Econ 1 Combine

A

A technological improvement in producing good A would be graphically illustrated as a shift in the a. supply curve for A to the right. b. supply curve for A to the left. c. demand curve for A to the right. d. demand curve for A to the left.

D

Refer to Exhibit 3-14. If price P1 is a price ceiling, then a. there is a surplus in this market. b. the highest price that can be charged legally in this market is P3. c. the price at which exchange legally takes place is P2. d. the price at which exchange legally takes place is P1. e. both a and b

B

A business cycle refers to the a. continued expansion in Real GDP. b. recurrent swings (up and down) in Real GDP. c. continued decline in Real GDP. d. period when Real GDP grows at unusually high rates. e. none of the above

C

A change in labor productivity affects __________ and a change in the exchange rate affects __________. a. SRAS; SRAS b. AD; AD c. SRAS; AD d. AD; SRAS e. none of the above

C

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation? a. The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price. b. The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase. c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase. d. The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.

B

A quota is a a. tax on an imported good. b. legal limit on the amount of a good that may be imported. c. legal limit on the price of a good that may be imported. d. subsidy to domestic producers of a good whose substitute is imported. e. all of the above

E

Refer to Exhibit 3-14. If price P3 is a price ceiling, then a. the price ceiling is not effective. b. the price at which exchange takes place is P3. c. the price at which exchange takes place is P2. d. there is a shortage in this market. e. both a and c

A

Refer to Exhibit 3-14. Price P1 a. can be an effective price ceiling. b. can be an effective price floor. c. is the equilibrium price. d. both a and c e. none of the above

D

Refer to Exhibit 3-2. Which of the following would result in a movement from point A on D1 to point B on D2? a. There was a decrease in the price of a substitute. b. There was an increase in the price of a complement. c. There was an improvement in production technology. d. There was an increase in the number of buyers.

B

Refer to Exhibit 9-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n) a. inflationary gap. b. recessionary gap. c. unemployment gap. d. high Real GDP gap. e. none of the above

A

I argued in class that there is no such thing as a rip off. A. True B. False

B

"Every year the football season opens and, within a few months, winter starts. The opening of the football season causes winter." These statements reflect a. the fallacy of composition. b. a failure to recognize that association is not causation. c. a failure to consider the problem of secondary effects. d. sound logical reasoning.

B

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements a. are essentially correct. b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. c. contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. d. contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

C

If a person worked at least 15 hours per week as an "unpaid" worker on a family farm, how is she classified? a. as not in the labor force b. as an unemployed person c. as an employed person d. none of the above

C

According to public choice theory, tariffs, quotas, and other trade restrictions are primarily the result of the a. political clout of foreigners. b. political clout of domestic consumers. c. political power of special interest groups. d. political desire for economic efficiency.

C

An economy is producing its Natural Real GDP when the rate of unemployment is equal to the __________ unemployment rate. a. frictional b. structural c. sum of the frictional unemployment rate and the structural d. seasonal e. cyclical

A

Compared to a no-trade situation, if Italy imported wine, a. the price of domestic Italian wine would decline. b. Italian wine producers would increase their prices. c. Italian wine producers would increase their profits. d. domestic wine production in Italy would expand.

B

Dumping refers to a country a. imposing a retaliatory tariff against the subsidized products of a foreign country. b. selling a good abroad at a price that is below its cost and lower than the price charged in the domestic market. c. selling a good abroad at a price that is above its cost and higher than the price charged in the domestic market. d. a and c e. all of the above

B

In Figure 3-12, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D1 to D2? a. an increase in the price of milk, an ingredient used to produce ice cream b. an increase in the price of frozen yogurt, a substitute for ice cream c. a decrease in the price of sugar, an ingredient used to produce ice cream d. a decrease in consumer income

C

Juan lost his job as a nuclear physicist working for a defense contractor. He can not find a job because no firms in the defense industry or any other industry are hiring people with his skills. Juan is ______________ unemployed. a. frictionally b. cyclically c. structurally d. naturally

C

Net exports equals a. exports divided by imports. b. the sum of exports and imports. c. exports minus imports. d. exports during the year. e. none of the above

A

Refer to Exhibit 2-6. Which graph depicts a discovery of a new cheap source of energy that assists in the production of both good X and good Y? a. (1) b. (2) c. (3) d. (4) e. none of the above

D

Refer to Exhibit 2-6. Which graph depicts a technological breakthrough in the production of good Y only? a. (1) b. (2) c. (3) d. (4) e. none of the above

C

Public choice refers to a. the decisions and decision-making processes that individuals go through to solve public problems. b. political decisions made in the interest of the public at large. c. the application of economic principles and tools to public-sector decision making. d. the process that individuals undergo to decide what goods and services they will purchase and consume. e. the process that individuals undergo to decide whether or not they will pursue a career government service.

B

Real GDP equals nominal GDP a. minus exports. b. corrected for changes in the price level. c. minus personal income taxes. d. minus retail sales taxes.

A

Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that a. there is a surplus of labor in the labor market. b. the economy is currently on its institutional PPF. c. the economy is currently in an inflationary gap. d. the labor market is in equilibrium. e. the actual unemployment rate is below the natural unemployment rate.

C

Refer to Figure 3-22. Which of the four graphs represents the market for cars as a result of the adoption of new technology on assembly lines? a. A b. B c. C d. D

D

Refer to Figure 3-22. Which of the four graphs represents the market for peanut butter after a major hurricane hits the peanut-growing south? a. A b. B c. C d. D

A

Short-run equilibrium exists a. where the AD curve intersects the short-run aggregate supply (SRAS) curve. b. where the AD curve intersects the long-run aggregate supply (LRAS) curve. c. on the AD curve only. d. on the SRAS curve only.

B

Suppose the economy's current AD and SRAS curves intersect to the right of Natural Real GDP. Keynesians might advise a policy of tax __________ to shift __________. a. increases; SRAS to the left b. increases; AD to the left c. cuts; SRAS to the right d. cuts; AD to the right

C

The condition in an economy that makes a "rationing device" a necessity is the fact that a. the economy is organized around free markets. b. the economy is centrally planned by the government. c. scarcity exists. d. there are fewer types of goods than there are people in the economy.

B

The consumer price index (CPI) and the GDP deflator are designed to measure the degree to which a. there have been changes in the proportions of national income generated by (and thus earned by) the rich relative to the poor. b. the cost of purchasing a bundle of goods has changed over time. c. consumption patterns have changed with time. d. consumer prices have risen over and above increases in worker wages.

B

The fallacy of composition is the fallacious view that a. economic activity will benefit everyone. b. what is true for the individual will also be true for the group. c. it is possible for the whole to be greater than the sum of the individual parts. d. association does not necessarily indicate causation.

C

To decrease the money supply, the Fed may a. buy government securities in the open market. b. decrease the discount rate. c. increase the required reserve ratio. d. b and c e. all of the above

B

Under rent control, tenants can expect a. lower rent and higher quality housing. b. lower rent and lower quality housing. c. higher rent and a shortage of rental housing. d. higher rent and a surplus of rental housing.

