exam practice

Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than $12.50 per pound. $20 per pound. $80 per pound. $100 per pound.

$20 per pound.

Suppose a country had net exports of $7.5 billion and sold $44.6 billion of goods and services abroad. This country had $44.6 billion of imports and $52.1 billion of exports. $52.1 billion of exports and $44.6 billion of imports. $44.6 billion of imports and $37.1 billion of exports. $44.6 billion of exports and $37.1 billion of imports.

$44.6 billion of exports and $37.1 billion of imports.

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward? An increase in the labor force. An increase in unemployment. Development of an improved technological method of production. A decrease in the stock of physical capital.

A decrease in the stock of physical capital.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels? Higher tax rates. A higher rate of investment. A smaller trade sector. Greater use of taxation to transfer income from the rich to the poor.

A higher rate of investment.

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

A tax change alters disposable income and consumption spending.

Which of the following about potential GDP is true? During a recession, actual GDP will exceed potential GDP. Actual GDP cannot exceed potential GDP, even for short periods. Actual output may be either above or below potential output depending on how fully resources are utilized. The economy's potential output is the maximum output that could be achieved temporarily during a time of economic boom.

Actual output may be either above or below potential output depending on how fully resources are utilized.

Which of the following contributed to the financial crisis of 2008? The housing price boom (2002-2005), followed by a housing price bust (2007-2008). A sharp reduction in stock prices in 2008. A sharp increase in the price of crude oil from January 2007 to mid-year 2008. All of the above.

All of the above.

Which of the following political institutions would be supportive of an economic environment that would promote gains from trade and productive activities, while discouraging counterproductive actions? Checks on the powers of both the executive and simple legislative majorities. Constitutional protection of economic rights like ownership of property, freedom to trade and compete, and use of alternative currencies. Political decentralization so that citizens can more easily escape from governmental units that fail to provide an attractive economic environment. All of the above

All of the above.

Which of the following is true of resources? Resources are inputs used to produce goods and services. Human resources reflect the skills and productive knowledge of human beings . With the passage of time, investment activities can increase the availability of resources. All the above are true.

All the above are true.

Which of the following would generate a demand for euros in exchange for dollars? American exports to Europe. European demand for U.S. government bonds. American demand for European real estate. All of the above are correct.

American demand for European real estate.

Which of the following would be most likely to improve the standard of living of the residents of a less-developed country? The development of strong labor unions. A sharp increase in the legal minimum wage. An increase in expenditures on education and capital investment. Rapid growth rate of the money supply

An increase in expenditures on education and capital investment.

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

An increase in government spending and growth of government regulation.

Which of the following will lead to a decrease in supply of a good? An increase in the price of the good. An increase in consumer incomes. An increase in the price of an important resource used to produce the good. A technological advance that lowers the cost of producing the good.

An increase in the price of an important resource used to produce the good.

Which of the following will most likely result from a destruction of half of the Florida orange crop due to a late-season freeze? A decrease in the demand for oranges. An increase in the supply of oranges. An increase in the quantity of oranges bought and sold. An increase in the price of oranges.

An increase in the price of oranges.

Which of the following will most likely accompany an unanticipated reduction in aggregate demand? An increase in the general price level. An increase in unemployment. An increase in real GDP. An increase in resource prices.

An increase in unemployment.

Which of the following is most likely to lead to an increase in the rental price of apartments near a university campus? Lower property taxes on apartment buildings. An unexpected increase in enrollment at the university. Lower prices for the bricks used in the construction of apartments. The building of a new large residence hall on campus.

An unexpected increase in enrollment at the university.

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior? Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information. Because people generally do not know which products are reviewed by these consumer magazines. None of the above explain this behavior.

Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information.

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

Both parties expect to gain from this transaction.

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true? Your real wage fell. Your nominal wage fell. Both your nominal and real wages decreased. Although your nominal wage fell, your real wage increased. Both your nominal and real wages increased.

Both your nominal and real wages increased.

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy? Buy U.S. securities. Force the Treasury to reduce the national debt. Raise the discount rate. Increase the reserve requirements.

Buy U.S. securities.

Which of the following is an important ingredient of efficient economic organization? High marginal tax rates. Competitive markets. Rapid increases in the money supply. Imposition of high tariffs that will protect domestic producers from the ravages of foreign competition.

