question
All but one of the following are elements of the economic way of thinking. Which one is not part of the economic way of thinking?
a.
People respond to changes in costs and benefits in a predictable way.
b.
The value of a good and service is the same for everyone.
c.
People make decisions at the margin
d.
Information is costly to acquire so people rationally choose to make decisions without perfect information.
a.
People respond to changes in costs and benefits in a predictable way.
b.
The value of a good and service is the same for everyone.
c.
People make decisions at the margin
d.
Information is costly to acquire so people rationally choose to make decisions without perfect information.
answer
B. The value of a good and service is the same for everyone.
question
Which of the following will cause a decrease in the demand for peanut butter?
a.
an increase in the price of peanuts used to make peanut butter
b.
an increase in the price of peanut butter.
c.
a doubling of the price of jelly (a compliment good)
d.
all of the above
a.
an increase in the price of peanuts used to make peanut butter
b.
an increase in the price of peanut butter.
c.
a doubling of the price of jelly (a compliment good)
d.
all of the above
answer
C. a doubling of the price of jelly (a compliment good)
question
Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as
a.
an inward shift of the curve.
b.
a movement from one point to another point along the curve.
c.
an outward shift of the curve.
d.
a movement from a point on the curve to a point inside the curve.
a.
an inward shift of the curve.
b.
a movement from one point to another point along the curve.
c.
an outward shift of the curve.
d.
a movement from a point on the curve to a point inside the curve.
answer
C. an outward shift of the curve.
question
Don can produce 10 pens or 20 pencils in one hour while Bob can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?
a.
Bob has a comparative advantage over Don in the production of pens
b.
Bob has a comparative advantage over Don in the production of pencils
c.
Don has a comparative advantage over Bob in the production of pens
d.
Bob and Don cannot gain from specialization and exchange.
a.
Bob has a comparative advantage over Don in the production of pens
b.
Bob has a comparative advantage over Don in the production of pencils
c.
Don has a comparative advantage over Bob in the production of pens
d.
Bob and Don cannot gain from specialization and exchange.
answer
A. Bob has a comparative advantage over Don in the production of pens
question
5. Suppose Dr. Grey, Dr. Shepard, and Dr. Karev are each trying to decide if they want to purchase a particular type of cell phone at a price of $80. Dr. Grey's maximum willingness to pay was $100, Dr. Shepard's maximum willingness to pay was $90, and Dr. Karev's maximum willingness to pay was $75. Combined consumer surplus for the three individuals would be
a.
$25.
b.
$30.
c.
$35.
d.
$80.
a.
$25.
b.
$30.
c.
$35.
d.
$80.
answer
B. $30.
question
You buy 100 shares of IBM stock at $100 per share and pay $150 commission. How much will this transaction add to GDP?
a.
zero
b.
$150
c.
$10,000
d.
$10,150
a.
zero
b.
$150
c.
$10,000
d.
$10,150
answer
B. $150
question
An American-owned McDonald's opens in Russia. How would the net revenue earned by this restaurant affect the GDP and GNP of the United States?
a.
It would increase GNP and GDP.
b.
It would increase GNP and leave GDP unchanged.
c.
It would increase GDP and leave GNP unchanged.
d.
It would leave both GDP and GNP unchanged.
a.
It would increase GNP and GDP.
b.
It would increase GNP and leave GDP unchanged.
c.
It would increase GDP and leave GNP unchanged.
d.
It would leave both GDP and GNP unchanged.
answer
B. It would increase GNP and leave GDP unchanged.
question
During an economic expansion,
a.
the actual rate of unemployment will exceed the natural rate of unemployment.
b.
the actual rate of unemployment will equal the natural rate of unemployment.
c.
widespread unemployment will cause inflation to increase.
d.
the output of the economy will exceed its long-run potential output.
a.
the actual rate of unemployment will exceed the natural rate of unemployment.
b.
the actual rate of unemployment will equal the natural rate of unemployment.
c.
widespread unemployment will cause inflation to increase.
d.
the output of the economy will exceed its long-run potential output.
answer
D. the output of the economy will exceed its long-run potential output.
question
When an economy is operating at its full employment rate of output,
a.
the rate of unemployment will be zero.
b.
output will exceed the economy's maximum sustainable rate.
c.
the actual rate of unemployment will equal the natural rate.
d.
the economy's potential rate of output will exceed actual GDP.
a.
the rate of unemployment will be zero.
b.
output will exceed the economy's maximum sustainable rate.
c.
the actual rate of unemployment will equal the natural rate.
d.
the economy's potential rate of output will exceed actual GDP.
answer
C. the actual rate of unemployment will equal the natural rate.
question
Which of the following will most likely reduce the natural rate of unemployment?
a.
an increase in the minimum wage
b.
an increase in unemployment benefits
c.
an increase in the proportion of prime-age workers (35-54) as a share of the labor force
d.
an increase in the labor force participation rate of teenagers
a.
an increase in the minimum wage
b.
an increase in unemployment benefits
c.
an increase in the proportion of prime-age workers (35-54) as a share of the labor force
d.
an increase in the labor force participation rate of teenagers
answer
C. an increase in the proportion of prime-age workers (35-54) as a share of the labor force
question
Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called
a.
business cycle fiscal policy.
b.
new classical fiscal policy.
c.
supply-side fiscal policy.
d.
countercyclical fiscal policy.
a.
business cycle fiscal policy.
b.
new classical fiscal policy.
c.
supply-side fiscal policy.
d.
countercyclical fiscal policy.
answer
D. countercyclical fiscal policy.
question
As the marginal propensity to consume (MPC) decreases, the spending multiplier
a.
increases.
b.
decreases.
c.
remains constant.
d.
becomes indefinable.
a.
increases.
b.
decreases.
c.
remains constant.
d.
becomes indefinable.
answer
B. decreases.
question
Ricardian Equivalence maintains that an increase in government spending financed by debt will result in a corresponding increase in
a.
savings, in anticipation of future taxes.
b.
output and consumption, stimulated by the additional government spending.
c.
consumer spending, in anticipation of lower future taxes.
d.
aggregate demand, because the additional spending was financed by borrowing rather than current taxation.
a.
savings, in anticipation of future taxes.
b.
output and consumption, stimulated by the additional government spending.
c.
consumer spending, in anticipation of lower future taxes.
d.
aggregate demand, because the additional spending was financed by borrowing rather than current taxation.
answer
A. savings, in anticipation of future taxes.
question
When an economy dips into recession, automatic stabilizers will tend to
a.
enlarge the budget deficit (or reduce the surplus).
b.
reduce the budget deficit (or increase the surplus).
c.
ensure that the budget remains in balance.
d.
expand the supply of money and, thereby, stimulate aggregate demand.
a.
enlarge the budget deficit (or reduce the surplus).
b.
reduce the budget deficit (or increase the surplus).
c.
ensure that the budget remains in balance.
d.
expand the supply of money and, thereby, stimulate aggregate demand.
answer
A. enlarge the budget deficit (or reduce the surplus).
question
a.
borrowing by the federal government raises interest rates and causes firms to invest less.
b.
foreigners sell their bonds and purchase U.S. goods and services.
c.
borrowing by the federal government causes state and local governments to lower their taxes.
d.
increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.
borrowing by the federal government raises interest rates and causes firms to invest less.
b.
foreigners sell their bonds and purchase U.S. goods and services.
c.
borrowing by the federal government causes state and local governments to lower their taxes.
d.
increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.
answer
A. borrowing by the federal government raises interest rates and causes firms to invest less.
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