question
Economics studies how decision makers use scarce resources to satisfy unlimited wants.
a. True
b. False
a. True
b. False
answer
a. true
question
In economics, money is an example of capital.
a. True
b. False
a. True
b. False
answer
b. false
question
An economist would classify 100 shares of Apple Computers as capital.
a. True
b. False
a. True
b. False
answer
b. false
question
Labor and capital are exchanged in the resource market.
a. True
b. False
a. True
b. False
answer
a. true
question
The assumption of rational self-interest does not rule out the possibility of concern for other individuals.
a. True
b. False
a. True
b. False
answer
a. true
question
Economic decision makers will continue to acquire information only as long as the expected additional benefit exceeds the expected additional cost of the information.
a. True
b. False
a. True
b. False
answer
a. true
question
The behavior of the entertainment industry in a city is a microeconomics topic.
a. True
b. False
a. True
b. False
answer
a. true
question
The ceteris paribus assumption is the other-things-constant assumption.
a. True
b. False
a. True
b. False
answer
a. true
question
The association-is-causation fallacy is the error of assuming that what is true for one member of a group must be true for the group.
a. True
b. False
a. True
b. False
answer
b. false
question
Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
a. True
b. False
a. True
b. False
answer
a. true
question
Which of the following is the best definition of economics?
a. An examination of the structure and the role of the government in an economy
b. A study of the society as a system of interconnected parts
c. A study of how to conduct free and fair elections in a country
d. An investigation of the evolutionary process of mankind
e. An analysis of how individuals and societies deal with the problem of scarcity
a. An examination of the structure and the role of the government in an economy
b. A study of the society as a system of interconnected parts
c. A study of how to conduct free and fair elections in a country
d. An investigation of the evolutionary process of mankind
e. An analysis of how individuals and societies deal with the problem of scarcity
answer
e. an analysis of how individuals and societies deal with the problem of scarcity
question
A resource is something that:
a. is always available free of cost.
b. exists in unlimited quantities in developed countries.
c. must be produced by a firm.
d. is used to produce goods and services.
e. is provided by nature, and not produced by society.
a. is always available free of cost.
b. exists in unlimited quantities in developed countries.
c. must be produced by a firm.
d. is used to produce goods and services.
e. is provided by nature, and not produced by society.
answer
d. is used to produce goods and services
question
Which of the following would an economist classify as physical capital?
a. A $50 bill
b. A bauxite mine in Jamaica
c. 100 shares of Microsoft
d. A lawyer's laptop
e. A credit card
a. A $50 bill
b. A bauxite mine in Jamaica
c. 100 shares of Microsoft
d. A lawyer's laptop
e. A credit card
answer
d. a lawyer's laptop
question
Which of the following is not classified as physical capital by economists?
a. The building where an economics class meets
b. A railroad car
c. A factory
d. A $20 bill in a firm's petty cash drawer
e. A plumber's wrench
a. The building where an economics class meets
b. A railroad car
c. A factory
d. A $20 bill in a firm's petty cash drawer
e. A plumber's wrench
answer
d. a $20 bill in a firm's petty cash drawer
question
Which of the following is an example of physical capital?
a. Bulldozers
b. The owner of a pizza shop
c. A college education
d. Carpentry skills
e. Money
a. Bulldozers
b. The owner of a pizza shop
c. A college education
d. Carpentry skills
e. Money
answer
a. bulldozers
question
Which of the following is a service?
a. Any output produced by the service sector industry, such as fast food
b. Anything that can be used indefinitely
c. Something that is more desirable than a good
d. An intangible activity that satisfies human wants
e. Anything for which people pay less money than they pay for a good
a. Any output produced by the service sector industry, such as fast food
b. Anything that can be used indefinitely
c. Something that is more desirable than a good
d. An intangible activity that satisfies human wants
e. Anything for which people pay less money than they pay for a good
answer
d. an intangible activity that satisfies human wants
question
The expression "there's no such thing as a free lunch" means that:
a. services may be free, but goods are never free.
