Econ Final Exam

Fran runs a doughnut shop in a tiny 3-person town. Fran's rational consumers have the following demand schedules: 27. Market demand for doughnuts when the price is 50 cents is A. 31 doughnuts. B. 20 doughnuts .C. 9 doughnuts. D. 13 doughnuts.

.C. 9 doughnuts.

96. Refer to Figure 14-1. The firm will shut down in the short run if the price of the good is A. $75. B. $85. C. $95. D. All of the above are correct.

A. $75.

86. The population of Alpha totals one million people of whom 40 percent are employed. Average output per worker in Alpha is $20,000. Real GDP per person in Alpha totals: A. $8,000 B. $12,000 C. $20,000 D. $28,000

A. $8,000

11. On January 1, 2004, Edward invested $10,000 at 5% interest for one year. The CPI on January 1, 2004 stood at 1.60. On January 1, 2005, the CPI was 1.76. The real rate of interest earned by Edward was ____ percent. A. -5 B. 0 C. 5 D. 8

A. -5

Sean studied 5 hours for his first Economics test and his test score was 85; 6 hours for his second Economics test and scored 90; and 7 hours for his third Economics test and scored 95. He also studied 5 hours for his first Math test and his test score was 68; 6 hours for his second Math test and scored 78; and 7 hours for his third Math test and scored 88. 4. The average benefit per hour studied for the Economics tests was ________ and the average benefit per hour studied for the Math tests was _______ . A. 15; 13 B. 5; 10 C. 13; 15 D. 10; 5

A. 15; 13

Sean studied 5 hours for his first Economics test and his test score was 85; 6 hours for his second Economics test and scored 90; and 7 hours for his third Economics test and scored 95. He also studied 5 hours for his first Math test and his test score was 68; 6 hours for his second Math test and scored 78; and 7 hours for his third Math test and scored 88. 5. Sean's marginal benefit from the seventh hour spent studying Economics is A. 5 B. 10 C. 15 D. 45

A. 5

Which of the following is an example of structural unemployment? A. Dora lost her job when the textile mill closed. She does not have skills to work in another industry and has been unemployed for over a year. B. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C. Alan, a software engineer, lost his job when the internet startup he worked for went bankrupt. He interviewed with five companies in the area before taking a job with another firm in the industry. D. Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked.

A. Dora lost her job when the textile mill closed. She does not have skills to work in another industry and has been unemployed for over a year.

39. Refer to the figure above. If S and D are the initial supply and demand curves and S' represents a tax, the burden of the tax to consumers is measured by the distance A. EA. B. AG. C. HJ. D. 0E.

A. EA.

38. Refer to the figure above. Suppose S and D are the initial supply and demand curves and a tax represented by S' is imposed on sellers. The distance that represents the per unit amount of the tax is A. EG. B. 0A. C. HJ. D. IH.

A. EG.

45. Refer to the figure above. The deadweight loss due to the price ceiling is represented by the area A. FEC. B. DAC. C. GJEF. D. JAE + DGF.

A. FEC.

40. Refer to the figure above. The loss in efficiency due to the tax, represented by S', is measured by the area ______ and stems from ______. A. IJC; the trades that do not occur because of the tax B. IHC; consumer unrest about higher prices C. HJC; producer dissatisfaction with lower revenues D. EGJI; wasteful use of the tax revenue by government

A. IJC; the trades that do not occur because of the tax

14. When the equilibrium quantity maximizes total economic surplus, it follows that A. Marginal Cost = Marginal Benefit B. Marginal Cost > Marginal Benefit C. Marginal Cost < Marginal Benefit D. sellers are always better off than buyers

A. Marginal Cost = Marginal Benefit

12. Assume one investor bought a 10-year inflation-protected bond with a fixed annual real rate of 1.5% and another investor bought a 10-year bond without inflation protection with a nominal annual return of 4.2%. If inflation over the 10-year period averaged 2 percent, which investor earned a higher real return? A. The investor who purchased the inflation protected bond. B. The investor who purchased the bond without inflation protection. C. Both investors earned the same real return. D. Neither investor earned a positive real return.

A. The investor who purchased the inflation protected bond.

10. The market interest rate in Alpha is 7% and the market interest rate in Beta is 10%, but the inflation rate in Alpha is 3% and the inflation rate in Beta is 8%. Which of the following statements is true? A. The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta. B. The real interest rate is lower in Alpha, but the nominal interest rate is lower in Beta. C. Both the real and nominal interest rates are higher in Alpha. D. Both the real and nominal interest rates are higher in Beta.

A. The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta.

100. Jamaica's nice beaches and tropical climate give that country _______ in tourism. A. a comparative advantage B. specialization C. a trade benefit D. self-sufficiency

A. a comparative advantage

75. The equilibrium for this game is for Lee to choose _______ and for Cody to be _______ in response. A. aggression; cooperative B. aggression; aggressive C. cooperation; cooperative D. cooperation; aggressive

A. aggression; cooperative

97. A tariff is a tax imposed on ______ good. A. an imported B. a luxury C. an illegal D. a domestic

A. an imported

73. If the money supply exceeds money demand, people will ____ bonds which will cause bond prices to ____ and the nominal interest rate to _____ until money demand equals money supply. A. buy; rise; fall B. sell; fall; fall C. sell; rise; fall D. buy; fall; rise

A. buy; rise; fall

23. A change in consumers' income levels A. changes demand. B. changes supply. C. changes price. D. creates cross-price elasticity.

A. changes demand.

55. Refer to the figure above. When the demand is P2 = $15, this firm should ______ A. continue to operate in the short run and think about shutting down in the long run B. discontinue operation in the short run since there is a loss when operating. C. keep operating as long as loss is not greater than total cost D. discontinue operation in the short run since average total cost is greater than price.

A. continue to operate in the short run and think about shutting down in the long run

57. Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by A. decreases in production costs resulting from more firms coming into the market. B. a breakdown of the "free entry and exit" feature of competition. C. a breakdown of the "price taking" feature of competition. D. the fact that a resource used in the production of the good is available only in limited quantities.

A. decreases in production costs resulting from more firms coming into the market.

67. If short-run equilibrium output equals 20,000 and potential output (YN) equals 15,000, then this economy has a(n) __________ gap that can be closed by _________. A. expansionary; increasing taxes B. expansionary; increasing transfer payments C. expansionary; increasing government purchases D. recessionary; increasing government purchases

A. expansionary; increasing taxes

71. If the nominal interest rate is below the equilibrium value, then money demand is ______ than money supply, bond prices will ____, and the nominal interest rate will ____. A. greater; fall; increase B. greater; fall; decrease C. greater; rise; increase D. less; fall; increase

A. greater; fall; increase

35. An open-market purchase of government securities by the Fed will: A. increase bank reserves, and the money supply will increase. B. decrease bank reserves, and the money supply will increase. C. increase bank reserves, and the money supply will decrease. D. decrease bank reserves, and the money supply will decrease.

A. increase bank reserves, and the money supply will increase.

78. Refer to the figure above. Based on the diagram the nominal interest rate equals 6% and the money supply equals 600. If the Federal Reserve wants to lower the interest rate to 4%, it must _____ the money supply to _____. A. increase; 800 B. decrease; 800 C. increase; 1,000 D. increase; 400

A. increase; 800

85. If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio so that the new desired reserve/deposit ratio is 3 percent, then banks will _____ the deposits they accept and the money supply will _____. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

A. increase; increase

66. In the short-run Keynesian model, to close an expansionary gap of $1 billion dollars taxes must be: A. increased by $1 billion B. decreased by $1 billion. C. increased by more than $1 billion. D. increased by less than $1 billion.