Competitive markets.

Which of the following about inflation is true? Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals. Unanticipated inflation is a change in the price level that is widely expected. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy. Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.

Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy.

Which of the following would be most likely to increase the supply of loanable funds and lead to low interest rates? Expansionary monetary policy that resulted in high rates of inflation. Constant policy shifts that generate uncertainty and reduce investment. Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds. Large budget deficits that push the government debt to GDP ratio to a high level.

Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds.

Assume that supply increases greatly and demand increases slightly. Which of the following will happen? Equilibrium price will fall and equilibrium quantity will rise. Equilibrium price will rise and equilibrium quantity will fall. Equilibrium price will rise and equilibrium quantity will rise. Equilibrium price will fall and equilibrium quantity will fall. Neither equilibrium price nor equilibrium quantity will change.

Equilibrium price will fall and equilibrium quantity will rise.

Assume that supply increases slightly and demand increases greatly. Which of the following will happen? Equilibrium price will fall and equilibrium quantity will rise. Equilibrium price will rise and equilibrium quantity will fall. Equilibrium price will rise and equilibrium quantity will rise. Equilibrium price will fall and equilibrium quantity will fall. Neither equilibrium price nor equilibrium quantity will change.

Equilibrium price will rise and equilibrium quantity will rise.

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

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.

Which of the following is a positive economic statement? Government control of rent is a fair way to help poor people afford housing. Government control of rent keeps landlords from charging too much rent. Government control of rent decreases the number of new apartments constructed. Government control of rent is an injustice

Government control of rent decreases the number of new apartments constructed.

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago. Her real and nominal salary have risen. Her real and nominal salary have fallen. Her real salary has risen and her nominal salary has fallen. Her real salary has fallen and her nominal salary has risen.

Her real salary has fallen and her nominal salary has risen.

Which of the following is often referred to as the basic postulate of economics? Individuals act only out of selfish motives. Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits. The accuracy of the assumptions is the best test of an economic theory. The value of a good is objective; it is equal to the cost of producing the good.

Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.

The statement, "John buys more of good X as his income increases, ceteris paribus," means John's income is being held constant. John's purchases of good X are being held constant. John's income and purchases of this good are being held constant. John's income is the only influence that is being allowed to change. the price of this good is being allowed to change.

John's income is the only influence that is being allowed to change.

If the political leaders of a country want to promote economic growth, which of the following policy alternatives would be most effective? Imposition of price controls on agricultural products in an effort to keep food cheap. A public-sector investment program financed by highly progressive taxation. Low taxes, a monetary policy consistent with long-run price stability, and the abolition of price controls and trade restrictions. Expansionary monetary policy designed to keep interest rates low.

Low taxes, a monetary policy consistent with long-run price stability, and the abolition of price controls and trade restrictions.

Mateo values his camper at $4,000, and Nicole values it at $9,000. If Nicole buys it from Mateo for $7,000, which of the following is true? Mateo gains $3,000 of value, and Nicole gains $2,000 of value. Mateo gains $7,000 of value, and Nicole loses $7,000 of value. Mateo gains $7,000 of value, and Nicole gains $6,000 of value. Mateo and Nicole both gain $7,000 of value.

Mateo gains $3,000 of value, and Nicole gains $2,000 of value.

If a country's currency appreciates, which of the following will most likely happen? Net exports will fall and aggregate demand will increase. Net exports will rise and aggregate demand will increase. Net exports will fall and aggregate demand will decrease. Net exports will rise and aggregate demand will decrease.

Net exports will fall and aggregate demand will decrease.

If people suddenly anticipate that inflation will rise during the next year, which of the following is most likely? Nominal interest rates will rise. Nominal interest rates will decline. The demand for goods and services will decline. Both the real and nominal interest rates will decline

Nominal interest rates will rise.

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study is positive. outweighs the extra cost. exceeds the benefits of the previous hour of study. will raise your exam scor

Outweighs the extra cost.

If the demand for a good increased, what would be the effect on the equilibrium price and quantity? Price would increase, and quantity would decrease. Price would increase, and quantity would increase. Price would decrease, and quantity would increase.

Price would increase, and quantity would increase.