b. poor people are really the ones who pay for their allegedly free lunches.
c. even if a good or service has a price of zero, it has a cost.
d. someone has to pay the market price for a good or service.
e. charitable organizations should not serve free lunches to the poor.
a. services may be free, but goods are never free.
b. poor people are really the ones who pay for their allegedly free lunches.
c. even if a good or service has a price of zero, it has a cost.
d. someone has to pay the market price for a good or service.
e. charitable organizations should not serve free lunches to the poor.
answer
c. even if a good or service has a price of zero, it has a cost
question
A good or service is considered scarce if:
a. any quantity of it can be consumed at a zero price.
b. the amount people desire equals the amount available at any price.
c. the amount people desire is less than the amount available at a zero price.
d. the amount people desire is less than the amount available at any price.
e. the amount people desire exceeds the amount available at a zero price.
a. any quantity of it can be consumed at a zero price.
b. the amount people desire equals the amount available at any price.
c. the amount people desire is less than the amount available at a zero price.
d. the amount people desire is less than the amount available at any price.
e. the amount people desire exceeds the amount available at a zero price.
answer
e. the amount people desire exceeds the amount available at a zero price
question
In the circular-flow model, households supply all of the following except:
a. capital.
b. natural resources.
c. labor.
d. entrepreneurial ability.
e. goods and services.
a. capital.
b. natural resources.
c. labor.
d. entrepreneurial ability.
e. goods and services.
answer
e. goods and services
question
You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational?
a. The total cost of the magazines compared to the total satisfaction you would receive
b. The enjoyment you would get from the third magazine
c. The cost of the third magazine compared to the additional enjoyment you would get from it
d. The cost of the third magazine including the time it takes to read it
e. The total amount of satisfaction you would get from the magazines
a. The total cost of the magazines compared to the total satisfaction you would receive
b. The enjoyment you would get from the third magazine
c. The cost of the third magazine compared to the additional enjoyment you would get from it
d. The cost of the third magazine including the time it takes to read it
e. The total amount of satisfaction you would get from the magazines
answer
c. the cost of the third magazine compared to the additional enjoyment you would get from it
question
The determination of price and output in specific markets is studied in:
a. positive economics.
b. econometrics.
c. microeconomics.
d. macroeconomics.
e. normative economics.
a. positive economics.
b. econometrics.
c. microeconomics.
d. macroeconomics.
e. normative economics.
answer
c. microeconomics
question
An economic model:
a. omits critical elements.
b. can never be proven wrong if its assumptions are realistic.
c. produces poor predictions if it includes assumptions.
d. must be presented in mathematical terms.
e. simplifies reality in order to focus on its essential elements.
a. omits critical elements.
b. can never be proven wrong if its assumptions are realistic.
c. produces poor predictions if it includes assumptions.
d. must be presented in mathematical terms.
e. simplifies reality in order to focus on its essential elements.
answer
e. simplifies reality in order to focus on its essential elements
question
Economists believe that individuals respond in a predictable way to changes in costs and benefits. The term that best describes this belief is:
a. demand.
b. supply.
c. scarcity.
d. rational behavior.
e. opportunity cost.
a. demand.
b. supply.
c. scarcity.
d. rational behavior.
e. opportunity cost.
answer
d. rational behavior
question
Which of the following is a positive statement?
a. An unemployment rate of 7 percent or higher is a national disgrace.
b. An inflation rate of 7 percent is too high.
c. Unemployment is a less important problem than inflation.
d. When the unemployment rate in an economy is 7 percent, the unemployment rate of the urban population is often close to 40 percent.
e. Unemployment and inflation are equally important problems.
a. An unemployment rate of 7 percent or higher is a national disgrace.
b. An inflation rate of 7 percent is too high.
c. Unemployment is a less important problem than inflation.