A. increased by $1 billion

13. If the price of motel rooms increases by 10% while the prices of other goods and services increase by 5% on average, the relative price of motel rooms has: A. increased. B. decreased by 5%. C. decreased by 10%. D. remained constant.

A. increased.

16. Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases _________. A. increased; was reduced B. increased; increased C. decreased; was reduced D. had no effect; was reduced

A. increased; was reduced

89. Three workers run a house painting business and always work the same number of hours together. The paint they use requires applying two coats. Each worker paints 200 square feet per hour using a roller or 80 square feet per hour using a brush. If a technological advance provides a paint that only requires one coat, their average labor productivity per hour as a team: A. increases. B. decreases. C. remains the same. D. may either increase or decrease.

A. increases.

19. On a given linear demand curve, at high prices demand is ______ than at low prices. A. more price elastic. B. more price inelastic C. more negative. D. more volatile.

A. more price elastic.

32. The difference between the price of a good and the marginal cost of that good is called A. producer surplus B. profit C. variable cost D. consumer surplus

A. producer surplus

74. If the money supply is less than money demand, people will ____ bonds which will cause bond prices to ____ and the nominal interest rate to _____ until money demand equals money supply. A. sell; fall; rise B. sell; fall; fall C. sell; rise; fall D. buy; fall; rise

A. sell; fall; rise

30. The link between the money supply and prices is strongest in: A. the long run. B. the short run. C. a recession. D. a boom.

A. the long run.

59. When a monopolist reduces the quantity of output it produces and sells, A. the price of its output increases. B. the price of its output remains constant. C. the price of its output decreases. D. the profits for the firm always decrease.

A. the price of its output increases.

62. Leigh is one year away from retirement and is concerned that the social security system will be abolished this year. Leigh would like to have an annual income of $50,000 during retirement. How much does Leigh need to have invested at 3% to assure that annual income? A. $666,667 B. $1,666,667 C. $150,000 D. $2,666,667

B. $1,666,667

28. Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is ___, the coupon rate is ____, and the term of this bond is _____. A. $400 ; 40%; four years B. $10,000; 4%; four years C. $10,000; $400; 4% D. $10,400; 4%; four years

B. $10,000; 4%; four years

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1500 to Lane and $1000 to Riley. Irrespective of who pays for the paving both people will benefit from it. 77. What is the most a contractor can charge for paving the driveway and still be hired by at least one of them? A. $1000 B. $1500 C. $2000 D. $2500

B. $1500

9. Bob's Barber Shop cut 3,000 heads of hair in the year 2005 and 3,100 in the year 2006. The price of a hair cut was $7 in 2005 and $8 in 2006. If the year 2005 is the base year, what was Bob's contribution to real GDP in the year 2006? A. $21,000 B. $21,700 C. $24,000 D. $24,800

B. $21,700

94. Refer to Figure 14-1. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is A. $100,525. B. $90,125. C. $84,500. D. $75,250.

B. $90,125.

65. If consumption increases by $8 when after-tax disposable income increases by $10, the marginal propensity to consume equals: A. 0.2 B. 0.8 C. 2.0 D. 8.0

B. 0.8

44. Refer to the figure above. When the market is unregulated, consumer surplus equals A. 1/2 * (AJ) * (JE). B. 1/2 * (AB) * (BC). C. 1/2 * (AG) * (GI). D. 1/2 * (EH) * (HC).

B. 1/2 * (AB) * (BC).

32. If the Federal Reserve increased the money supply by 4 percent per year, real GDP grew by 3 percent per year, and the rate of inflation was 3 percent per year, then velocity must have increased by approximately _______ percent per year. A. 1 B. 2 C. 3 D. 6

B. 2

30. Fred runs a fishing lodge, and has a very successful business during the summer. In the fall, the number of guests at the lodge starts to decline, and by November very few people stay at Fred's Lodge. Fred should A. keep the lodge open all year because his summer profits offset any losses he has in the winter. B. Keep the lodge open only during those months in which revenues exceed total costs. C. Keep the lodge open only during those months in which revenues exceed the fixed costs of the lodge. D. Keep the lodge open only during those months in which revenues exceed the variable costs of serving guests.

B. Keep the lodge open only during those months in which revenues exceed total costs.

24. Who of the following would be classified as employed? A. Brenda Smith, an 18 year old full-time college student. B. Mario Faubert, a NHL hockey player at home sick with the flu. C. Jack Little, a 21 year old new college graduate actively looking for his first job. D. Sarah Lopez, a retired public school teacher.

B. Mario Faubert, a NHL hockey player at home sick with the flu.

18. Which of the following is an example of cyclical unemployment? A. Dora lost her job when the textile mill closed. She does not have skills to work in another industry and has been unemployed for over a year. B. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D. Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked.

B. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up.

34. Your math professor has assigned 20 homework problems that are due next week. After working for an hour, you notice you have completed 4 problems. After another hour, you have completed 3 more problems. During the third hour, you finish 2 problems. What economic principle best explains this? A. The principle of diminishing marginal utility: you do not enjoy working the problems as much during the last hour as you did during the first hour. B. The low-hanging-fruit principle: you completed the easiest problems first. C. The cost-benefit principle: the benefit of working an additional problem is less than the cost. D. The principle of comparative advantage: you are better at English than at math.

B. The low-hanging-fruit principle: you completed the easiest problems first.

This graph illustrates a hypothetical market for a newly-developed antibiotic drug. Bacteria mutate quickly, and so new antibiotics must be developed to work against bacteria strains that have evolved to be resistant to existing antibiotics. 64. In its efforts to keep medical costs down, the government has decided to impose a $15 price ceiling on a weekly dose of this drug. What is likely to happen? A. The firm will produce 400 doses per week causing excess supply of this drug on the market. B. This drug will disappear from the market. C. The firm will produce 325 doses per week, just meeting consumer demand. D. The firm will produce 200 doses per week, the quantity at which price equals Marginal Cost.

B. This drug will disappear from the market.

43. Which of the following statements best characterizes the inefficiency caused by a price floor? A. Consumers are encouraged to consume too much. B. Trades that benefit both the buyer and the seller are available at prices less than the price floor. C. Producers are encouraged to produce too little. D. The enforcement of the price floor is extremely costly.

B. Trades that benefit both the buyer and the seller are available at prices less than the price floor.

100. You have been promised a payment of $100,000 in the future. In which case is the present value of this future payment highest? A. You receive the payment 2 years from now and the interest rate is 6 percent. B. You receive the payment 2 years from now and the interest rate is 4 percent. C. You receive the payment 3 years from now and the interest rate is 6 percent. D. You receive the payment 3 years from now and the interest rate is 4 percent.

B. You receive the payment 2 years from now and the interest rate is 4 percent.

3. Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true? A. Your marginal grades (last semester's grades) were higher than your overall GPA. B. Your marginal grades were lower than your overall GPA. C. If this semester's grades are the same as last semester's, your overall GPA will stay the same. D. If this semester's grades are the same as last semester's, you might lose your scholarship.

B. Your marginal grades were lower than your overall GPA.

74. Suppose Cody tells Lee that any aggression on Lee's part will be met with aggression, but that if Lee cooperates, Cody will respond cooperatively. Cody's statement is A. a commitment device. B. a non-credible threat and promise. C. a description of the two equilibria for this game. D. a credible threat and promise.

B. a non-credible threat and promise.

1. Despite some problems with equating GDP with economic well-being, real GDP per person does imply greater economic well-being because it tends to be positively associated with: A. crime, pollution, and economic inequality. B. better education, health and life expectancy. C. poverty, depletion of nonrenewable resources, and congestion D. unemployment, availability of goods and services, and better education.