Which of the following about fiscal policy is true? Modern forecasting methods make it relatively easy to time fiscal policy changes in a manner that will help stabilize the economy. Legislative action is necessary if automatic stabilizers are going to smooth the ups and downs of the business cycle. Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve. Both the crowding-out and new classical theories indicate that expansionary fiscal policy will exert a powerful impact on aggregate demand.

Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve.

Which of the following is a key characteristic of economic freedom? Subsidies and regulations that favor business. Central planning. Reliance on open markets. Import quotas that protect domestic businesses from rivals

Reliance on open markets.

What effect does restrictive monetary policy have on short-term real interest rates? Restrictive monetary policy tends to push short-term interest rates upward. Restrictive monetary policy tends to push short-term interest rates downward. The effect of restrictive monetary policy on short-term interest rates is unpredictable. Restrictive monetary policy has no effect on short-term interest rates.

Restrictive monetary policy tends to push short-term interest rates upward.

A supply-side economist would stress which of the following attributes of fiscal policy? The impact of marginal tax rates on the supply and productivity of resources. The impact of government spending on aggregate demand, output, and employment. The impact of budget deficits on interest rates and aggregate demand. The impact of budget deficits on the rate of taxation in the future.

The impact of marginal tax rates on the supply and productivity of resources.

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing? The budget deficit will cause business decision makers to become more optimistic. The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall. the increase in government spending will cause the money supply to expand, thereby causing an inflationary boom.

The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall.

Which of the following activities is not counted in calculations of GDP? The purchase of a hammer for household repairs. The labor services of a volunteer group building a home for a poor widow. The purchase of new, domestically-produced tires for your old foreign car. A haircut received and paid for at a beauty salon.

The labor services of a volunteer group building a home for a poor widow.

Suppose you put money into a savings account. One year later you have 5 percent more dollars and your money will buy 6 percent more goods. Which of the following must be true? The nominal interest rate was 11 percent and the inflation rate was 5 percent. The nominal interest rate was 6 percent and the inflation rate was 5 percent. The nominal interest rate was 5 percent and the inflation rate was −1 percent. None of the above is correct.

The nominal interest rate was 5 percent and the inflation rate was −1 percent.

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

The opportunity cost of producing hay increases.

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

The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives.

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods? The real GDP figures are a better measure of changes in the general level of prices. The real figures will reflect changes in the quantity of output and not changes in the general level of prices. The real figures will reflect changes in the general level of prices as well as changes in the quantity of output. The real GDP figures adjust for changes in the level of employment.

The real figures will reflect changes in the quantity of output and not changes in the general level of prices.

Which of the following about markets and collective action through government is true? Competitive behavior is present in the market sector but not in the public sector. Because candidates for public office represent a bundle of views, there is more ability for individuals to make their preferences count on specific issues than in the market sector. When decisions are made democratically, the economic and political power of all individuals will be equal unlike in the market sector. The reality of the aggregate consumption-aggregate payment link imposed by scarcity is present in both the market and public sectors.

The reality of the aggregate consumption-aggregate payment link imposed by scarcity is present in both the market and public sectors.

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run? The demand for loanable funds will increase, which will exert upward pressure on the interest rate. The supply of loanable funds will decrease, which will exert upward pressure on the interest rate. The supply of loanable funds will increase, which will exert downward pressure on the interest rate. The natural rate of unemployment will increase.

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

Which of the following would lead to a rapid growth of the money supply in the future? The use of large reserves by banks to extend additional loans. A reduction in government expenditures to reduce the size of the federal deficit. An increase in government expenditures financed by taxes. An increase in the interest rate the Fed pays banks holding reserves.

The use of large reserves by banks to extend additional loans.

Which of the following about trade is true? Trade does not produce anything new; therefore, it cannot create value. The value of a good is determined by the cost of the material resources required for its production. The value of a good generally depends on who uses it and circumstances such as when and where it is used. All of the above are true.

The value of a good generally depends on who uses it and circumstances such as when and where it is used.

Which of the following describes the opportunity cost of attending an economics class? The value of the time it takes to get to campus every day. The cost of the gasoline needed to drive a car to campus. The value of the highest valued alternative that must be forgone because of attending the class. Transportation costs plus the cost of tuition and textbooks for the course.