d. When the unemployment rate in an economy is 7 percent, the unemployment rate of the urban population is often close to 40 percent.
e. Unemployment and inflation are equally important problems.
answer
d. when the unemployment rate in an economy is 7 percent, the unemployment rate of the urban population is often close to 40 percent.
question
It is possible for one person to have an absolute advantage in two tasks and a comparative advantage in only one.
a. True
b. False
a. True
b. False
answer
a. true
question
A point inside the production possibilities frontier illustrates a situation in which resources are not fully employed.
a. True
b. False
a. True
b. False
answer
a. true
question
The typical concave (i.e., bowed-out) shape of the production possibilities frontier reflects the law of increasing opportunity cost.
a. True
b. False
a. True
b. False
answer
a. true
question
A production possibilities frontier will shift inward if there is an increase in the size of the labor force.
a. True
b. False
a. True
b. False
answer
b. false
question
Of the various types of economic systems, pure market capitalism involves the greatest government interference and control over the economy.
a. True
b. False
a. True
b. False
answer
b. false
question
Inefficiency is a flaw of a command economy because there is less incentive for resources to flow to their highest-valued uses.
a. True
b. False
a. True
b. False
answer
a. true
question
If you enjoy playing golf, the opportunity cost of cleaning your room:
a. is smaller on sunny days than it is on rainy days.
b. is greater on sunny days than it is on rainy days.
c. is the same on sunny days as it is on rainy days.
d. does not change with weather conditions.
e. is equal to the opportunity cost of any other chore you have to do that day.
a. is smaller on sunny days than it is on rainy days.
b. is greater on sunny days than it is on rainy days.
c. is the same on sunny days as it is on rainy days.
d. does not change with weather conditions.
e. is equal to the opportunity cost of any other chore you have to do that day.
answer
b. is greater on sunny days than it is on rainy days
question
The law of comparative advantage states that:
a. the individual with the lowest opportunity cost of producing a particular good should produce it.
b. whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good.
c. comparative advantage exists only when one person has an absolute advantage in the production of two goods.
d. whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good.
e. gains from trade are possible only when one person has a comparative advantage in producing at least two goods.
a. the individual with the lowest opportunity cost of producing a particular good should produce it.
b. whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good.
c. comparative advantage exists only when one person has an absolute advantage in the production of two goods.
d. whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good.
e. gains from trade are possible only when one person has a comparative advantage in producing at least two goods.
answer
a. the individual with the lowest opportunity cost of producing a particular good should produce it
question
Don can produce 10 pens or 20 pencils in one hour, while Bob can produce 5 pencils or 15 pens in one hour. Which of the following statements is correct?
a. Don does not have a comparative advantage in the production of either good.
b. Don has a comparative advantage in the production of pens.
c. Bob has an absolute advantage in the production of pencils.
d. Bob has a comparative advantage in the production of pencils.
e. Bob has an absolute advantage in the production of pens.
a. Don does not have a comparative advantage in the production of either good.
b. Don has a comparative advantage in the production of pens.
c. Bob has an absolute advantage in the production of pencils.
d. Bob has a comparative advantage in the production of pencils.
e. Bob has an absolute advantage in the production of pens.
answer
e. Bob has an absolute advantage in the production of pens
question
A country has an absolute advantage in the production of a good if that country:
a. has the greatest opportunity cost of producing the good and can sell it at the highest price.
b. has the lowest opportunity cost of producing the good and can sell it at the highest price.
c. has the greatest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
d. has the lowest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
e. can produce the good using fewer resources than another country would require.
a. has the greatest opportunity cost of producing the good and can sell it at the highest price.
b. has the lowest opportunity cost of producing the good and can sell it at the highest price.
c. has the greatest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
d. has the lowest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
e. can produce the good using fewer resources than another country would require.
answer
e. can produce the good using fewer resources than another country would require
question
Which of the following is measured along an axis of the production possibilities frontier diagram?