D

"New industries should be protected from older established foreign competitors until they are mature enough to compete on an equal basis." This argument for trade restrictions is called the __________ argument. a. low-foreign-wages b. foreign export-subsidies c. anti-dumping d. infant-industry

B

"The resources now going into the War on Terrorism and into improved airport security would save more lives if they were invested in medical research." This statement most clearly reflects which of the following? a. The best test of an economic theory is its ability to predict. b. There is no such thing as a free lunch--the use of scarce resources always has an opportunity cost. c. selfishness; if people were not selfish, we could have more of everything. d. The value of goods can be determined objectively.

A

A U.S. trade policy that restricts the sale of foreign goods in the U.S. market will a. reduce the demand for U.S. export goods since foreigners will be less able to buy our goods if they cannot sell to us. b. benefit producers in industries that export goods. c. increase the nation's income since it protects domestic jobs. d. enhance economic efficiency by allocating more resources to the areas of their greatest comparative advantage.

A

A decrease in the dollar price of foreign currency would cause a. the nation's imports to increase and exports to decline. b. the nation's exports to increase and imports to decline. c. both imports and exports to decline. d. both imports and exports to rise.

D

A decrease in the price level a. shifts the AD curve to the right. b. shifts the AD curve to the left. c. causes an upward movement along the existing AD curve. d. causes a downward movement along the existing AD curve. e. none of the above

D

A decrease in the price of leather used to make shoes would cause the a. demand for shoes to decrease. b. demand for shoes to increase. c. supply of shoes to decrease. d. supply of shoes to increase.

A

A federal budget deficit a. occurs when government expenditures exceed tax revenues. b. occurs when tax revenues exceed government expenditures. c. occurs when transfer payments exceed tax revenues. d. will always result when Congress and the president cannot agree on expenditures. e. occurs when monetary policy works in the opposite direction of fiscal policy.

A

A person who believes the economy is self-regulating also believes that a. when there is a surplus in the labor market, the wage rate falls, and when there is a shortage in the labor market, the wage rate rises. b. it is better if the economy is in an inflationary gap than a recessionary gap. c. prices are flexible but wages are not. d. the economy is always in long-run equilibrium. e. the real balance effect does not operate in a recessionary gap.

A

A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be ___________________ unemployed a. frictionally b. structurally c. cyclically d. underemployed

B

A price ceiling is a government-mandated a. minimum price below which legal trades cannot be made. b. maximum price above which legal trades cannot be made. c. minimum price above which legal trades cannot be made. d. maximum price below which legal trades cannot be made.

A

A price floor is a government-mandated a. minimum price below which legal trades cannot be made. b. maximum price above which legal trades cannot be made. c. minimum price at which all units of the good must be legally sold. d. minimum price below which legal trades can be made.

A

A seamstress who quits her job in Los Angeles and moves to New York where additional seamstresses are needed is said to be frictionally unemployed. A. True B. False

B

A shortage occurs whenever a. quantity demanded exceeds quantity supplied at the equilibrium price. b. price is less than equilibrium price. c. quantity demanded is less than quantity supplied. d. goods are scarce. e. some of the people who need the product are not willing and able to buy it at the equilibrium price.

C

A tariff is a tax on a. savings. b. capital goods. c. imports. d. land.

A

According to classical economists, if the amount of funds households plan to save is greater than the amount of funds firms plan to invest, then a. the interest rate will fall, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. b. the interest rate will rise, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. c. the interest rate will remain constant and people will simply buy more goods. d. more money will he used for leisure purposes, since households save in order to consume leisure at some later time. e. none of the above

B

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

B

According to the efficiency wage model, firms tend to pay workers a. the market-clearing wage that efficiently equates labor supplied and demanded. b. in excess of the market-clearing wage to provide an incentive for productivity and efficiency. c. less than the market-clearing wage to assure themselves a pool of workers ready to replace workers who quit. d. less than the market-clearing wage to minimize labor cost per unit of production.

A

Adam Smith believed that if people were free to pursue their own interests, a. public interest would be served quite well. b. less would be produced than if altruism were the guiding principle. c. they would generally apply their talents to unproductive activities that would generate little value to society. d. they would have little incentive to undertake productive activities.

E

All other things held constant, lower marginal (income) tax rates a. necessarily increase tax revenues. b. necessarily decrease tax revenues. c. decrease the attractiveness of productive activities relative to leisure and tax - avoidance activities, and shift the SRAS curve rightward. d. do not affect the attractiveness of productive activities relative to leisure and tax - avoidance activities and therefore the SRAS does not shift rightward or leftward. e. increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward.

D

An ad in the newspaper claims that the price of milk will increase next week. At the same time, a new and improved pasteurization process makes milk production more efficient. Given these two effects, what can we say about the equilibrium price and quantity of milk? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease; the effect on quantity is ambiguous. c. Equilibrium price will increase; the effect on quantity is ambiguous. d. Equilibrium quantity will increase; the effect on price is ambiguous

B

An opinion based on personal preferences and value judgments is called a. an objective concept. b. a subjective concept. c. an unintended consequence. d. ceteris paribus.

D

Arguments made against free trade include all of the following except a. national defense considerations justify producing certain goods domestically whether the country has a comparative advantage in their production or not. b. infant industries should be protected from free trade so that they may have time to develop and compete on an even basis with older, more established foreign industries. c. dumping is an unfair trade practice that puts domestic producers of substitute goods at a disadvantage that they should be protected against. d. free trade is inflationary and should be restricted in the domestic interest. e. if foreign governments subsidize their exports, foreign firms that export are given an unfair advantage that domestic producers should be protected against.

A

As the price level falls, a. the purchasing power of cash holdings rises. b. the purchasing power of cash holdings falls. c. the purchasing power of cash holdings remains constant. d. cash holdings turn into dollar-denominated assets. e. none of the above

C

Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will a. increase the supply of corn. b. increase the supply of soybeans. c. decrease the supply of soybeans. d. decrease the supply of corn. e. have no effect on the supplies of corn and soybeans.

C

At the optimal level of an activity, the activity's marginal benefit must a. be zero. b. be greater than zero. c. equal the marginal cost of the activity. d. exceed the marginal cost of the activity.

A

At which point in Figure 10-1 is the economy at long-run equilibrium? a. A b. B c. C d. D

B

Banks decide to increase their excess reserves from 0 percent of total reserves to 10 percent of total reserves. It follows that a. the required reserve ratio will rise. b. banks will reduce outstanding loans. c. the money supply will increase. d. the simple deposit multiplier will fall. e. a and d

B

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is a. just as efficient. b. less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. c. more efficient since waiting in line reduces the transaction costs of purchasing goods. d. more efficient since waiting in line reduces the cost of the goods to the consumer.

A

Because the height of the demand curve measures the marginal value of the good to consumers, the fact that a demand curve slopes downward to the right illustrates that a. as more of a product is consumed, consumers will value additional units less. b. as more of a product is consumed, consumers will value additional units more. c. the value of additional units of the good is unrelated to the amount consumed. d. the cost of production for a good generally rises as more of it is produced.