B. better education, health and life expectancy.

72. Assuming Lee is self-interested and believes Jordan is as well, if Lee knows that Jordan bought a ticket first, Lee will A. be indifferent between the two movies. B. buy a ticket to the comedy. C. flip a coin. D. buy a ticket to the documentary.

B. buy a ticket to the comedy.

64. In the Keynesian model it is assumed that when demand for a firm's product changes, the firm: A. changes prices to meet the demand. B. changes production levels to meet the demand. C. changes prices and production levels to meet demand. D. changes prices, but hold production levels constant to meet the demand.

B. changes production levels to meet the demand.

Your state legislature is considering increasing the sales tax on two different commodities: prescription drugs and restaurant meals. You estimate price elasticity of demand for prescription drugs to be -0.08 and price elasticity of demand for restaurant meals to be -1.05. 37. If the legislature's primary goal in increasing taxes is to raise money most efficiently, it should tax A. both drugs and restaurant meals equally. B. drugs because demand is price inelastic. C. restaurant meals because they are not a necessity. D. only those prescription drugs that are not life-saving.

B. drugs because demand is price inelastic.

78. Suppose the cost of paving the driveway is $2000, it is _____ for them to share its cost, because then they will have a total economic _______. A. inefficient; shortage of $500 B. efficient; surplus of $500 C. efficient; shortage of $500 D. efficient; surplus of $1000

B. efficient; surplus of $500

56. To produce 150 units of output, the firm must use 3 employee-hours. To produce 300 units of output the firm must use 8 employee-hours. Apparently, the firm is A. in the long run. B. experiencing diminishing marginal returns. C. not using any fixed factors of production. D. failing to profit maximize.

B. experiencing diminishing marginal returns.

37. Compared to older workers, younger workers change jobs more frequently, so they are more prone to _____ unemployment, and they have fewer skills, so they are more prone to ____ unemployment. A. cyclical; frictional B. frictional; structural C. structural; frictional D. frictional; cyclical

B. frictional; structural

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower _____ and the lender ______. A. gains; gains B. gains; loses C. is not affected; gains D. loses; gains

B. gains; loses

76. Suppose Lee and Cody enter into a binding non-aggression agreement. As part of that agreement they negotiate a fine that Cody would have to pay to Lee if Cody responded to Lee's passive choice with aggression. For that fine to be effective, it must be A. less than 15 B. greater than 15 C. equal to 40 D. equal to 25.

B. greater than 15

93. The __________ the difference between domestic opportunity costs and international opportunity costs, the __________ the potential benefits of trading with other countries. A. smaller; greater B. greater; greater C. greater; smaller D. larger; more insignificant

B. greater; greater

63. An economic expansion in the U.S. ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ________ output gap in Mexico. A. reduces; expansionary B. increases; expansionary C. reduces; recessionary D. increases; recessionary

B. increases; expansionary

65. When the Water Authority in Townsville cuts cost by $1000, the government cuts its budget by $1000. The most likely reason for this is, that _______ A. it is a natural monopoly B. it is a state-owned natural monopoly C. it is a private natural monopoly D. its marginal cost is always greater than its average total cost

B. it is a state-owned natural monopoly

88. Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ____ in Alpha compared to Beta, holding other factors constant. A. more B. less C. not at all D. by the same amount

B. less

18. Suppose two demand curves have a point in common. With respect to price at that point, demand shown by the steeper curve will be _______ than the less steep curve. A. more elastic than B. less elastic than C. as elastic as D. more likely to be unitary than

B. less elastic than

72. If the nominal interest rate is above the equilibrium value, then money demand is ______ than money supply, bond prices will ____, and the nominal interest rate will ____. A. greater; fall; increase B. less; rise; decrease C. greater; rise; increase D. less; fall; increase

B. less; rise; decrease

93. Refer to Figure 14-1. Let Q represent the quantity of output and suppose the price of the good is $125. If this firm is in a perfectly competitive market, then A. marginal revenue is $80 at Q = 270. B. marginal revenue is $100 at Q = 322. C. marginal revenue is $175 at Q = 515. D. None of the above is correct.

B. marginal revenue is $100 at Q = 322.

15. As the price of a good rises, A. firms earn larger profits. B. more firms can cover their opportunity costs of producing the good. C. firms find they can raise price by even more. D. government regulation becomes more justified.

B. more firms can cover their opportunity costs of producing the good.

22. An increase in the unemployment rate can be the result of either _____ or _____ holding the other factors constant. A. more unemployed workers; more people in the labor force B. more unemployed workers; fewer people in the labor force C. more employed workers; more people in the labor force D. fewer unemployed workers; more people in the labor force

B. more unemployed workers; fewer people in the labor force

24. During recessions, when workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durables are A. substitutes. B. normal goods. C. complements. D. inferior goods.

B. normal goods.

67. If Candidate X is running against Candidate Z, by moving to the right Candidate X would A. lose some votes from the far left but gain approximately the same number of votes from Z. B. not lose any votes from the left and gain some from Z. C. force Z to move farther to the right in order to keep the same number of votes. D. win the election if the move placed X anywhere to the right of the 25 mark on the spectrum.

B. not lose any votes from the left and gain some from Z.

21. If the percent change in quantity demanded is zero for any percent change in the price, demand is classified as A. inelastic. B. perfectly inelastic. C. unit elastic. D. perfectly elastic.

B. perfectly inelastic.

68. If someone informs a sales clerk that he was given $20 in change when he was only owed $10, one can conclude, A. the individual is irrational. B. preferences to be honest altered his motivation and choice. C. the individual is wealthy. D. somebody else must have witnessed the error.

B. preferences to be honest altered his motivation and choice.

98. A legal limit on the quantity of a good that may be imported is called a(n) ________. A. tariff B. quota C. trade limit D. import tax

B. quota

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. 69. If two residents of Avarice play the Prisoner's Dilemma game, they are likely to A. never reach the Nash Equilibrium B. reach the Nash Equilibrium more often than would residents of Altruism. C. reach the Nash Equilibrium less often than would residents of Altruism. D. play their dominated strategies more often than would residents of Altruism.

B. reach the Nash Equilibrium more often than would residents of Altruism.

34. When the Fed sells government securities, the banks': A. reserves will increase and lending will expand causing an increase in the money supply. B. reserves will decrease and lending will contract causing a decrease in the money supply. C. reserve requirements will increase and lending will contract causing a decrease in the money supply. D. reserves/deposit ratio will increase and lending will expand causing an increase in the money supply.

B. reserves will decrease and lending will contract causing a decrease in the money supply.

80. Refer to the figure above. Based on the diagram the nominal interest rate equals 6% and the money supply equals 600. If the Federal Reserve wants to set the nominal interest rate at 10%, it must conduct open market _____ to set the money supply at _____. A. purchases; 200 B. sales; 200 C. purchases; 800 D. sales; 800

B. sales; 200

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. 104. To maximize total output, Paula should specialize in producing _____ while Ricardo should specialize in producing _______. A. computers; shirts B. shirts; computers C. computers; computers D. shirts; shirts

B. shirts; computers

29. The tendency for marginal utility to decline as consumption increases beyond some point is called A. the law of demand B. the law of diminishing marginal utility C. the rational spending rule D. utility maximization

B. the law of diminishing marginal utility

13. If, in a particular market, all unexploited opportunities have been realized, one can conclude that A. government regulation has proven successful. B. the market is in equilibrium. C. demanders are unable to find adequate amounts of the good. D. excess demand is present.

B. the market is in equilibrium.

12. Efficiency occurs when A. a market is in equilibrium. B. the socially optimal quantity of goods and services is being produced. C. the individually rational quantity of goods and services is being produced. D. the government does not interfere with market prices.