a. The price of a good produced
b. The quantity of natural resources
c. The state of technology
d. The quantity of a good produced
e. Society's welfare and satisfaction
a. The price of a good produced
b. The quantity of natural resources
c. The state of technology
d. The quantity of a good produced
e. Society's welfare and satisfaction
answer
d. the quantity of a good produced
question
Pure capitalism and a pure command system are:
a. two terms describing the same method of answering the basic economic questions.
b. the only two ways of answering the basic economic questions.
c. two different ways of answering the basic economic questions.
d. two economic systems where the problem of scarcity does not exist.
e. the most efficient ways of answering the basic economic questions.
a. two terms describing the same method of answering the basic economic questions.
b. the only two ways of answering the basic economic questions.
c. two different ways of answering the basic economic questions.
d. two economic systems where the problem of scarcity does not exist.
e. the most efficient ways of answering the basic economic questions.
answer
c. two different ways of answering the basic economic questions
question
A major advantage of the corporate form of business organization is the limited personal liability of the owners.
a. True
b. False
a. True
b. False
answer
a. true
question
Two important roles of the government in an economy are to safeguard private property and enforce contracts.
a. True
b. False
a. True
b. False
answer
a. true
question
In the presence of externalities, market prices do not reflect all the social costs or benefits of an activity.
a. True
b. False
a. True
b. False
answer
a. true
question
A public good is available to all regardless of who pays for it and who does not.
a. True
b. False
a. True
b. False
answer
a. true
question
Under a regressive income tax system, individuals with higher incomes have higher marginal tax rates.
a. True
b. False
a. True
b. False
answer
b. false
question
Messitt and McNulty spend $50,000 each to form a law partnership. On the first day, someone trips over a potted plant in their lobby and sues them for $400,000. Which of the following is true?
a. If a $400,000 judgment is passed against the partnership, then each partner will have to pay $50,000.
b. If a $400,000 judgment is passed against the partnership and if McNulty cannot afford to pay any of it, then Messitt is liable for $400,000.
c. The partner who put the potted plant in the office is personally responsible for the damages.
d. Messitt's liability is limited to $300,000 if she owns three-quarters of the firm.
e. Each individual partner cannot be sued for more than $200,000.
a. If a $400,000 judgment is passed against the partnership, then each partner will have to pay $50,000.
b. If a $400,000 judgment is passed against the partnership and if McNulty cannot afford to pay any of it, then Messitt is liable for $400,000.
c. The partner who put the potted plant in the office is personally responsible for the damages.
d. Messitt's liability is limited to $300,000 if she owns three-quarters of the firm.
e. Each individual partner cannot be sued for more than $200,000.
answer
b. if a $400,000 judgement is passed against the partnership and if McNulty cannot afford to pay any of it, then Messitt is liable for $400,000.
question
Suppose the price of compact disks (CDs) increases, other things equal. Which of these is most likely to occur in the market for DVDs, a substitute?
a. An increase in the demand for DVDs
b. A decrease in the quantity of DVDs demanded
c. An increase in the quantity of DVDs demanded
d. A decrease in the demand for DVDs
e. A decrease in the quantity of DVDs supplied
a. An increase in the demand for DVDs
b. A decrease in the quantity of DVDs demanded
c. An increase in the quantity of DVDs demanded
d. A decrease in the demand for DVDs
e. A decrease in the quantity of DVDs supplied
answer
a. an increase in the demand for DVDs
question
If the price of vanilla ice cream increases, everything else remaining constant, it is likely that:
a. the quantity demanded of vanilla ice cream will increase.
b. the demand for vanilla ice cream will increase.
c. the demand for chocolate ice cream, a substitute, will increase.
d. the demand for chocolate ice cream, a substitute, will decrease.
e. the demand for vanilla ice cream will decrease.