C

Which of the following would increase GDP? a. The state of Florida buys paper from a German paper mill. b. A German buys stock in Citibank. c. Honda produces cars in Ohio. d. An American buys art on a trip to Japan.

E

Business firms make which of the following two types of investment? a. foreign investment and domestic investment b. fixed investment and capital investment c. investment in stocks and investment in bonds d. investment in new capital goods and investment in used capital goods to replace "worn-out" capital goods e. fixed investment and inventory investment

D

Economic analysis assumes that a. individuals act only out of selfish motives. b. although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted. c. people are basically humanitarian, and their actions are, therefore, impossible to predict. d. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

A

Economics is primarily the study of a. how individuals make choices because of scarcity. b. how to succeed in business. c. how to make money in the stock market. d. how the values and preferences of people are formed.

D

Economists consider tariffs to be a. necessary for the protection of domestic industries and the achievement of full employment. b. harmful to domestic consumers. c. obstacles that hinder voluntary exchange and gains from trade. d. both b and c above

D

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this? a. They anticipate that low rents will cause low-income people to move into the city, reducing the quality of life for other people. b. They anticipate that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. c. They anticipate that rent controls will cause a construction boom, which will make the city crowded and more polluted. d. They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

A

If Carlos is waiting to be called back to his job from which he has been temporarily laid off, the Bureau of Labor Statistics will classify him as unemployed. A. True B. False

B

If Jorge is temporarily absent from his regular job because of an industrial dispute, the Bureau of Labor Statistics will classify him as unemployed. A. True B. False

A

Expectation of higher future income is a a. rightward shifter of AD. b. leftward shifter of AD. c. reason for moving up along AD. d. reason for moving down along AD.

B

Expectation of lower future prices is a a. rightward shifter of AD. b. leftward shifter of AD. c. reason for moving up along AD. d. reason for moving down along AD.

C

Figure 10-10 indicates the output of the economy, y1, is a. less than the economy's long-run capacity. b. equal to the economy's long-run capacity. c. greater than the economy's long-run capacity. d. unattainable, even in the short run.

D

Fiscal policy is implemented primarily by a. local governments alone. b. the defense department. c. state governments alone. d. the federal government. e. state and local governments.

B

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries? a. The opportunity cost of producing watches is higher in Denmark. b. The opportunity cost of producing cheese is higher in Denmark. c. The opportunity cost of producing cheese is identical in both countries. d. It is impossible to compare opportunity costs because the two countries use different currencies. e. In both countries combined, the opportunity cost of one watch is 150 pounds of cheese.

E

Given the aggregate demand and aggregate supply conditions depicted in Figure 10-10, which of the following will tend to occur? a. an increase in resource prices, which will shift SRAS to the left b. a decrease in resource prices, which will shift SRAS to the left c. an increase in the real rate of interest, which will shift aggregate demand to the left d. a decrease in the real rate of interest, which will shift aggregate demand to the left e. Both b and c are correct.

A

Given the demand (D) and supply (S) for gasoline in Figure 3-9, if the price of gasoline were $1 per gallon, a. consumers would wish to purchase more than was being supplied. b. producers would be supplying more than consumers wished to purchase. c. the quantity consumers wished to purchase would equal the quantity that producers wished to supply. d. there would be a tendency for the price of gasoline to fall.

B

Greater wealth makes __________ people willing to spend the national income, causing __________ the economy's AD curve. a. more; movement down along b. more; a rightward shift of c. less; movement up along d. less; a rightward shift of

A

Gross Domestic Product (GDP) is the total market value of all a. final goods and services produced annually within a country's borders. b. final and intermediate goods and services produced annually within a country's borders. c. intermediate goods and services produced annually within a country's borders. d. final goods and services produced every month within a country's borders.

B

Gross domestic product is the sum of a. the purchase price of all goods and services exchanged during the period. b. the purchase price of all final goods and services produced domestically during the period. c. the purchase price of all goods and services produced during the period minus depreciation of productive assets during the period. d. the purchase price of all final goods and services produced by a country's citizens during the period.

C

Hazlitt states that there are two fallacies bad economists commit. Those two fallacies are: A. look at the long-run, not the short-run; look at all groups, not one B. look at the short-run, not the long-run; look at all groups, not one C. look at the short-run, not the long-run; look at one group, not all D. None of the above

B

Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial bank, which raises the bank's deposits at the __________ and increases the bank's __________. a. sells; Fed; reserves b. buys; Fed; reserves c. buys; Treasury; discount loans d. sells; Treasury; required reserve ratio e. buys; Fed; liabilities

B

If Real GDP is less than Natural Real GDP, the economy is in a. an inflationary gap. b. a recessionary gap. c. an unemployment gap. d. a real gap.

E

If a decision maker uses marginal analysis, then the relevant costs are the a. full costs of a particular activity or product. b. fixed costs which do not vary with the extra activity or output. c. profits obtained on the activity or product. d. average costs for a particular activity or product. e. additional costs of a particular activity or product.

E

If a demand curve shifts rightward, this means a. quantity demanded is greater only at a particular price. b. quantity demanded is greater at every price. c. buyers are willing and able to purchase more of the good at every price. d. buyers are willing and able to purchase less of the good at every price. e. b and c

A

If a major hurricane were to destroy the sugarcane crop in Louisiana, there would be a. a decrease in the supply of sugarcane. b. an increase in the supply of sugarcane. c. a decrease in the demand for sugarcane. d. an increase in the demand for sugarcane.

B

If a person is waiting to be called back to a job from which she has been laid off, how is she classified? a. as not in the labor force b. as an unemployed person c. as an employed person d. none of the above

E

If a supply curve shifts rightward, this means a. suppliers are willing and able to offer less of the good for sale at every price. b. suppliers are willing and able to offer more of the good for sale at every price. c. quantity supplied is greater at every price. d. suppliers are willing and able to offer more of the good for sale only at a particular price. e. b and c

A

If an economy is operating at a point inside the production possibilities curve, a. its resources are not being used efficiently. b. the curve will begin to shift inward. c. the curve will begin to shift outward. d. This is a trick question because an economy cannot produce at a point inside the curve.

D

If an economy operates at point A on the production possibilities curve shown in Figure 2-7, a. to produce more food, it would have to reduce its production of clothing. b. to produce more clothing, it would have to reduce the production of food. c. it is operating efficiently. d. all of the above would be correct.

A

If computers and software are complements, then a. a fall in the price of computers will increase the demand for software and, ceteris paribus, the price of software will rise. b. a rise in the price of computers will decrease the demand for software and, ceteris paribus, the price of software will rise. c. a fall in the price of computers will decrease the demand for software and, ceteris paribus, the price of software will fall. d. a rise in the price of software will increase the demand for computers and, ceteris paribus, the price of computers will rise. e. a fall in the price of software will decrease the demand for computers and, ceteris paribus, the price of computers will fall.