The value of the highest valued alternative that must be forgone because of attending the class.

Which of the following will be true when the foreign exchange market is in equilibrium and exports exceed imports? The nation is experiencing a trade deficit. There will be a net inflow of capital. There will be a net outflow of capital. The exchange rate value of the domestic currency must rise

There will be a net outflow of capital.

How would the Bureau of Labor Statistics classify a college graduate who is not currently working but recently turned down an offer for employment at $10 an hour in order to keep looking for a better job? Not in the labor force. Employed. Unemployed On temporary absence from school

Unemployed

Which of the following transactions would be included in this year's GDP for the United States? You buy a rug imported from Mexico. You buy stock in an American textile company. You purchase a table over the Internet from a North Carolina furniture manufacturer. You purchase a table over the Internet from a Mexican manufacturer.

You purchase a table over the Internet from a North Carolina furniture manufacturer.

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

a decrease in the supply of sugarcane.

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

a market economy has a self-correcting mechanism that will help guide it toward full employment.

A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate a rightward shift in the demand in the summer. a rightward shift in demand in the winter. a leftward shift in the supply curve in the summer. a leftward shift in demand in the winter.

a rightward shift in demand in the winter.

If a surplus exists in a market, the actual price is above equilibrium price and quantity supplied is greater than quantity demanded. above equilibrium price and quantity demanded is greater than quantity supplied. below equilibrium price and quantity demanded is greater than quantity supplied. below equilibrium price and quantity supplied is greater than quantity demanded.

above equilibrium price and quantity supplied is greater than quantity demanded.

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

actual level of unemployment will exceed the natural rate of unemployment.

If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of incomes abroad), the price of resources will decrease. the natural rate of unemployment will decrease. actual unemployment will temporarily fall below the natural rate. prices will decrease.

actual unemployment will temporarily fall below the natural rate.

An unanticipated decline in the real interest rate in the loanable funds market will cause the aggregate demand curve to shift to the right. aggregate demand curve to shift to the left. long-run aggregate supply curve to shift to the left. natural rate of unemployment to fall.

aggregate demand curve to shift to the right.

An open capital market affects a nation's economic growth by channeling capital into productive projects and away from wasteful projects. rewarding investors who find the most productive projects and invest in them. making the lowest-cost capital available from around the world. all of the above

all of the above

The short-run effect of a sudden increase in stock prices will be an increase in output and a decrease in prices. an increase in both output and prices. a decrease in both output and prices. a decrease in output and an increase in prices.

an increase in both output and prices.

An increase in supply will cause an increase in demand. a decrease in demand. an increase in quantity demanded. a decrease in quantity demanded. an increase in equilibrium price.

an increase in quantity demanded.

Which of the following would lead to an increase in the demand for designer blue jeans? a decrease in the price of designer blue jeans a reduction in the price of the cotton used to produce the jeans an increase in the income of youthful Americans an increase in the price of the cotton used to produce the jeans

an increase in the income of youthful Americans

An increase in per capita income will generally lead to more material goods, but a decline in the quality of the environment. a reduction in life expectancy because working conditions are less desirable. an increase in the number of hours worked by residents. an increase in the living standards of most people

an increase in the living standards of most people

Other things being equal, the effect of a decrease in the price of grapes would be illustrated by a rightward shift in the demand curve for grapes. an increase in the quantity demanded for grapes. a leftward shift in the demand curve for grapes. a decrease in the quantity demanded grapes.

an increase in the quantity demanded for grapes.

If the dollar price of the English pound goes from $1.30 to $1.10, the dollar has appreciated, and the English will find U.S. goods cheaper. appreciated, and the English will find U.S. goods more expensive. depreciated, and the English will find U.S. goods cheaper. depreciated, and the English will find U.S. goods more expensive.

appreciated, and the English will find U.S. goods more expensive.

When the unemployment rate is low, the impact of additional spending on real output will be larger than when the unemployment rate is high. be smaller than when the unemployment rate is high. be the same as when the unemployment rate is high. place downward pressure on the general level of prices, leading to deflation.

be smaller than when the unemployment rate is high.

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

budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion.