B. the socially optimal quantity of goods and services is being produced.

10. Suppose that the production of oranges reduces global warming by .1%. The equilibrium price of oranges is _______ because not all of the _________ are accounted for in the marketplace. A. too high; benefits B. too low; benefits C. too low; costs D. optimal; costs

B. too low; benefits

38. For policymakers the problem with a recessionary gap is _____ and the problem with an expansionary gap is _____. A. a tendency for inflation to develop; wasted resources B. wasted resources; a tendency for inflation to develop C. an increase in cyclical unemployment; an increase in structural unemployment D. an increase in structural unemployment; an increase in cyclical unemployment

B. wasted resources; a tendency for inflation to develop

33. The most important decision that sellers make is A. whether to set profit maximization as a goal. B. whether to produce another unit C. whether to change the price of their product D. whether to expand factory facilities.

B. whether to produce another unit

28. From the data you can assume that Betty A. thinks that doughnuts are an inferior good. B. would get more marginal utility from her first doughnut than anything else that she buys for 50 cents. C. would get less marginal utility from her first doughnut than anything else that she buys for 50 cents. D. is not a rational consumer.

B. would get more marginal utility from her first doughnut than anything else that she buys for 50 cents.

If the Citrus Growers Association grows $1 million worth of oranges, sells $500,000 worth of oranges to consumers, uses the rest to make orange juice that is sold to consumers for $3 million, Citrus Grower's contribution to GDP is: A. $500,000. B. $1,000,000. C. $3,500,000. D. $4,000,000.

C. $3,500,000.

7. What is the sum of the value added of all of the firms? A. $1.50 B. $2.00 C. $4.00 D. $7.00

C. $4.00

95. Refer to Figure 14-1. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices? A. $65 and $75 B. $75 and $85 C. $80 and $100 D. $125 and $175

C. $80 and $100

42. If the natural rate of unemployment equals 6% and the actual rate of unemployment equals 5%, then cyclical unemployment equals: A. -1% B. 20% C. 1% D. 6%

C. 1%

23. Based on the following information, what is the unemployment rate? A. 7.2% B. 8.0% C. 10.0% D. 28.0%

C. 10.0%

Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The utilities they receive from seeing the films either together or separately are shown in the payoff matrix. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. 71. This game has __________ Nash equilibrium. A. 0. B. 1. C. 2. D. 4.

C. 2.

63. If the present value of $1000 next month is $970.87, the interest rate is A. 5%. B. 1%. C. 3%. D. 4%.

C. 3%.

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. 101. What is the opportunity cost for Paula to produce one computer? A. ¼ shirt B. ½ shirt C. 4 shirts D. 2 shirts

C. 4 shirts

36. Which of the following policies maintains efficiency in the housing market while assisting the poor with their housing needs? A. A price floor. B. A price ceiling. C. A free market with subsidies to landlords. D. A free market with subsidies to the poor.

C. A free market with subsidies to landlords.

70. Suppose residents of each island often play prisoner's dilemma games, always matched with a person from the same island, but not a person who they know or will play with again. If the same number of games is played, you would expect that A. Avarice players will have higher average payoffs than Altruism players. B. players on both islands will quickly converge to playing the Nash Equilibrium all of the time. C. Altruism players will have higher average payoffs than Avarice players. D. players on both islands will quickly converge to the higher-payoff non Nash Equilibrium result.

C. Altruism players will have higher average payoffs than Avarice players.

Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly arrayed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to the left and fifty to the right. At the extreme right end, all 100 voters lie to the left. 66. If Candidate Y is running against Candidate Z, A. Candidate Y will have an incentive to move to the left, and Candidate Z will have an incentive to move to the right. B. Both candidates will have an incentive to move to the left. C. Both candidates will have an incentive to move toward each other's position. D. Neither candidate has any incentive to move.

C. Both candidates will have an incentive to move toward each other's position.

Lee and Cody are competitors. Each is considering whether to take aggressive action against the other or to cooperate. Cody can observe Lee's decision. Their decision tree can be diagrammed as follows: 73. If Lee is aggressive, Cody will respond with ______ and if Lee cooperates, Cody will respond with ____. A. Aggression; Cooperation B. Aggression; Aggression C. Cooperation; Aggression D. Cooperation; Cooperation

C. Cooperation; Aggression

58. Which of the following is NOT a difference between monopolies and perfectly competitive markets? A. Monopolies can earn profits in the long run while perfectly competitive firms break even. B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost. C. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not. D. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

C. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

25. Suppose you are a government analyst, and you want to help homeless families. To do so, you have decided to subsidize rental housing for poor families. (A subsidy is a payment by the government that pays part of the price of a specific product. For example, the government pays part of the rent payment.) If families had been choosing rationally before the subsidy, what is most likely to happen as a result of the subsidy? A. The substitution effect will cause people to consume less rental housing as the price of housing falls. B. The income effect will cause people to consume less rental housing, but only if rental housing is a normal or luxury good. C. People will consume more housing and more of another good, for example, groceries. D. Any rational person will respond by consuming more housing, and no more of the other goods he or she consumes.

C. People will consume more housing and more of another good, for example, groceries.

An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. 103. ________ has the comparative advantage in computers and _______ has the comparative advantage in shirts. A. Paula; Paula B. Paula; Ricardo C. Ricardo; Paula D. Ricardo; Ricardo

C. Ricardo; Paula

Sean studied 5 hours for his first Economics test and his test score was 85; 6 hours for his second Economics test and scored 90; and 7 hours for his third Economics test and scored 95. He also studied 5 hours for his first Math test and his test score was 68; 6 hours for his second Math test and scored 78; and 7 hours for his third Math test and scored 88. 6. If Sean has already spent 5 hours studying Economics and 5 hours studying Math, he should spend the next hour A. Studying Math for half an hour and Economics for half an hour B. Studying only Economics C. Studying only Math D. Studying Economics for 45 minutes and Math for 15 minutes

C. Studying only Math

Which of the following would increase the government purchases component of U.S. GDP? A. The U.S. federal government pays $3 billion in pensions to government workers. B. The U.S. federal government pays $3 billion in interest on the national debt. C. The U.S. federal government pays $3 billion in salaries to soldiers in the military. D. The U.S. federal government pays $3 billion in interest to foreign holders of U.S. government bonds.

C. The U.S. federal government pays $3 billion in salaries to soldiers in the military.

31. What is the optimal supply of roadside litter? A. Zero, because it is costless for each individual to throw away his or her own trash. B. The quantity of litter that would remain if trash were picked up until the average cost of picking up trash equaled the total benefit. C. The quantity of litter that would remain if trash were picked up until the marginal cost of picking up trash equaled the marginal benefit. D. The quantity of litter that would remain if trash were picked up until the total cost of picking up trash equaled the marginal benefit.

C. The quantity of litter that would remain if trash were picked up until the marginal cost of picking up trash equaled the marginal benefit.

46. Suppose you quit your job to start a business. In the first month, your total revenue was $6,000. You paid $1,000 in monthly rent for office space.$ 200 in monthly rent for equipment.$3,000 to your workers in wages for the month.$1,000 for the supplies you used that month. You determine that your true profit that month was negative $200. Why? A. You did the math incorrectly. B. You accounted for lost salary of $200. C. You accounted for lost salary of $1000. D. Your equipment rent is an implicit cost.

C. You accounted for lost salary of $1000.

79. Refer to the figure above. Based on the diagram the nominal interest rate equals 6% and the money supply equals 600. If the Federal Reserve wants to raise the interest rate to 8%, it must _____ the money supply to _____. A. increase; 800 B. decrease; 800 C. decrease; 400 D. increase; 400

C. decrease; 400

62. When housing prices decrease, household wealth _____ and consumption _____. A. increases; increases B. increases; decreases C. decreases; decreases D. decreases; increases

C. decreases; decreases

77. When Argentines increase their savings in U.S. dollars, the U.S. money: A. supply curve shifts left. B. supply curve shifts right. C. demand curve shifts right. D. demand curve shifts left.