B

If tariffs are decreased, the long-run effect is most likely to be a. a decrease in both U.S. imports and exports. b. an increase in both U.S. imports and exports. c. a decrease in U.S. imports and an increase in U.S. exports. d. an increase in U.S. imports and a decrease in U.S. exports.

B

If the Bureau of Labor Statistics considers Jessica to be a discouraged worker, then she is counted as unemployed for purposes of computing the official unemployment rate. A. True B. False

E

If the Fed purchases government securities from a commercial bank, which of the following will happen? a. The Fed will increase the bank's reserves on deposit at the Fed. b. The Fed will decrease the bank's reserves on deposit at the Fed. c. The assets (government securities) of the Fed will decrease. d. The assets (government securities) of the Fed will increase. e. a and d

C

If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is a. in a recessionary gap. b. at Natural Real GDP . c. in an inflationary gap. d. at full-employment Real GDP .

B

If the base year for the GDP deflator is 1996, the value of the GDP deflator for 1996 a. is 10. b. is 100. c. is 150. d. cannot be determined from the data given.

A

If the economy is in an inflationary gap, Keynesian economists are likely to propose which variety of fiscal policy? a. the contractionary variety b. the expansionary variety c. the automatic variety d. none of the above

A

If the economy is self-regulating and in a recessionary gap, a. wages and prices will fall. b. wages will fall, but prices will rise. c. neither wages nor prices will change. d. wages will rise, but prices will fall. e. wages and prices will rise.

E

If the economy is self-regulating, then it follows that a. recessionary and inflationary gaps are temporary economic states. b. wages will fall when the economy is in a recessionary gap. c. wages will rise when the economy is in an inflationary gap. d. the economy is always in long-run equilibrium. e. a, b and c

A

If the minimum wage law sets a wage floor above the equilibrium wage in the unskilled labor market, a. the minimum wage will create a surplus of labor. b. the minimum wage will create a shortage of labor. c. the minimum wage will not affect the labor market. d. the labor market will change, but we cannot be certain how.

D

If you wanted to measure whether the output of an economy was increasing or decreasing across time periods, you would use the real GDP data rather than the nominal GDP data because a. exports are excluded from real GDP but not nominal. b. real GDP incorporates the impact of federal budget deficits and surpluses; nominal GDP does not. c. real GDP reflects the impact of transfer payments on the economy, but nominal GDP does not. d. real GDP adjusts for changes in the general level of prices, but nominal GDP does not.

A

If you were required to write a paper for your history class (or a report for your job) in which you were using dollar valued data across different years, you would a. use a price index to remove the effects of inflation to have reliable data measuring changes in the real value of things. b. never attempt to correct for inflation because inflation is a key indicator of economic activity. c. tell your teacher or boss that you never learned how to correct data for inflation. d. assume that prices did not change during the period you are studying.

D

In Figure 2-11, which shows the production possibilities curve, a. A is efficient. b. B is inefficient. c. C is unattainable. d. all of the above are true.

C

In Figure 3-11, suppose D1 and S1 indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S1 to S2? a. the invention of "folding" plates and cups that take up substantially less storage space in the kitchen b. a decrease in consumer income c. a decrease in the price of wood, a resource used to produce kitchen cabinets d. an increase in the price of steel hinges, a resource used to produce kitchen cabinets

D

In Figure 3-6, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream? a. an increase in the price of sugar, an ingredient used to produce ice cream b. a decrease in the price of frozen yogurt, a substitute for ice cream c. abnormally hot weather that temporarily increases consumer desire for ice cream d. a decrease in the price of milk, an ingredient used to produce ice cream

B

In Figure 3-9, if D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity? a. price, $1; quantity, 20 b. price, $2; quantity, 30 c. price, $3; quantity, 40 d. price, $4; quantity, 50

A

In San Francisco, tickets for professional and college football games are substitutes. An increase in the ticket price for professional football, other things being equal, will a. increase the demand for college football tickets. b. decrease the demand for college football tickets. c. not change the demand for college football tickets. d. decrease the demand for professional football games.

D

In a recessionary gap, the implications of downward wage inflexibility are that there will be a. further leftward shifts of AD that worsen unemployment. b. no further leftward shifts of AD, allowing the shifts in SRAS to close the gap. c. no further leftward shifts of SRAS, allowing the shifts in AD to close the gap. d. no rightward shifts of SRAS, allowing for persistent high unemployment.

D

In all cases, macroeconomics deals with a. what is. b. what should be. c. relatively small units in the economy. d. aggregates or the entire economy.

C

In all cases, microeconomics deals with a. what is. b. what should be. c. relatively small units in the economy. d. aggregates or the entire economy.

C

In contrast with nominal GDP, real GDP refers to nominal GDP a. minus exports. b. minus personal income taxes. c. corrected for price changes. d. corrected for depreciation.

B

Look at the following data: The frictional unemployment rate is 2 percent, the structural unemployment rate is 3.5 percent, and the actual unemployment rate is 9.5 percent. The natural unemployment rate is ____________ percent and the cyclical unemployment rate is __________ percent. a. 1.5; 4 b. 5.5; 4 c. 1.5; 6 d. 6; 15

B

In economics, secondary effects refer to the a. best alternative that must be forgone as the result of a choice. b. unintended consequences of a change that are not immediately identifiable but are felt only with time. c. immediate and visible intended consequences of a change. d. impact of the scarcity of resources on the scarcity of the goods that are produced with those resources.

A

In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is a. transaction costs. b. specialization costs. c. pecuniary costs. d. comparative costs.

A

In order to be classified as unemployed, a person must a. not have a job, have been actively looking for work within the past four weeks, and currently be available for work. b. not have a job, and currently be available for work. c. actively have looked for work within the past six weeks. d. not have a job.

B

In the Learn Liberty videos, Professor Art Carden argued that destruction is good for the economy because it stimulates spending and creates jobs. A. True B. False

B

In the Stossel video on the "Broken Window Fallacy," economist Walter Williams argued that the broken window fallacy is wrong and that government can create jobs. A. True B. False

B

In the definition of GDP, the words "total market value" refer to total a. dollar value at base prices. b. dollar value at current prices. c. subjective value. d. objective value. e. a and d

B

In the orange market, what impact would an increase in the price of oil that orange growers burn to keep oranges from freezing in the winter have on the market? a. It would shift the supply curve to the right. b. It would shift the supply curve to the left. c. It would shift the demand curve to the left. d. It would shift the demand curve to the right.

C

In which statement(s) is "supply" used correctly? (I) "An increase in the price of eggs will increase the supply of eggs." (II) "As the cost of producing eggs rises, the supply of eggs will tend to fall." a. in both statements I and II b. in statement I only c. in statement II only d. in neither statements I nor II

D

Investment is equal to all purchases of newly produced capital goods a. minus changes in business inventories. b. plus fixed investment minus inventory investment. c. plus changes in business inventories. d. plus changes in business inventories plus purchases of new residential housing.

D

Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice was a. irrational, because economic analysis suggests you should always attend classes that you have already paid for. b. irrational, because oversleeping is not in Keri's self-interest. c. rational if Keri has not missed any other classes. d. rational if Keri values sleep more highly than the benefit she expects to receive from attending the class.