A decrease in aggregate demand and the subsequent cutbacks in production lead to frictional unemployment. cyclical unemployment. cost-push unemployment. structural unemployment. transitory unemployment

cyclical unemployment

According to new classical economists, the most appropriate policy during a recession would be for the government to increase the minimum wage. impose wage and price controls. cut taxes and increase the budget deficit. do nothing.

do nothing.

Actual GDP will be below potential GDP when the economy is at full employment. during an economic boom. when resources are fully utilized. during a recession.

during a recession.

The prevailing budget philosophy prior to Keynes called for a balanced budget. Keynes argued that the government should not balance its budget but instead have budget deficits during economic booms. during periods of peace but surpluses during periods of war. periods of inflation. economic recessions.

economic recessions.

During a period of rapid growth in output, employment generally increases and unemployment decreases. employment generally decreases and unemployment increases. both employment and unemployment generally increase. both employment and unemployment generally decrease.

employment generally increases and unemployment decreases.

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

generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.

High income countries with larger governments as a share of GDP have generally grown less rapidly than their counterparts with smaller governments. experienced less deadweight losses resulting from taxes and/or government borrowing. seen the government decrease in size as real GDP rises. been able to be more economically efficient.

grown less rapidly than their counterparts with smaller governments.

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of low unemployment. high inflation. low nominal interest rates. high rates of real economic growth.

high inflation

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will decrease and the money supply will eventually decrease. decrease and the money supply will eventually increase. increase and the money supply will eventually decrease. increase and the money supply will eventually increase.

increase and the money supply will eventually increase.

Open-market purchases by the Fed make the money supply increase, which tends to increase the value of money. increase, which tends to decrease the value of money. decrease, which tends to decrease the value of money. decrease, which tends to increase the value of money.

increase, which tends to decrease the value of money.

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate increases by more than the change in the nominal interest rate. increases by the change in the nominal interest rate. decreases by the change in the nominal interest rate. decreases by more than the change in the nominal interest rate.

increases by the change in the nominal interest rate.

The government is pursuing an expansionary fiscal policy if it decreases government spending and increases taxes. increases government spending or increases taxes. decreases government spending or reduces taxes. increases government spending and/or reduces taxes

increases government spending and/or reduces taxes

Maurice loses his job and decides to sit on the beach rather than looking for work the next few months. Other things the same, the unemployment rate increases, and the labor-force participation rate is unaffected. increases, and the labor-force participation rate decreases. decreases, and the labor-force participation rate increases. decreases, and the labor-force participation rate decreases.

increases, and the labor-force participation rate decreases.

In the long run, the primary effect of rapid monetary growth is lower nominal interest rates. reduced unemployment. inflation. an increase in real output

inflation

Keynesian economists believed that the prolonged unemployment of the 1930s was the result of the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938. the high interest rates of the 1930s. the double-digit inflation of the 1930s. insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.

insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.

Pork-barrel legislation typically bundles the pet projects of several special interest groups. Such legislation is frequently enacted, even though the overall benefits to society are less than the overall costs to society. seldom benefits special interest groups. usually, if successful, helps the majority of taxpayers. seldom passes because social benefits are far smaller than social costs.

is frequently enacted, even though the overall benefits to society are less than the overall costs to society.

Public choice analysis assumes individuals in the public sector seek to serve the public interest rather than their own personal interests. is the study of the decision making of individual actors (such as voters, politicians, and bureaucrats) in the public sector. suggests that individual voters have a greater incentive to become informed when making choices among political candidates than when making choices about the products they consume. finds that the individuals managing government agencies generally have a much stronger incentive to be efficient than do individuals managing private businesses.

is the study of the decision making of individual actors (such as voters, politicians, and bureaucrats) in the public sector.

The natural rate of unemployment increases sharply during a recession but declines significantly during a business expansion. is the unemployment rate accompanying the economy's maximum sustainable output. is generally less than the unemployment rate associated with the economy's full-employment rate of output. is present when the economy operates at approximately 94 percent of its potential GDP.

is the unemployment rate accompanying the economy's maximum sustainable output.

Specialization in production is beneficial because it allows everyone to have a job that they like. it permits people to expand production and achieve rates of output that would otherwise be unattainable. it allows everyone to be self-sufficient. it eliminates the need for the division of labor.

it permits people to expand production and achieve rates of output that would otherwise be unattainable.