C. demand curve shifts right.

69. If short-run equilibrium output equals 50,000 and potential output (YN) equals 45,000, then this economy has a(n) __________ gap that can be closed by _________. A. expansionary; decreasing taxes B. expansionary; increasing transfer payments C. expansionary; decreasing government purchases D. recessionary; increasing government purchases

C. expansionary; decreasing government purchases

29. Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Pat sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Pat receives is: A. $10,000. B. $500. C. greater than $10,000. D. less than $10,000.

C. greater than $10,000.

91. Governments contribute to increased average labor productivity in each of the following ways EXCEPT by: A. establishing well-defined property rights. B. maintaining political stability. C. imposing taxes on wages. D. allowing the free and open exchange of ideas.

C. imposing taxes on wages.

82. In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 15 percent. If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will _____ to _____ econs, assuming that the public does not wish to change the amount of currency it holds. A. increase; 3,133 B. increase; 4,100 C. increase; 4,667 D. increase; 2,667

C. increase; 4,667

42. Suppose the government fines the firm an amount equal to the damage imposed on the fish. Thisgovernment action A. reduces efficiency in the market. B. increases dead weight loss. C. increases efficiency in the market. D. violates Pareto efficiency.

C. increases efficiency in the market.

Extremely rapid rates of money growth are usually the result of: A. rapid population growth. B. excessively high interest rates. C. large government budget deficits. D. sharp increases in productivity.

C. large government budget deficits.

22. When the price of insulin was $10 consumers demanded 100 units, when the price was $15 consumers demanded 100 units, and when the price was $20 consumers demanded 100 units. Based on this information, insulin must have a(n) _______ demand curve. A. unitary elastic B. perfectly elastic C. perfectly inelastic D. elastic

C. perfectly inelastic

8. If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is ________ and the change in the equilibrium quantity is _________. A. positive; positive B. positive; negative C. positive; indeterminate D. indeterminate; positive

C. positive; indeterminate

61. Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right causing the market A. price to increase, and a new stable equilibrium to be established at a higher price and higher quantity. B. price to increase, and all firms in the industry will earn higher profits at lower quantities of output. C. price to increase. Increased profits will encourage new firms to enter shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity but at the same price as before the surge in popularity. D. price and quantity supplied to increase. Increased profits will encourage new firms to enter shifting the market supply function upward. Long-run market equilibrium will be at a higher quantity and higher price than before the surge in popularity.

C. price to increase. Increased profits will encourage new firms to enter shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity but at the same price as before the surge in popularity.

40. In the long run total spending affects ______ and output is determined by _______. A. inputs and productivity; prices B. inputs and productivity; total spending C. prices; inputs and productivity D. prices; meeting demand at preset prices

C. prices; inputs and productivity

81. Refer to the figure above. Based on the diagram the nominal interest rate equals 6% and the money supply equals 600. If the Federal Reserve wants to set the nominal interest rate at 4%, it must conduct open market _____ to set the money supply at _____. A. purchases; 200 B. sales; 200 C. purchases; 800 D. sales; 800

C. purchases; 800

70. To close an expansionary gap, the Fed ____ interest rates which ______ planned aggregate spending and _____ short-run equilibrium output. A. raises; increases; increases B. raises; decreases; increases C. raises; decreases; decreases D. lowers; increases; decreases

C. raises; decreases; decreases

81. Robert and Neal are playing the ultimatum game starting with $100. Based on the coin toss, Robert is the player to propose a division of the $100. If Robert acts as economic theory assumes and Neal acts as experimental evidence shows, Neal will A. accept Robert's proposal of keeping $99 and offering Neal $1. B. accept Robert's proposal of keeping $60 and offering Neal $40. C. reject Robert's proposal of keeping $99 and offering Neal $1. D. reject Robert's proposal of keeping $60 and offering Neal $40.

C. reject Robert's proposal of keeping $99 and offering Neal $1.

80. One source of friction in the governmental provision of a pure public good is that voters receive __________ of the public good and have __________ for the public good. A. different amounts; different reservation prices B. different amounts; the same reservation price C. the same amount; different reservation prices D. the same amount; the same reservation price

C. the same amount; different reservation prices

In the short run ______ determines output and in the long run ____ determines output. A. potential output; prices B. potential output; total spending C. total spending; potential output D. total spending; prices

C. total spending; potential output

If two countries are identical except that there is significant air and water pollution in one, then the level of GDP: A. will be higher in the country with the pollution. B. will be higher in the country with no pollution. C. will be the same in both countries. D. will be greater than the level of economic well being in each country.

C. will be the same in both countries.

27. If the principal amount of a bond is $2,000,000, the coupon rate is 6%, and the inflation rate is 4%, then the annual coupon payment made to the holder of the bond is _____. A. $12,000 B. $40,000 C. $80,000 D. $120,000

D. $120,000

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: 8. If the corn was grown and the jar of popcorn produced in the year 2005, but the jar was sold at Friendly Groceries in the year 2006, what is the contribution of these transactions to GDP in the year 2005? A. $0.00 B. $0.50 C. $1.50 D. $2.50

D. $2.50

26. Moe's reservation price for his economics textbook is $100. The week before the semester began, Moe found a copy of the required text online for $75. Moe's consumer surplus is A. $125 B. $100 C. $75 D. $25

D. $25

A report indicated that the average real wage in manufacturing declined by 2% between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990? A. $20.71 B. $21.12 C. $26.92 D. $27.46

D. $27.46

5. An economy produces only 500,000 tables valued at $100 each. Of these 100,000 are sold to consumers, 200,000 are sold to businesses, 100,000 are sold to the government, and 50,000 are sold abroad. No tables are imported. The unsold tables at the end of the year are held in inventory by the table manufacturers. What is the value of GDP? A. $5 million. B. $40 million C. $45 million D. $50 million

D. $50 million

14. Joy's Java Café needs $4,000 cash per day for customer transactions. Joy has a choice between going to the bank first thing on Monday morning to withdraw $20,000 - enough cash for the whole week - or going to the bank first thing every morning for $4,000 each time. Joy puts the cost of going to the bank at $3 per trip. Assume that funds left in the bank earn precisely enough interest to keep their purchasing power unaffected by inflation. Joy's Java Cafe is open 5 days a week for 50 weeks each year. When the inflation rate is 10% Joy goes to the bank everyday instead of once a week. Joy's annual shoe leather costs of inflation equal _____. A. $ 3 B. $150 C. $600 D. $750

D. $750

Suppose that the total expenditures for a typical household in 2000 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2005 was $6,875. If 2000 is the base year, the CPI for the year 2005 equals: A. 0.80 B. 1.00 C. 1.20 D. 1.25

D. 1.25

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. 102. What is the opportunity cost for Ricardo to produce one computer? A. ¼ shirt B. ½ shirt C. 1 shirt D. 2 shirts

D. 2 shirts

43. If the frictional rate of unemployment equals 2 percent, the structural rate of unemployment equals 3 percent, and the cyclical rate of unemployment equals 1 percent, then the natural rate of unemployment equals: A. 6%. B. 1%. C. 3%. D. 5%.

D. 5%.

25. In a country with 200 million people aged 16 years and older, 120 million in the labor force, and 114 million employed, what is the participation rate? A. 5 percent B. 57 percent C. 75 percent D. 60 percent

D. 60 percent

Given the following data for an economy, compute the investment component of GDP. A. 300 B. 400 C. 800 D. 900

D. 900

Who of the following would classified as out of the labor force? A. A person with a part-time job. B. A person with a full-time job. C. A person willing to work, who had looked for a job in the last week. D. A person willing to work who had not looked for a job in two months.