A

Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a recessionary gap is __________ enough to say that the economy is __________. a. long; not self-regulating b. long; self-regulating c. short; not self-regulating d. short; self-regulating

C

Look at the following data: The frictional unemployment rate is 1.5 percent, the natural unemployment rate is 4.5 percent, and the cyclical unemployment rate is -1 percent. The structural unemployment rate is _________ percent and the actual unemployment rate (in this economy) is ___________ percent. a. 6; 3.5 b. 3; 5.5 c. 3; 3.5 d. 6; 5.5

D

Which of the following would not be included in the measurement of GDP? a. a bill from a car mechanic b. wages of a card dealer working in a Las Vegas casino c. commissions of a stockbroker d. the increased value of shares of stock e. c and d

D

Look at the following data: The structural unemployment rate is 4 percent, the natural unemployment rate is 5 percent, and the cyclical unemployment rate is 3 percent. The frictional unemployment rate is ____________ percent and the actual unemployment rate is __________ percent. a. 2; 7 b. 2; 8 c. 1; 7 d. 1; 8

D

Macroeconomists define consumption as a. purchases by the business sector. b. wearing away and breakdown of capital goods. c. the difference between imports and exports. d. purchases by the household sector.

D

Most states have instituted mandatory seatbelt laws to reduce traffic fatalities. An economist may point out that an unintended effect of these laws is a. an increase in the price of automobiles, further reducing fatalities. b. an increase in driving speed, reducing the number of accidents. c. a decrease in driving speed, further reducing fatalities. d. an increase in risky driving behavior, increasing fatalities.

B

Oil producers expect that oil prices next year will be higher than oil prices this year. As a result, oil producers are most likely to a. place more oil on the market this year, thus shifting the present supply curve of oil rightward. b. hold some oil off the market this year, thus shifting the present supply curve of oil leftward. c. place more oil on the market this year, thus increasing the quantity supplied of oil at lower but not higher prices. d. hold some oil off the market this year, thus decreasing the quantity supplied of oil at lower but not higher prices.

C

Rational (political) ignorance refers to a. some voters choosing not to vote in elections. b. the fact that some voters are not smart enough to be informed on political issues. c. the state of not acquiring information about politics and government because the costs of acquiring the information are greater than the benefits. d. political candidates deliberately saying "dumb" things during their campaign. e. none of the above

C

Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction? a. If the dress originally costs more than $20, Rebecca gains and Hillary loses. b. If the dress originally costs less than $20, Hillary gains and Rebecca loses. c. Both parties expect to gain from this transaction. d. If Hillary gains from the transaction, Rebecca must lose an equal amount.

D

Refer to Exhibit 1-1. If the student whose study habits are illustrated here is currently studying for 2 hours she should a. cut back on the number of hours she is studying because the marginal benefit of studying for 2 hours is less than the marginal cost of doing so. b. cut back on the number of hours she is studying because the marginal benefit of studying for 2 hours is greater than the marginal cost of doing so. c. increase the number of hours she is studying because the marginal benefit of studying for 2 hours is less than the marginal cost of doing so. d. increase the number of hours she is studying because the marginal benefit of studying for 2 hours is greater than the marginal cost of doing so.

C

Refer to Exhibit 1-1. The student whose study habits are illustrated here will maximize the net benefits of studying when she has studied a. 2 hours b. 4 hours c. 6 hours d. 8 hours

A

Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible? a. The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and Real GDP will rise. b. The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP will remain constant. c. The AD curve will shift rightward from AD3 to AD4, the price level will remain constant, and Real GDP will rise. d. The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP will remain constant.

A

Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose a. an increase in government purchases. b. a decrease in government purchases. c. an increase in taxes. d. a and c e. b and c

C

Refer to Exhibit 2-4. As more fax machines are produced, the opportunity cost of producing them a. increases. b. decreases. c. remains constant. d. first decreases and then increases.

C

Refer to Exhibit 2-4. The opportunity cost of moving from point A to point B is a. 60,000 copiers. b. 40,000 copiers. c. 20,000 copiers. d. 20,000 fax machines. e. 40,000 fax machines.

D

Refer to Exhibit 2-5. The opportunity cost of moving from point C to point B is a. 15,000 televisions. b. 15,000 fax machines. c. 10,000 televisions. d. 20,000 fax machines.

B

Refer to Exhibit 3-1. Equilibrium price and quantity are a. $2 and 250 units. b. $4 and 250 units. c. $2 and 150 units. d. $6 and 250 units. e. none of the above

A

Refer to Exhibit 3-2. Which of the following would result in a movement from point B on D2 to point A on D1? a. There was an increase in income (assuming that this is an inferior good) and technology remained constant. b. There was an increase in income (assuming that this is a normal good) and technology remained constant c. There was an increase in income (assuming that this is an inferior good) and technology improved. d. There was an increase in income (assuming that this is a normal good) and technology declined.

A

Refer to Exhibit 4-3. Suppose that the tuition in Exhibit 4-5 is set at $60. There will be a. a shortage at 10 a.m. and a surplus at 8 a.m. b. a surplus at 10 a.m. and a shortage at 8 a.m. c. equilibrium at both 10 a.m. and 8 a.m. because the price is half-way between their individual equilibria. d. none of the above

D

Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that a. the AD curve will shift to the right and pass through point 4. b. the SRAS curve will shift to the left and pass through point 2. c. the economy is currently operating below its physical PPF and above its institutional PPF. d. the SRAS curve will shift to the right and pass through point 3.

A

Refer to Figure 3-22. Which of the four graphs represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester? a. A b. B c. C d. D

B

Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring? a. A b. B c. C d. D

B

Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect a. employment will increase to 14 million. b. employment will decrease to 8 million. c. the wage will actually rise to $20 per hour. d. there will be a surplus of 14 million workers.

D

Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, a. the price will increase to P3. b. a surplus will occur at the new market price of P2. c. the market price will stay at P1 due to the price ceiling. d. a shortage will occur at the price ceiling of P2.

C

Refer to Table 2-4. Which of the following is correct? a. Lebos has the comparative advantage in both goods. b. Slavia has the comparative advantage in food. c. Lebos has the comparative advantage in food. d. Lebos has the comparative advantage in clothing.

B

Resource X is necessary to the production of good Y. If the price of resource X falls, a. the supply curve of Y shifts leftward. b. the supply curve of Y shifts rightward. c. the supply curve of Y is unaffected. d. there is a movement down the supply curve of Y. e. there is a movement up the supply curve of Y.

B

When economists speak of scarcity, they are referring to the a. condition in which society is not employing all its resources in an efficient way. b. condition in which people's wants outstrip the limited resources available to satisfy those wants. c. economic condition that exists in only very poor countries of the world. d. condition in which society produces too many frivolous goods and not enough socially desirable goods.