Countries with more economic freedom tend to invest a ____ share of their GDP and the productivity of that investment is ____ than for countries that are less free. (Fill in the blanks) larger; higher larger; lower smaller; higher smaller; lower

larger; higher

Other things constant, a decrease in aggregate demand will lead to a decrease in the demand for resources. cause an increase in the general level of prices. result in higher nominal wage rates. reduce the rate of unemployment.

lead to a decrease in the demand for resources.

When resources are allocated politically, rent-seeking will channel resources toward government programs that generate large benefits relative to costs. reduce GDP because it results in the wasteful use of resources. lead to wasteful, rather than productive, use of resources. improve the efficiency of resource use.

lead to wasteful, rather than productive, use of resources.

If an unanticipated reduction in aggregate demand throws a market economy into a recession, market forces will cause the economy to spiral downward and a lengthy period of depressed conditions is the expected result. lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential. higher real resource prices and interest rates will help to direct a market economy back to its full employment potential. the natural rate of unemployment will rise until it is once again equal to the actual rate of unemployment.

lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential.

Prior to the Great Depression, most economists believed that a recessionary downturn would be reversed by higher wages that would stimulate aggregate demand and reduce unemployment. lower wages that would increase the quantity of labor demanded and reduce unemployment. an expansionary monetary policy on the part of the Federal Reserve System. an increase in government spending that would stimulate aggregate demand and employment.

lower wages that would increase the quantity of labor demanded and reduce unemployment.

Within the Keynesian model, the multiplier effect tends to smooth out the up- and down- swings of the business cycle. promote price stability. magnify small changes in spending into much larger changes in output and employment. reduce the impact of an increase in investment on output and employment.

magnify small changes in spending into much larger changes in output and employment.

The main reason that the deficit grows in a recession is that the government reacts quickly and adjusts taxes to compensate. monetary policy that targets interest rates causes the costs of borrowing to fall. the deficit causes the recession, and reducing the deficit cures the recession. many forms of taxes act as automatic stabilizers

many forms of taxes act as automatic stabilizers

One advantage of a money system compared to a barter system is that barter never works. money creates the need for banks. money is more efficient. everyone has money.

money is more efficient.

Researchers have found that countries that were settled by Europeans who planned on staying permanently were more likely to protect private ownership rights and limit the power of the government. less likely to protect private ownership rights and limit the power of the government. more likely to protect private ownership, but less likely to limit the power of the government. less likely to protect private ownership, but more likely to limit the power of the government.

more likely to protect private ownership rights and limit the power of the government.

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

more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

Other things the same, a decrease in the price level makes the dollars people have in their pockets worth more, so they are willing to spend more. more, so they are willing to spend less. less, so they are willing to spend more. less, so they are willing to spend less

more, so they are willing to spend more.

Technological changes that reduce transaction costs and expand the availability of low-cost access to information increase GDP, but they generally fail to improve the welfare of people. improve the well-being of people, but they often exert only a small impact on GDP, and sometimes they actually lead to a GDP reduction. increase the consumer price index, but not the GDP deflator. increase the GDP defl tor, but not the consumer price index.

mprove the well-being of people, but they often exert only a small impact on GDP, and sometimes they actually lead to a GDP reduction.

Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is a $10,000 decrease in the money supply. no change in the money supply, but in the future, the money supply will tend to decrease because the bank now has reserves. no change in the money supply, but in the future, the money supply will tend to expand because the bank now has reserves. a $10,000 increase in the money supply.

no change in the money supply, but in the future, the money supply will tend to expand because the bank now has reserves.

If borrowers and lenders expect a higher rate of inflation, nominal interest rates will tend to fall. real interest rates will tend to fall. nominal interest rates will tend to rise. real interest rates will tend to rise.

nominal interest rates will tend to rise.

Once decision makers fully adjust to an increase in the general price level, the actual rate of unemployment will exceed the natural rate of unemployment. the actual rate of unemployment will be less than the natural rate of unemployment. the rate of output will exceed the economy's long-run capacity. output will return to the full-employment level

output will return to the full-employment level

When the Fed buys bonds and injects additional reserves into the banking system, this action will place downward pressure on short-term interest rates. cause many decision makers to expect that the future rate of inflation will fall. place upward pressure on both short-term and long-term interest rates. place upward pressure on short-term interest rates and downward pressure on long-term interest rates.

place downward pressure on short-term interest rates.