D. A person willing to work who had not looked for a job in two months.

Suppose that there are just two firms in a small market.Acme Manufacturing's Total Costs equal $100 + $3QGeneric Industries' Total Costs equal $500 + $3Q (where Q = quantity of output for both firms). 97. Suppose that Acme and Generic face the same demand function, that they are both pursuing a profit maximization policy, and that both companies are earning positive economic profits at that quantity. Which statement is true? A. Acme will produce more output than Generic. B. Generic will produce more output than Acme. C. Acme and Generic will produce the same quantity and will have the same profits. D. Acme and Generic will produce the same quantity, but Acme will have higher profits.

D. Acme and Generic will produce the same quantity, but Acme will have higher profits.

20. Which of the following is an example of frictional unemployment? A. Dora lost her job when the textile mill closed. She does not have skills to work in another industry and has been unemployed for over a year. B. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't use his skills, but now has a job requiring the expertise he gained in college.

D. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't use his skills, but now has a job requiring the expertise he gained in college.

11. Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not? A. There is an excess demand for parks in the neighborhood. B. There is an excess supply of parks in the neighborhood. C. If you totaled everyone's reservation prices to clean the park, it would not be enough to pay the cost of leaning it. D. No single person's reservation price to clean the park makes it worth cleaning it.

D. No single person's reservation price to clean the park makes it worth cleaning it.

92. Each of the following statements describes how the political and legal environment encourages productivity EXCEPT: A. Well-defined property rights encourage production and saving. B. Political stability promotes economic growth. C. Price changes in markets provide suppliers incentives to supply goods to markets. D. Pay rates determined by a governmental planning agency provide workers with the incentive to work hard.

D. Pay rates determined by a governmental planning agency provide workers with the incentive to work hard.

The following graphs depict a perfectly competitive firm and its market.Assume that all firms in this industry have identical cost functions. 60. Assume that the market is currently as shown in the graph on the left (i.e., price of $8). What is true of the number of firms? A. There are currently 30 firms in the industry, and that number will remain stable until there is a change in demand or in technology. B. There are currently ten firms in this industry, and that number will remain stable until there is a change in demand or in technology. C. It is impossible to tell how many firms currently exist in this industry, but you can tell that the number of firms is likely to increase in the near future. D. There are currently ten firms in this industry, and that number is likely to increase in the near future.

D. There are currently ten firms in this industry, and that number is likely to increase in the near future.

41. Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means A. all producers who want to sell coffee earn a profit. B. all remaining producers require less than $5 to produce coffee. C. all consumers who want to buy coffee are satisfied. D. all remaining consumers value a pound of coffee at less than $5.

D. all remaining consumers value a pound of coffee at less than $5.

7. Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. This is A. not an economic problem, because neither one costs money. B. not an economic problem, because it's an hour that is wasted no matter what Chris does. C. an economic problem because the tuition Chris pays covers both the gym and the library. D. an economic problem, because the one-hour time limit means Chris must make a choice.

D. an economic problem, because the one-hour time limit means Chris must make a choice.

61. Changes in the constant term in the consumption function could be the result of: A. an increase in disposable income. B. a decrease in disposable income. C. an increase in the MPC D. an increase in housing prices.

D. an increase in housing prices.

90. Entrepreneurs contribute to increased average labor productivity in each of the following ways EXCEPT by: A. introducing new production methods. B. implementing new technological processes. C. developing new products. D. assigning workers to jobs.

D. assigning workers to jobs.

87. The prediction that workers obtain additional training only when the rewards from the training are expected to exceed the costs of the training (including the opportunity costs) is based on the: A. principle of comparative advantage. B. principle of diminishing returns to capital. C. scarcity principle. D. cost-benefit principle.

D. cost-benefit principle.

83. In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 15 percent. If commercial banks repay 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will _____ to _____ econs, assuming that the public does not wish to change the amount of currency it holds. A. increase; 3,133 B. decrease; 1,133 C. decrease; 4,667 D. decrease; 3,133

D. decrease; 3,133

84. If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will _____ the deposits they accept and the money supply will _____. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

D. decrease; decrease

99. Suppose the government imposes a quota on imported steel. The winners from the quota are the ________, and the losers are the______. A. domestic consumers; domestic producers B. government; domestic consumers C. importers; domestic producers D. domestic producers; domestic consumers

D. domestic producers; domestic consumers

95. Free trade is ______, because it ______ the size of the pie available to the economy. A. inefficient; decreases B. efficient; increases C. good for developed countries only; unfairly changes D. efficient; decreases

D. efficient; decreases

94. The key to resolving the apparent paradox of international trade increasing total output yet facing much political opposition is noting that A. economists are mistaken about the increase in output. B. only the wealthy benefit from trade. C. no one benefits from trade. D. everyone does not benefit equally from trade.

D. everyone does not benefit equally from trade.

75. If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ______ gap and the Federal Reserve must _____ real interest rates in order to close the gap. A. recessionary; raise B. recessionary; lower C. recessionary; not change D. expansionary; raise

D. expansionary; raise

76. If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ______ gap and the Federal Reserve must _____ real interest rates in order to close the gap. A. recessionary; raise B. recessionary lower C. recessionary; not change D. expansionary; raise

D. expansionary; raise

31. According to the quantity equation if velocity and real GDP are constant and the Federal Reserve increases the money supply by 5 percent, then the price level: A. decreases by 10 percent. B. decreases by 5 percent. C. increases by 10 percent. D. increases by 5 percent.

D. increases by 5 percent.

9. If both supply and demand decrease simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________. A. lower; lower B. lower; indeterminate C. indeterminate; higher D. indeterminate; lower

D. indeterminate; lower

79. Relative to the two-person scenario described, if a large number of people share the driveway, the joint purchase of paving is_______ and the ________ emerges. A. impossible; tragedy of the commons B. less costly; maximum economic efficiency C. more likely to be accomplished; free-rider problem D. more difficult; free-rider problem

D. more difficult; free-rider problem

98. Refer to the figure above. The firm illustrated in the graph is a(n) A. oligopolist. B. monopolistic competitor. C. perfect competitor. D. natural monopolist.

D. natural monopolist.

26. Involuntary part-time workers are: A. chronically unemployed. B. considered out of the labor force. C. short-term unemployed workers. D. not counted as unemployed.

D. not counted as unemployed.

20. If consumers completely cease purchasing a product when its price increases by any amount, demand is classified as A. elastic. B. perfectly inelastic. C. unitary elastic. D. perfectly elastic.

D. perfectly elastic.

36. Which of the following workers is least likely to lose his/her job during a recession? A. carpenter B. automobile assembly line worker C. roofer D. police officer

D. police officer

96. In the middle and late 1980s, many people wanted the U.S. Congress to impose taxes and import restrictions that would make foreign goods less available and more expensive. This idea is known as _________. A. tariff B. quota C. autarky D. protectionism

D. protectionism

41. In Macroland potential GDP equals $8 trillion and real GDP equals $7.52 trillion. Macroland has a(n) _________ gap equal to _____ percent of potential GDP. A. expansionary; -48 B. expansionary; 6 C. recessionary; 48 D. recessionary; -6

D. recessionary; -6

68. If short-run equilibrium output equals 20,000 and potential output (YN) equals 25,000, then this economy has a(n) __________ gap that can be closed by _________. A. recessionary; increasing taxes B. expansionary; increasing transfer payments C. expansionary; increasing government purchases D. recessionary; increasing government purchases

D. recessionary; increasing government purchases

17. When Taylor raised the price of earrings at Taylor's Boutique, total revenue from earrings increased. This suggests that A. the demand for Taylor's earrings at the original price must be elastic. B. there are too many other boutiques competing with Taylor. C. there was excess demand for earrings at the original price. D. the demand for Taylor's earrings at the original price was inelastic.