B

Senator DuMonde favors a government program that he believes will help save endangered species. Economic analysis indicates that a. because Senator DuMonde has good intentions, his new program will have the desired results. b. Senator DuMonde's new program could have unintended consequences that might result in an outcome different from what was intended. c. regardless of any secondary effects, costs should not be considered when designing environmental legislation. d. because Senator DuMonde's proposal is a government program, it will not have an opportunity cost.

D

The law of comparative advantage indicates that a. a group of people will reduce their output when each good or service is supplied by the low opportunity cost producer. b. trading partners lose when they can acquire a good through trade cheaper than they can produce it. c. trade is most effective when people trade only among those in their own nation. d. a group of people can increase their output when each good or service is supplied by the low opportunity cost producer.

A

Some economists believe that permanently lower marginal income tax rates __________ the incentive to work and thus shift __________. a. increase; LRAS to the right b. increase; AD to the right c. increase; SRAS to the left d. decrease; LRAS to the right e. decrease; AD to the left

D

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected? a. They lose, because the standby passengers do not cover the full cost of the seats. b. They gain, because the additional revenue covers the "fixed costs" of the flight. c. They lose, because the gain of the passengers must necessarily come at the expense of the airline. d. They benefit as long as the additional revenue from the passengers exceeds the marginal cost.

C

Structural unemployment means that a. employment in the construction industry is insufficient. b. there are simply not enough jobs to go around. c. worker qualifications do not match available jobs. d. jobs are plentiful, but workers are scarce.

D

Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation? a. Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand. b. Supply and demand simultaneously increased and the shift in supply was less than the shift in demand. c. Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand. d. Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

D

Suppose the United States reduced the tariff on television sets, allowing foreign-produced televisions to more freely enter the U.S. market. Which of the following would most likely occur? a. The price of televisions to U.S. consumers would increase, and the demand for U.S. export products would rise. b. The price of televisions to U.S. consumers would fall, and the demand for U.S. export products would fall. c. The price of televisions to U.S. consumers would increase, and the demand for U.S. export products would fall. d. The price of televisions to U.S. consumers would fall, and the demand for U.S. export products would rise.

C

Suppose the following: (1) the wage rises, (2) the interest rate rises, (3) any change in AD is greater than any change in SRAS. Based on this information, in the short run Real GDP will __________ and the price level will __________. a. rise; rise b. fall; rise c. fall; fall d. rise; fall

D

Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this, a. the supply curve of new houses would shift leftward, since it now costs $10,000 more for builders to produce a house. b. the demand curve for new houses would shift rightward, since now every family would want to buy a house. c. the demand curve for new houses would shift leftward. d. the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price. e. c and d

A

The CPI is based on a representative group of goods called the market basket. A. True B. False

B

The Great Depression provided support for Keynes' view that a. government action was necessary to ensure interest rates remained at the equilibrium level. b. prolonged periods of unemployment would be present when demand is deficient. c. falling resource prices would bring the economy out of a recession. d. lower interest rates would quickly restore the full employment equilibrium of an economy.

D

The Laffer curve illustrates that a. there are two tax rates at which zero tax revenues are raised. b. a decrease in tax rates can cause an increase in tax revenues. c. an increase in tax rates can cause an increase in tax revenues. d. all of the above

C

The Latin phrase "ceteris paribus" means a. that one event causes another. b. that one event is associated with, but not caused by, another. c. that other potential causes are assumed to remain constant. d. the way things should be.

B

The ability to produce a good at a lower opportunity cost than others is called a(n) __________ advantage. a. complementary b. comparative c. natural d. indigenous

A

The amount of required reserves a bank holds depends on the a. required reserve ratio. b. demand-deposit ratio. c. excess-reserve ratio. d. currency ratio.

C

The best definition of inflation is a(n) a. temporary increase in prices. b. increase in the price of one important commodity such as food. c. persistent increase in the general level of prices as measured by a price index. d. increase in the purchasing power of the dollar.

E

The civilian non-institutional population consists of everyone in the population who is a. at least 16 years of age, in the armed forces, or institutionalized. b. at least 16 years of age. c. not in the armed forces. d. not institutionalized. e. b, c, and d

B

The consumer price index is a. a measure of the increase in the average price of all of the goods that are included in the calculation of GDP. b. a comparison of the cost of buying a typical bundle of goods during a given period with the cost of buying the same bundle during an earlier base period. c. the ratio of the average price of a typical market basket of goods compared to the cost of producing those goods during the previous year. d. a comparison of the cost of the typical bundle of goods consumed in period 1 with the cost of a different bundle of goods typically consumed in period 2.

C

The crowding-out effect stresses that a. an increase in government expenditures will stimulate aggregate demand and, thereby, help to prevent recessions. b. an increase in taxes will restrain aggregate demand and, thereby, help to control inflation. c. additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise. d. a budget deficit is a highly effective tool with which to combat recessions. e. both a and d are correct.

C

The crowding-out effect suggests that a. expansionary fiscal policy causes inflation. b. restrictive fiscal policy is an effective weapon against inflation. c. a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit. d. a tax reduction financed by borrowing will increase the disposable income of households and, thereby, lead to a strong expansion in aggregate demand, output, and employment.

D

The economy suffers an adverse supply shock. As a result, in the short run Real GDP will __________ and the price level will __________. a. rise; rise b. fall; fall c. fall; remain constant d. fall; rise e. rise; fall

D

The economy's initial aggregate demand (AD0) and aggregate supply (SRAS0 and LRAS) curves are illustrated in Figure 10-14. Which of the following is true? a. The profits of business firms are higher at I than J. b. H is a point of long-run equilibrium. c. Downward pressure on prices occurs at point G. d. Point F is consistent with long-run equilibrium.

B

The effects of tariffs and quotas are: a(n) __________ in the prices of imported goods to domestic consumers, and a(n) __________ in imports. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

C

The employment rate equals the number of a. employed persons divided by the number of unemployed persons. b. unemployed persons divided by the civilian non-institutional population. c. employed persons divided by the civilian labor force. d. employed persons divided by the civilian non-institutional population. e. none of the above

C

The following table indicates the production possibilities of food and clothing per worker day in the United States and Japan. Which of the following is true? a. Mutual gains from trade could be realized if the United States specialized in food production and Japan in clothing production. b. Since Japanese workers produce more of both food and clothing than U.S. workers, no gains from trade are possible. c. Joint output would be maximized if the United States specialized in producing clothing and Japan in producing food. d. The Japanese are the low-cost producers of both food and clothing.

A

The following table indicates the production possibilities of food and clothing per worker day in the United States and South Korea. Which of the following is true? a. Mutual gains could be realized if the United States specialized in producing food and South Korea in producing clothing. b. Mutual gains could be realized if the United States specialized in clothing production and South Korea in food production. c. South Korean workers are the high-cost producers of clothing. d. None of the above are true.

B

The maximum price that consumers are willing to pay for the hundredth unit of a good can be found as a. the height of the supply curve at a quantity of 100. b. the height of the demand curve at a quantity of 100. c. the difference between the height of the supply and demand curves at a quantity of 100. d. none of the above.