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

politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.

If the resources of an economy are being used inefficiently, it would be possible to increase production of all goods simultaneously. possible to increase production of one good only if production decreased for the other goods. not possible to increase production of any good. not possible to increase economic growth. possible to increase production with no effort

possible to increase production of all goods simultaneously.

When there is excess supply of a product in a market, price will tend to rise. price must be above the equilibrium price. producers will expand output and sales will rise. price must be below the equilibrium price

price must be above the equilibrium price.

Suppose the consumer price index (CPI) for Year X is 130. This means the average price of goods and services is currently $130. 130 percent more in Year X than in the base year. 130 percent more in the base year than in Year X. priced at 30 percent more in Year X than in the base year.

priced at 30 percent more in Year X than in the base year.

If resource prices are fixed and the price of a product rises, then profits will decrease. profits will increase. profits will remain constant. both profits and output will decrease.

profits will increase.

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country discourage market exchange. protect people and their property and enforce contracts even-handedly. abolish private property rights. all of the above

protect people and their property and enforce contracts even-handedly.

The primary cause of inflation is large budget deficits. high taxes. rapid expansion of the money supply. government expenditures that are large relative to the size of the economy.

rapid expansion of the money supply.

The amount of U.S. exports purchased by the rest of the world is primarily determined by real disposable income in the United States. real disposable income in other nations. the real interest rate in other nations. the real interest rate in the United States. the government budget deficits in other nations.

real disposable income in other nations.

According to the Keynesian view, the prolonged unemployment of the Great Depression was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment. was surprising because Keynesians believed that lower interest rates would direct the economy to full employment. resulted because the total expenditures on goods and services were less than the full-employment rate of output. resulted because the federal government ran large budget deficits during the 1930s.

resulted because the total expenditures on goods and services were less than the full-employment rate of output.

The natural rate of unemployment is due to cyclical business conditions. results from normal dynamic changes given the institutional arrangements of the economy. results from both frictional and cyclical economic conditions. is present when the economy is at the peak of an economic boom.

results from normal dynamic changes given the institutional arrangements of the economy.

When economists say an individual displays economizing behavior, they simply mean that person is making a lot of money. buying only those products that are cheap and of low quality. learning how to run a business more effectively. seeking the lowest cost method to accomplish desired objectives.

seeking the lowest cost method to accomplish desired objectives.

Over time, an increase in a nation's stock of physical capital will shift the production possibilities curve inward. cause an economy to operate inside its production possibilities curve. shift the production possibilities curve outward. eliminate the basic economic problem of scarcity

shift the production possibilities curve outward.

When an economy is experiencing an economic boom and operating beyond its long-run capacity, strong demand for investment funds will push interest rates upward. weak demand for resources will push the prices of resources downward. weak demand for investment funds will cause the real interest rate to decline. the unemployment rate will be greater than its natural rate.

strong demand for investment funds will push interest rates upward.

The new classical model implies that a budget surplus will effectively retard inflation emanating from excess demand. budget deficit will increase the real interest rate. substitution of debt for tax financing will leave aggregate demand and real output unchanged. planned budget deficit will be a highly effective tool to combat a recession.

substitution of debt for tax financing will leave aggregate demand and real output unchanged.

If net exports are negative, then the capital account must be in a surplus (indicating a net capital inflow), so foreign assets bought by Americans are greater than American assets bought by foreigners. the capital account must be in a surplus (indicating a net capital inflow), so American assets bought by foreigners are greater than foreign assets bought by Americans. the capital account must be in a deficit (indicating a net capital outflow), so foreign assets bought by Americans are greater than American assets bought by foreigners. the capital account must be in a deficit (indicating a net capital outflow), so American assets bought by foreigners are greater than foreign assets bought by Americans.

the capital account must be in a surplus (indicating a net capital inflow), so American assets bought by foreigners are greater than foreign assets bought by Americans.