D. the demand for Taylor's earrings at the original price was inelastic.

35. Individual supply curves generally slope __________ because _______ A. downward; individual's become more efficient with practice. B. upward; profits increase with quantity. C. downward; inputs are cheaper when purchased in high volume. D. upward; the easiest tasks are completed first.

D. upward; the easiest tasks are completed first.

120. Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is a. 1/6 table for Ken and 1/3 table for Traci. b. 1/6 table for Ken and 3 tables for Traci. c. 6 tables for Ken and 1/3 table for Traci. d. 6 tables for Ken and 3 tables for Traci.

a. 1/6 table for Ken and 1/3 table for Traci.

114. On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions? a. A relatively simple way to increase growth rates permanently is to increase a country's saving rate. b. Growth is generally inhibited rather than promoted by policies like protective tariffs. c. Well-established property rights that are enforced by fair and efficient courts are important to economic growth. d. Countries with few domestic natural resources still have opportunities for economic growth.

a. A relatively simple way to increase growth rates permanently is to increase a country's saving rate.

118. When Chile experiences investment from abroad, it experiences, as a result, a. an increase in productivity. b. a decrease in Gross National Product (GNP). c. lower wages for Chilean workers. d. None of the above is correct.

a. an increase in productivity.

119. Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could a. benefit both Steve and Tom. b. benefit Steve, but not Tom. c. benefit Tom, but not Steve. d. benefit neither Steve nor Tom.

a. benefit both Steve and Tom.

49. Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then a. both the unemployment rate and labor-force participation rate would be higher. b. the unemployment rate would be higher ,and the labor-force participation rate would be lower. c. the unemployment rate would be lower, and the labor-force participation rate would be higher. d. both the unemployment rate and labor-force participation rate would be lower.

a. both the unemployment rate and labor-force participation rate would be higher.

59. During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands a. decreased. Other things the same, a decrease in velocity decreases the price level. b. decreased. Other things the same, a decrease in velocity increases the price level. c. increased. Other things the same, an increase in velocity decreases the price level. d. increased. Other things the same, an increase in velocity increases the price level.

a. decreased. Other things the same, a decrease in velocity decreases the price level.

106. The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do? a. increase government expenditures or increase the money supply b. increase government expenditures or decrease the money supply c. decrease government expenditures or increase the money supply d. decrease government expenditures or decrease the money supply

a. increase government expenditures or increase the money supply

107. Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium? a. increase taxes b. increase government expenditures c. increase the money supply d. All of the above are correct.

a. increase taxes

108. During recessions, automatic stabilizers tend to make the government's budget a. move toward deficit. b. move toward surplus. c. move toward balance. d. not necessarily move the budget in any particular direction.

a. move toward deficit.

113. The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth? a. poorly enforced property rights b. outward-oriented trade policies c. policies that permit foreign investment d. All of the above are correct.

a. poorly enforced property rights

99. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.

85. Which of the following is not correct? a. An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. b. The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. c. An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. d. One interpretation of gift giving is that it reflects asymmetric information and signaling.

b. The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard.

50. When a firm is experiencing economies of scale, long-run a. average total cost is minimized. b. average total cost is greater than long-run marginal cost. c. average total cost is less than long-run marginal cost. d. marginal cost is minimized.

b. average total cost is greater than long-run marginal cost.

92. On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that a. every electric customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient. b. it would be more efficient if the electric company raised its rates for electricity at peak times. c. it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times. d. it would be more efficient to force everyone to cut their usage of electricity by the same amount.

b. it would be more efficient if the electric company raised its rates for electricity at peak times.

51. New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

b. Price will fall.

124. Trade can make everybody better off because it a. increases cooperation among nations. b. allows people to specialize according to comparative advantage. c. requires some workers in an economy to be retrained. d. reduces competition among domestic companies.

b. allows people to specialize according to comparative advantage.

56. If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce reserves. b. buying bonds. This buying would increase reserves. c. selling bonds. This selling would reduce reserves. d. selling bonds. This selling would increase reserves.

b. buying bonds. This buying would increase reserves

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely a. increased. b. decreased. c. stayed the same. d. may have increased, decreased, or stayed the same.

b. decreased.

58. According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also a. either a rise in output or a rise in velocity. b. either a rise in output or a fall in velocity. c. either a fall in output or a rise in velocity. d. either a fall in output or a fall in velocity.

b. either a rise in output or a fall in velocity.

51. If people decide to hold more currency relative to deposits, the money supply a. falls. The larger the reserve ratio is, the more the money supply falls. b. falls. The larger the reserve ratio is, the less the money supply falls. c. rises. The larger the reserve ratio is, the more the money supply rises. d. rises. The larger the reserve ratio is, the less the money supply rises.

b. falls. The larger the reserve ratio is, the less the money supply falls

111. Suppose that a country increased its saving rate. In the long run it would have a. higher productivity, and another unit of capital would increase output by more than before. b. higher productivity, but another unit of capital would increase output by less than before. c. lower productivity, and another unit of capital would increase output by more than before. d. lower productivity, but another unit of capital would increase output by less than before.

b. higher productivity, but another unit of capital would increase output by less than before.

105. Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would a. increase government spending. b. increase the money supply. c. decrease government spending. d. decrease the money supply.

b. increase the money supply

54. If the Fed raised the reserve requirement, the demand for reserves would a. increase, so the federal funds rate would fall. b. increase, so the federal funds rate would rise. c. decrease, so the federal funds rate would fall. d. decrease, so the federal funds rate would rise.

b. increase, so the federal funds rate would rise.

50. Other things the same, if reserve requirements are increased, the reserve ratio a. increases, the money multiplier increases, and the money supply increases. b. increases, the money multiplier decreases, and the money supply decreases. c. decreases, the money multiplier increases, and the money supply increases. d. decreases, the money multiplier decreases, and the money supply increases.

b. increases, the money multiplier decreases, and the money supply decreases.

53. Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.

Output Produced in One Day Jamaica Coolers: 12 Radios: 6 Norway Coolers:24 Radios: 3 Jamaica has a comparative advantage in the production of a. coolers and Norway has a comparative advantage in the production of radios. b. radios and Norway has a comparative advantage in the production of coolers. c. both goods and Norway has a comparative advantage in the production of neither good. d. neither good and Norway has a comparative advantage in the production of both goods.

b. radios and Norway has a comparative advantage in the production of coolers.

122. Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if a. Canada requires fewer resources than the U.S. to produce a bushel of wheat. b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S. c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada. d. the U.S. has an absolute advantage over Canada in producing computer software.

b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.

Labor Hours Needed to Make 1 Pound of Farmer: Pork- 6 Tomatoes- 3 Rancher: Pork- 4 Tomatoes- 4 Pounds Produced in 24 Hours Farmer: Pork-4 Tomatoes- 8 Rancher: Pork-6 Tomatoes-6 126. Refer to Table 3-23. The farmer has a comparative advantage in the production of a. pork. b. tomatoes. c. both goods. d. neither good.

b. tomatoes.

60. There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that a. velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P. b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P. c. velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P. d. velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.

b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.