C

The natural rate of unemployment a. is fixed; it cannot be changed with public policy. b. fluctuates substantially over the business cycle. c. is associated with the economy's maximum sustainable output rate. d. declines when youthful workers (under age 25) become a larger proportion of the labor force.

C

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is a. higher than the equilibrium price. b. equal to the equilibrium price since the number of tickets bought equals the number sold. c. lower than the equilibrium price. d. higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic.

B

The opportunity cost of attending college is a. the money one spends on college tuition, books, and so forth. b. the highest valued alternative one forfeits to attend college. c. the least valued alternative one forfeits to attend college. d. equal to the salary one will earn when one graduates from college.

A

The opportunity cost of choosing an alternative a. is the value of the highest valued alternative forgone as the result of the choice. b. includes only the amount of time spent on whatever is chosen. c. includes only the money cost of the option. d. is irrelevant for most choices individuals face.

C

The political popularity of a tariff on imported goods that compete with products of a well-established domestic industry is a. surprising since one would expect the political power of consumers to override the interests of even a well-established domestic industry. b. surprising since one would expect the economic harm resulting from tariffs to be well understood by voters. c. not surprising since such a tariff would generally benefit an easily recognized interest group at the expense of uninformed, uninterested consumers. d. not surprising since the tariff enables domestic producers and consumers to gain at the expense of foreigners.

D

The primary benefits derived from tariffs usually accrue to the a. domestic consumers of goods protected by the tariffs. b. foreign producers of goods protected by the tariffs. c. domestic producers of export goods. d. domestic suppliers of goods protected by the tariffs.

A

The two ways of measuring Gross Domestic Product are the __________ approach and the __________ approach. a. expenditure; income b. expenditure; national product c. national product; income d. real gross domestic product; nominal gross domestic product e. net national product; personal income

C

The unemployment rate equals the a. number of employed persons divided by the number of unemployed persons. b. number of unemployed persons divided by the civilian non-institutional population. c. number of unemployed persons divided by the civilian labor force. d. sum of unemployed persons and discouraged workers divided by the civilian labor force.

B

The value of money a. remains constant during periods of inflation. b. varies inversely with the general price level. c. varies directly with the general price level. d. varies indirectly with output.

A

The vertical long-run aggregate supply curve reflects the fact that in the long run, an increase in the price level a. will not alter the economy's maximum sustainable rate of output. b. will increase the economy's maximum sustainable rate of output. c. will reduce the quantity of goods and services purchasers will demand. d. will improve the overall efficiency of resource use.

A

There is a rise in labor productivity in the economy. As a result, in the short run Real GDP __________ and the price level __________. a. rises; falls b. falls; rises c. falls; falls d. rises; rises e. remains constant; remains constant

B

There is no toll charge to drive on freeway A. If there is freeway congestion at 9 a.m., there will be greater freeway congestion at 11 a.m. if a. the demand to drive on the freeway is the same at both times. b. the demand to drive on the freeway at 11 a.m. is greater than the demand to drive on the freeway at 9 a.m. c. the demand to drive on the freeway at 9 a.m. is greater than the demand to drive on the freeway at 11 a.m. d. fewer people carpool at 11 a.m. than at 9 a.m. e. none of the above.

A

To macroeconomists, investment is mainly the purchases of goods and services a. by businesses. b. to hold as wealth, such as gold coins or art. c. to hold as wealth, such as stocks and bonds. d. in the period previous to the period being studied.

D

Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that something ought to be done quickly because the economy may not be able to restore itself to full employment. Jones says that it is better to take a "hands-off" approach. Which of the following is most likely to be true? a. Smith and Jones are most likely both Keynesian economists with a few minor differences of opinion. b. Smith and Jones are most likely both classical economists with a few minor differences of opinion. c. Jones is likely to be a Keynesian economist and Smith is likely to be a classical economist. d. Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist. e. none of the above.

C

Two goods are considered substitutes if a. a decrease in the demand for one leads to a decrease in the supply of the other. b. an increase in the demand for one leads to a decrease in the supply of the other. c. an increase in the price of one leads to an increase in the demand for the other. d. a decrease in the price of one leads to an increase in the demand for the other, e. a decrease in the supply of one leads producers to switch to production of the other.

D

What does annual economic growth refer to? a. annual increases in GDP b. annual increases in consumption spending c. annual increases in investment spending d. annual increases in Real GDP e. none of the above

C

What is the proper sequence of the phases of a business cycle? a. peak, contraction, trough, expansion, recovery b. peak, contraction, recovery, trough, expansion c. peak, contraction, trough, recovery, expansion d. contraction, peak, trough, recovery, expansion e. recovery, trough, peak, expansion, contraction

C

What was the main point of my North Korea/South Korea satellite image? A. Central planning works well B. Natural resources determines a country's wealth C. Institutions matter D. Capitalism does not work well

D

When a country allows trade and becomes an importer of steel, a. the losses of the domestic producers of steel exceed the gains of the domestic consumers of steel. b. the losses of the domestic consumers of steel exceed the gains of the domestic producers of steel. c. the gains of the domestic producers of steel exceed the losses of the domestic consumers of steel. d. the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel.

E

When commercial banks need more Federal Reserve Notes, a. they call the Bureau of Engraving and Printing, which delivers the requested amount. b. they call the Board of Governors of the Fed, which delivers the requested amount. c. they ask their customers to exchange their Federal Reserve Notes for U.S. Treasury securities. d. they call the Treasury, which delivers the requested amount. e. they call their Federal Reserve District Bank, which delivers the requested amount.

A

When economists say that banks must hold a percentage of their total deposits in reserve form, what does this mean? a. It means that banks must hold a fraction of their customers' deposits either as bank deposits at the Federal Reserve, or as vault cash, or both. b. It means that banks reserve the right to turn away customers a certain percentage of the time. c. It means that the fraction of vault cash a bank has cannot be greater than the fraction of bank deposits (it has) at the Federal Reserve. d. Essentially, it means that total reserves are greater than required reserves. e. none of the above

D

Which of the following would increase GDP for the United States? a. A Colombian citizen buys a can of coffee produced in Colombia. b. An individual buys a 19th-century mansion formerly owned by a famous American mystery writer. c. An American buys a Big Mac at a McDonald's in Moscow, Russia. d. An American buys a Honda manufactured at a plant in Tennessee.

B

When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in a. an expanded availability of these badly needed products. b. a reduced availability of these badly needed products. c. an increase in the speed with which people recovered from the hurricanes. d. a more efficient allocation of these goods for which price controls were in effect.

D

When the Fed purchases securities from a member of the public with a check that is cashed, a. reserves increase. b. currency in circulation increases. c. the money supply increases. d. b and c e. all of the above

D

When the economy is in a recessionary gap, Keynesian economists will often advocate expansionary policy measures. Why? a. Keynesians believe the economy sometimes gets stuck in a recessionary gap and can't get itself out. b. Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output. c. Keynesians are generally in favor of increasing taxes. d. a and b e. a and c

D

When the expenditure approach is used to measure GDP, the major components of GDP are a. consumption, investment, indirect business taxes, and depreciation. b. employee compensation, rents, interest, self-employment income, and corporate profits. c. employee compensation, corporate profits, depreciation, and indirect business taxes. d. consumption, investment, government consumption and gross investment, and net exports.