An increase in the Consumer Price Index indicates that the real income of households is increasing . the purchasing power of the dollar is increasing. the cost of buying the typical bundle of goods consumed by households is increasing. the real net worth of consumers is increasing.

the cost of buying the typical bundle of goods consumed by households is increasing.

A rational decision maker takes an action if and only if the expected marginal benefit of the action exceeds the expected marginal cost of the action. the expected marginal cost of the action exceeds the expected marginal benefit of the action. the marginal cost of the action is zero. the opportunity cost of the action is zero.

the expected marginal benefit of the action exceeds the expected marginal cost of the action.

If money were not used as a medium of exchange, the gains from trade would be severely limited. our standard of living would probably improve. the transaction costs of exchange would be lower. economic efficiency would increase.

the gains from trade would be severely limited.

If equilibrium is present in the foreign exchange market and a nation is experiencing a trade surplus, the nation must be experiencing a net capital inflow. the nation must be experiencing a net capital outflow. the nation's inflation rate must increase. the nation's interest rate must increase.

the nation must be experiencing a net capital outflow.

Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result, the population of black rhinos has fallen substantially. the population of black rhinos has increased. many black rhinos are being poached. the incomes of residents in Zimbabwe has fallen substantially.

the population of black rhinos has increased.

Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect the population of chickens to rise and the population of cows to fall. the population of cows to rise and the population of chickens to fall. the populations of both chickens and cows to increase. both chickens and cows to become extinct in Australia unless the government places the animals on the endangered species list.

the population of chickens to rise and the population of cows to fall.

Realization of gains from trade, entrepreneurial discovery, and investment are largely dependent on competitive elections and political democracy. the presence of institutions and policies consistent with economic freedom. the use of tariffs and quotas to protect domestic businesses from competition with foreigners. the use of government planning to direct investments into worthwhile projects.

the presence of institutions and policies consistent with economic freedom.

Adam Smith's invisible hand principle stresses ' that benevolence is a powerful motivator that encourages individuals to engage in productive economic activity. the tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society. the potential of government regulation as a means of bringing the self interest of individuals into harmony with the economic welfare of society. the tendency of self-interested individuals to pursue activities that benefit themselves but harm the overall economic welfare of society.

the tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

The primary source of earnings of commercial banks is income derived from the checking account services provided to customers. the use of deposits to extend loans and undertake investments. vault cash and deposits held with the Fed. services provided to the U.S. Treasury

the use of deposits to extend loans and undertake investments

If the economy is experiencing less than full-employment, the Keynesian model recommends that the government do nothing to stimulate the economy. undertake expansionary fiscal policy to stimulate aggregate demand. undertake expansionary fiscal policy to stimulate aggregate supply. balance the budget to stimulate aggregate demand.

undertake expansionary fiscal policy to stimulate aggregate demand.

Isabella is on a temporary layoff from her factory job. If Isabella participates in the Bureau of Labor Statistics survey, she will be classified as unemployed and in the labor force unemployed and out of the labor force. employed and in the labor force. employed and out of the labor force.

unemployed and in the labor force

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

voters to have little incentive to become informed about candidates and political issues.

Public choice theory indicates that the behavior of government employees differs from the behavior of employees in the private sector because government employees generally disregard their own personal self-interest when making decisions. elected public officials differs from the behavior of all other individuals in society because they are not influenced by private interests. individuals when they make decisions about who to vote for is very different from the behavior of these same individuals when they make other types of choices. voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector--that incentives matter.

voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector--that incentives matter.

According to economic theory, it is often rational for a politician to support special interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers) only when the gains that accrue to the special interest group exceed the costs imposed on other voters. when nonspecial-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special interest group. only if the government action is socially efficient. only if the government action will reduce the monopoly power of business or labor and, thereby, lead to an improvement in the general welfare of consumers.

when nonspecial-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special interest group.

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

will be realized if individuals are allowed to pursue goals that are in their own self-interest.

The crowding-out effect indicates that budget deficits will stimulate aggregate demand and, therefore, exert a strong impact on output and employment. will lead to additional borrowing and higher interest rates that will reduce the level of private spending. are highly appropriate when the threat of inflation is present. are highly appropriate when the threat of recession is present.

will lead to additional borrowing and higher interest rates that will reduce the level of private spending.