firm's goals.

Nearly half of the federal government's tax revenues come from A. Social Security payroll taxes. B. Customs, whiskey, and tobacco taxes. C. Individual income taxes. D. Corporate income taxes.

C. Individual income taxes.

Which of the following are factors of production? A. Output in a production function. B. Productivity. C. Land, labor, capital, and entrepreneurship. D. Implicit and explicit costs.

C. Land, labor, capital, and entrepreneurship.

Which of the following characterizes monopolistic competition? A. Many interdependent firms sell a homogeneous product. B. A few firms produce a particular type of product. C. Many firms produce a particular type of product, but each maintains some independent control over its own price. D. A few firms produce all of the market supply of a good.

C. Many firms produce a particular type of product, but each maintains some independent control over its own price.

When firms have the ability to restrict output, raise prices, stifle competition, and inhibit innovation, the market failure involved is A. Public goods. B. Externalities. C. Market power. D. Inequities.

C. Market power.

In making an investment decision, an entrepreneur A. Makes a decision to exit if price is above marginal cost. B. Makes a short-run decision. C. Must consider only variable costs. D. Must take account of diminishing returns.

C. Must consider only variable costs.

The free-rider problem A. Arises from the ability to exclude an individual from the benefits of someone else's purchase. B. Is a government failure resulting from consumption of private goods. C. Reflects the inability to exclude an individual from the benefits of someone else's purchase. D. Means that the market mechanism is the most efficient way to produce public goods.

C. Reflects the inability to exclude an individual from the benefits of someone else's purchase.

The period in which at least one input is fixed in quantity is the A. Long run. B. Production run. C. Short run. D. Investment decision.

C. Short run.

If demand is perfectly elastic, A. The demand curve is vertical. B. The demand curve is very steep. C. The demand curve is horizontal. D. The demand curve has a zero slope.

C. The demand curve is horizontal.

Which of the following is the best explanation for why individuals own small businesses? A. Because they cannot earn a living working for corporate America. B. To provide a product consumers want. C. The expectation of profit. D. To gain experience for their next job.

C. The expectation of profit.

Farmers cannot individually affect market price because A. There is an infinite demand for their goods. B. Demand is perfectly inelastic for the farmer's produce. C. Their individual production is insignificant relative to the production of the market. D. The government exercises control over the market power of competitive firms.

C. Their individual production is insignificant relative to the production of the market.

The opportunity cost of working is the A. Wage rate. B. Earnings that could be made in an alternative job. C. Value of leisure time that must be given up. D. Amount of consumption that is made possible.

C. Value of leisure time that must be given up.

Labor supply can be defined as the A. Total number of people who are employable. B. Total number of people in paid employment. C. Willingness and ability of people to work at alternative wage rates in a given period of time, ceteris paribus. D. Total number of individuals who are either employed or actively seeking employment.

C. Willingness and ability of people to work at alternative wage rates in a given period of time, ceteris paribus.

Which of the following is characteristic of a perfectly competitive market? A. A small number of firms. B. Exit of small firms when profits are high for large firms. C. Zero economic profit in the long run. D. Marginal revenue lower than price for each firm.

C. Zero economic profit in the long run.

Today the federal government collects nearly A. $1 billion a year in tax revenues. B. $500 billion a year in tax revenues. C. $1 trillion a year in tax revenues. D. $3 trillion a year in tax revenues.

D. $3 trillion a year in tax revenues.

Although the necessary role of government in the economy is highly debated, many people agree that it should A. Provide a legal framework. B. Protect the environment. C. Protect consumers and labor. D. All of the choices are correct.

D. All of the choices are correct.

Which of the following is an example of government failure? A. Bureaucratic delays. B. Required use of pollution control technology that is obsolete. C. Inefficient incentives. D. All of the choices are correct.

D. All of the choices are correct.

Government intervention to alter market structure or prevent abuse of market power is the basic purpose of A. Merit goods. B. Government taxes. C. Social demand. D. Antitrust policy.

D. Antitrust policy.

Greater labor productivity means A. Lower output per labor-hour. B. Higher labor cost per unit of output. C. Lower output per worker. D. Higher output per worker.

D. Higher output per worker.

Which economist argued that free markets unleashed the "animal spirits" of entrepreneurs, propelling innovation, technology, and growth? A. Lord Kelvin. B. Kenneth Olsen. C. Irving Fisher. D. John Maynard Keynes.

D. John Maynard Keynes.

The basic factors of production include: A. Land, labor, money, and capital. B. Land, labor, money, and inputs. C. Labor and money. D. Land, labor, capital, and entrepreneurship.

D. Land, labor, capital, and entrepreneurship.

Which of the following characterizes a typical agricultural market? A. A horizontal demand curve for the industry. B. Market power on the part of each farmer. C. A downward-sloping demand curve for the firm. D. Low barriers to entry.

D. Low barriers to entry.

If oligopolists start cutting prices to capture a larger market share, the result will be A. Lower prices, decreased output, and larger profits. B. Higher prices, increased output, and larger profits. C. Lower prices, increased output, and larger profits. D. Lower prices, increased output, and smaller profits.

D. Lower prices, increased output, and smaller profits.

The profit motive can encourage businesses to do all of the following except A. Pollute the environment. B. Restrict competition. C. Provide unsafe working conditions. D. Maximize social welfare.

D. Maximize social welfare.

Which market structure is characterized by a few interdependent firms? A. Monopoly. B. Perfect competition. C. Monopolist competition. D. Oligopoly.

D. Oligopoly.

Opportunity cost is A. Measured only in dollars and cents. B. The total dollar cost to society of producing the goods. C. The difficulty associated with using one good in place of another. D. The best alternative that must be given up in order to get something else.

D. The best alternative that must be given up in order to get something else.

The market supply curve in a perfectly competitive market is usually A. Downward-sloping. B. Horizontal. C. Vertical. D. Upward-sloping.

D. Upward-sloping.

The term opportunity cost refers to the A. Value of all the alternatives given up when a good or service is produced. B. Financial costs of all the factors of production used to produce a good or service. C. Amount of resources used to produce a good but not a service. D. Value of the best alternative given up when a good or service is produced.

D. Value of the best alternative given up when a good or service is produced.