C

When the market for a good is in equilibrium, a. consumer surplus will equal producer surplus. b. the total value created for consumers will equal the total cost of production for business firms. c. all units valued more highly than the opportunity cost of production will be supplied. d. all units that have value will be produced, regardless of their cost of production.

A

When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural rate of unemployment. a. greater than; less than b. greater than; greater than c. less than; greater than d. less than; less than e. less than; equal to

C

When we speak of expansionary fiscal policy, policymakers __________ government spending, or __________ taxes, or both. a. decrease; decrease b. increase; increase c. increase; decrease d. decrease; increase

A

Which of the following best describes the implications of the law of comparative advantage? If each person sells goods for which he or she has the greatest comparative advantage in production and buys those for which his or her comparative advantage is least, the a. total output available to each person can be expanded by specialization and exchange. b. total output will fall. c. buyers of goods will gain at the expense of sellers. d. sellers of goods will gain at the expense of buyers.

D

Which of the following best illustrates the use of discretionary countercyclical fiscal policy? a. Congress provides $90 billion in relief aid for hurricane victims. b. Congress appropriates $50 billion to help the needy, and the appropriation is financed by a tax on wealth. c. Income tax receipts are smaller because of a decline in real GDP during a recession. d. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.

A

Which of the following helps explain why the aggregate demand curve slopes downward? a. If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less. b. If the price level increases, the purchasing power of the fixed quantity of money increases, causing people to buy more. c. If domestic prices increase, we substitute domestic goods for imported goods. d. If domestic prices decrease, we substitute imported goods for domestic goods.

A

Which of the following illustrates double counting? a. The total market value of the steel used to produce a car and the total market value of the car itself are summed. b. The total market value of tennis rackets and the total market value of tennis balls are summed. c. The total market value of picture frames and the total market value of camera film are summed. d. The total market value of eyeglasses and the total market value of carpet are summed. e. b and c

B

Which of the following is counted in GDP? a. the purchase of 100 shares of Microsoft stock b. the services of a real estate broker c. government transfer payments d. the sale of a used car e. none of the above

A

Which of the following is not a problem or shortcoming of GDP? a. Goods produced in one period that are sold in the following period fail to get counted in any period. b. It tends to understate the growth of economic welfare because it does not fully and accurately account for improvements in the quality of products. c. GDP is not an accurate measure of welfare because it makes no adjustment for harmful side effects (such as pollution) or destructive acts of nature. d. GDP understates output because it fails to include nonmarket production such as that which takes place in the household or in illegal markets.

C

Which of the following is the best definition of economics? a. An investigation of the quantities and prices of the various goods produced by the nations of the world. b. A study of why inflation and unemployment periodically plague the U.S. economy. c. An analysis of how individuals and societies deal with the problem of scarcity. d. An examination of the role that money plays in the economy. e. A study of how goods and services are distributed throughout the world.

D

Which of the following is the best example of a tariff? a. a tax placed on all small cars sold in the domestic market b. a limit imposed on the number of small cars that can be imported from a foreign country c. a subsidy from the United States government to domestic manufacturers of small cars so they can compete more effectively with foreign producers of small cars d. a $100-per-car fee imposed on all small imported cars

C

Which of the following is true? a. Trade does not produce anything new; therefore, it cannot create value. b. The value of a good is determined by the cost of the material resources required for its production. c. The value of a good generally depends on who uses it and circumstances such as when and where it is used. d. None of the above are true.

C

Which of the following issues is most unlikely to be addressed by an economist practicing positive economics? a. the relationship between the minimum wage and the number of unemployed unskilled workers b. the effect of a minimum wage increase on inner-city crime rates c. the desirability of a minimum wage increase d. the consequences of implementing a minimum wage law in China

C

Which of the following most accurately states the economic significance of exchange? a. Physical goods have value because they exist; exchange can neither increase nor decrease their value. b. Production of physical goods creates value; exchange merely redistributes this value. c. Exchange creates value by moving goods from parties who value them less to parties who value them more. d. Exchange reduces value since it consumes resources without adding to the physical supply of goods.

D

Which of the following properly describes the interest-rate effect of aggregate demand? a. A higher price level leads to higher money demand, higher money demand leads to higher interest rates, a higher interest rate increases the quantity of goods and services demanded. b. A higher price level leads to higher money demand, higher money demand leads to lower interest rates, a higher interest rate reduces the quantity of goods and services demanded. c. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate reduces the quantity of goods and services demanded. d. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate increases the quantity of goods and services demanded.

B

Which of the following statements represents a correct and sequentially accurate economic explanation? a. X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y rises. b. X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y falls. c. X is an inferior good and Y is a substitute for X. Income falls, the demand for X rises, the price of X rises, and the demand for Y falls. d. X is an inferior good and Y is a substitute for X. Income rises, the quantity demanded of X rises, the price of X rises, and the demand for Y falls. e. none of the above

D

Which of the following transactions would be counted toward this year's GDP? a. General Motors purchases 10,000,000 tires from Firestone. b. A 300-year-old painting is sold for $12 million. c. A street gang earns $2 million from selling illegal drugs. d. Your real estate agent earns $5,000 commission when you sell your 100-year-old house for $100,000.

B

Which of the following transactions would be included in this year's GDP for the United States? a. Deion sends $100 to a hotel in Costa Rica as a deposit for his vacation. b. Deion buys a travel guide written by a Costa Rican woman living in the United States. c. Deion buys a shirt while on vacation in Costa Rica. d. Deion spends money in an American-owned restaurant in Costa Rica.

C

Which of the following was a key belief of Adam Smith? a. he felt that human goodness would provide adequate goods and services to everyone. b. he stressed that limited exchange and command economies would prevent the exploitation of the poor. c. he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way. d. he lectured about the importance of gold and silver in providing a stable monetary system.

A

Which of the following will most likely shift the production possibilities curve for breadfruit and fish outward from AA to BB in Figure 2-6? a. an improvement in the form of economic organization b. lower investment and a reduction in the country's capital stock c. an increase in the price of breadfruit d. a decrease in the average number of hours worked

B

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.

B

Which of the following would be included in this year's GDP? a. the value of a used car, at its sale price b. the value of a new domestic automobile, at its sale price c. a sale of Microsoft stock from one individual to another d. the face value of a life insurance policy paid to a woman at the death of her husband

C

Which of the following would be most likely to shift the long-run aggregate supply curve (LRAS) to the right? a. favorable weather conditions that increased the size of this year's grain harvest b. an increase in resource prices relative to product prices c. an increase in labor productivity as the result of improved computer technology and expansion of the Internet d. an increase in the cost of security as the result of terrorist activities

B

Which of the following would definitely not be included in the measurement of GDP? a. value of the services of a painter who paints your garage b. value of the services of a person who mows his or her own lawn c. value of the services of a maid who cleans your house d. value of the services of a plumber who fixes your kitchen sink