89. Which of the following is an example of the free-rider problem? a. Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pays the full cost of the care. b. Alfred receives a free lunch from the local "Meals on Wheels" program because of his low monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch. c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking. d. Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having a buy one, get one free sale.

c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

91. A stairwell in a certain office building is always congested at 12:00 p.m. and 1:00 p.m. The congestion is so bad that people have been complaining to the building's owner. Which of the following methods would be the most efficient way of reducing congestion? a. Assign each person in the building a time when they are allowed to use the stairwell. b. Encourage people to voluntarily keep off the stairwell during peak times. c. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times. d. Hold a lottery to determine who wins the right to use the stairwell at peak times.

c. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times.

Scenario 17-2. ​Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. 84. Refer to Scenario 17-2. Exxoff's dominant strategy would lead to what sort of well-drilling behavior? a. Exxoff will never drill a second well. b. Exxoff will always drill a second well. c. Exxoff will drill a second well only if BQ drills a well. d. Exxoff will drill a second well only if BQ does not drill a well.

c. Exxoff will drill a second well only if BQ drills a well.

52. What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous. d. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

c. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous.

87. Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of Xwould you be indifferent between the two options? a. X = 809.33 b. X = 855.56 c. X = 895.42 d. X = 916.74

c. X = 895.42

54. Which of the following might cause the supply curve for an inferior good to shift to the right? a. an increase in input prices b. a decrease in consumer income c. an improvement in production technology that makes production of the good more profitable d. a decrease in the number of sellers in the market

c. an improvement in production technology that makes production of the good more profitable

53. Which of the following might cause the demand curve for an inferior good to shift to the left? a. a decrease in income b. an increase in the price of a substitute c. an increase in the price of a complement d. None of the above is correct.

c. an increase in the price of a complement

82. Which of the following statements is correct? a. The benefits that accrue to a monopoly's owners are equal to the costs that are incurred by consumers of that firm's product. b. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm produces a quantity of output that exceeds the socially-efficient quantity. c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. d. The primary social problem caused by monopoly is monopoly profit.

c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product.

123. The gains from trade are a. evident in economic models, but seldom observed in the real world. b. evident in the real world, but impossible to capture in economic models. c. a result of more efficient resource allocation than would be observed in the absence of trade. d. based on the principle of absolute advantage.

c. a result of more efficient resource allocation than would be observed in the absence of trade.

52. Other things the same if reserve requirements are decreased, the reserve ratio a. decreases, the money multiplier increases, and the money supply decreases. b. increases, the money multiplier increases, and the money supply increases. c. decreases, the money multiplier increases, and the money supply increases. d. increases, the money multiplier increases, and the money supply decreases.

c. decreases, the money multiplier increases, and the money supply increases.

57. When inflation rises people will a. demand more money so the price level rises. b. demand more money so the price level falls. c. demand less money so the price level rises. d. demand less money so the price level falls.

c. demand less money so the price level rises.

116. Countries that pursued outward-oriented policies in the 20th century a. experienced lower rates of economic growth than did countries that pursued inward-oriented policies. b. experienced higher levels of political instability than did countries that pursued inward-oriented policies. c. include Singapore, South Korea, and Taiwan. d. All of the above are correct.

c. include Singapore, South Korea, and Taiwan.

115. When a country removes trade barriers and imports appliances and exports engineering services, a. its growth slows. b. its productivity decreases. c. it is essentially transforming engineering services into appliances. d. its economic well-being decreases while that of the country that sells appliances increases.

c. it is essentially transforming engineering services into appliances.

117. The logic behind the catch-up effect is that a. workers in countries with low incomes will work more hours than workers in countries with high incomes. b. the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital. c. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital. d. None of the above is correct.

c. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

55 . If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce reserves. b. buying bonds. This buying would increase reserves. c. selling bonds. This selling would reduce reserves. d. selling bonds. This selling would increase reserves.

c. selling bonds. This selling would reduce reserves.

45. Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline, oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year's GDP? a. the amount she paid to buy the new parts b. the amount she paid to buy new parts and gasoline c. the amount she paid to buy new parts, gasoline, and oil. d. the amount she paid to buy new parts, gasoline, oil, and the market value of the 2 hours spent to repair the log-splitter.

c. the amount she paid to buy new parts, gasoline, and oil.

86. You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value. a. Option 1; Option 2; Option 3 b. Option 3; Option 2; Option 1 c. Option 2; Option 3; Option 1 d. Option 3; Option 1; Option 2

c.Option 2; Option 3; Option 1

90. What causes the Tragedy of the Commons? (i) Social and private incentives differ. (ii) Common resources are not rival in consumption and are not excludable. (iii) Common resources are not excludable but are rival in consumption. a. (i) only b. (ii) only c. (i) and (ii) only d. (i) and (iii) only

d. (i) and (iii) only

83. Competitive firms differ from monopolies in which of the following ways? (I) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

d. (i), (ii), and (iii)

47. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its a. quantity of output is higher than it was previously. b. average total cost is higher than it was previously. c. marginal revenue is higher than it was previously. d. All of the above are correct.

d. All of the above are correct.

49. Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good. b. Only for competitive firms does average revenue equal the price of the good. c. Marginal revenue can be calculated as total revenue divided by the quantity sold. d. Only for competitive firms does average revenue equal marginal revenue.

d. Only for competitive firms does average revenue equal marginal revenue.

88. A risk-averse person has a. utility and marginal utility curves that slope upward. b. utility and marginal utility curves that slope downward. c. a utility curve that slopes down and a marginal utility curve that slopes upward. d. a utility curve that slopes upward and a marginal utility curve that slopes downward.

d. a utility curve that slopes upward and a marginal utility curve that slopes downward.

48. A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a a. profit of more than $27. b. profit of exactly $27. c. loss of more than $27. d. loss of exactly $27.

d. loss of exactly $27.

46. Michigan Cranberry Company sold $10 million worth of cranberries it produced. In producing cranberries, it purchased $1 million dollars worth of supplies from foreign countries and paid workers who reside in Canada but commute to the U.S. $1 million. How much did these transactions add to U.S. GDP? a. $12 million b. $11 million c. $10 million d. $9 million

d. $9 million

121. Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is a. 1/6 chair for Ken and 1/3 chair for Traci. b. 1/6 chair for Ken and 3 chairs for Traci. c. 6 chairs for Ken and 1/3 chair for Traci. d. 6 chairs for Ken and 3 chairs for Traci.

d. 6 chairs for Ken and 3 chairs for Traci.

110. All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase? a. Productivity will definitely fall. b. Productivity will definitely be unchanged. c. Productivity will definitely rise. d. None of the above are necessarily correct.

d. None of the above are necessarily correct.

109. Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output? a. an increase in the money supply and an increase in government purchases. b. an increase in the money supply and a decrease in government purchases. c. a decrease in the money supply and an increase in government purchases. d. a decrease in the money supply and a decrease in government purchases.

d. a decrease in the money supply and a decrease in government purchases.

112. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run a. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital. b. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital. c. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital. d. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

d. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

47. President Bigego is running for re-election against Senator Pander. Bigego proclaims that more people are working now than when he took office. Pander says that the unemployment rate is higher now than when Bigego took office. You conclude that a. one of them must be lying. b. both of them could be telling the truth if the labor force, and employment grew at the exact same rate. c. both of them could be telling the truth if the labor force grew slower than employment. d. both of them could be telling the truth if the labor force grew faster than employment.

d. both of them could be telling the truth if the labor force grew faster than employment.

48. Suppose that some people report themselves as unemployed when, in fact, they are working in the underground economy. If these persons were counted as employed, then a. both the unemployment rate and labor-force participation rate would be higher. b. both the unemployment rate and labor-force participation rate would be lower. c. the unemployment rate would be higher, and the labor-force participation rate would be higher. d. the unemployment rate would be lower, and the labor-force participation rate would be unaffected.

d. the unemployment rate would be lower, and the labor-force participation rate would be unaffected.