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a. the quantity demanded of vanilla ice cream will increase.
b. the demand for vanilla ice cream will increase.
c. the demand for chocolate ice cream, a substitute, will increase.
d. the demand for chocolate ice cream, a substitute, will decrease.
e. the demand for vanilla ice cream will decrease.
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answer
c. the demand for chocolate ice cream, a substitute, will increase
question
Which of the following can account for a decrease in the demand for peanut butter, a normal good?
a. A drought in Georgia that destroyed 30 percent of the peanut crop
b. A substantial increase in the price of bread
c. An increase in the supply of peanut butter
d. An increase in the price of peanut butter
e. An increase in consumer income
a. A drought in Georgia that destroyed 30 percent of the peanut crop
b. A substantial increase in the price of bread
c. An increase in the supply of peanut butter
d. An increase in the price of peanut butter
e. An increase in consumer income
answer
b. a substantial increase in the price of bread
question
The income effect of a price change refers to the impact of a change in:
a. the relative price of a good on the demand for other goods.
b. the price of a good on a consumer's real income.
c. the money income of consumers on the price of a good.
d. the price of a substitute good on a consumer's budget.
e. the money income of consumers on the demand for a good.
a. the relative price of a good on the demand for other goods.
b. the price of a good on a consumer's real income.
c. the money income of consumers on the price of a good.
d. the price of a substitute good on a consumer's budget.
e. the money income of consumers on the demand for a good.
answer
b. the price of a good on a consumer's real income
question
If the demand for personal computers increases as a result of an increase in income:
a. personal computers must be an inferior good
b. the substitutes for personal computers must be inferior goods
c. personal computers must be a normal good
d. personal computers must be a complementary good
e. the complements for personal computers must be inferior goods
a. personal computers must be an inferior good
b. the substitutes for personal computers must be inferior goods
c. personal computers must be a normal good
d. personal computers must be a complementary good
e. the complements for personal computers must be inferior goods
answer
c. personal computers must be a normal good
question
Attempts are being made to develop a biodegradable plastic using agricultural produce such as potatoes. Identify a likely impact on the equilibrium price and quantity of potatoes if such attempts are successful, all other things remaining constant.
a. The equilibrium price will increase and the equilibrium quantity will decrease.
b. There will be no change in the equilibrium price and quantity.
c. The equilibrium price will decrease and the equilibrium quantity will increase.
d. Both equilibrium price and quantity will decrease.
e. Both equilibrium price and quantity will increase.
a. The equilibrium price will increase and the equilibrium quantity will decrease.
b. There will be no change in the equilibrium price and quantity.
c. The equilibrium price will decrease and the equilibrium quantity will increase.
d. Both equilibrium price and quantity will decrease.
e. Both equilibrium price and quantity will increase.
answer
e. both equilibrium price and quantity will increase
question
An increase in professors' salaries increases the supply of college education.
a. True
b. False
a. True
b. False
answer
b. false
question
Which of the following will lead to an increase in quantity supplied of a given good?
a. A technological improvement
b. An increase in resource prices
c. An increase in the price of the good
d. An increase in population
e. An increase in the price of an alternative good
a. A technological improvement
b. An increase in resource prices
c. An increase in the price of the good
d. An increase in population
e. An increase in the price of an alternative good
answer
c. an increase in the price of the good
question
Suppose a market is in equilibrium. If a price floor is set in this market below the equilibrium price, it is likely that:
a. quantity demanded will increase.
b. the market will remain in equilibrium.
c. a surplus will arise.
d. a shortage will arise.
e. quantity sold will rise.
a. quantity demanded will increase.
b. the market will remain in equilibrium.
c. a surplus will arise.
d. a shortage will arise.
e. quantity sold will rise.
answer
b. the market will remain in equilibrium
question
Which of the following actions would increase the consumption spending component of the gross domestic product (GDP) ?
a. Tim and Ann painting the garage themselves
b. Ann cooking dinner for Tim instead of going out
c. Ann and Tim buying vegetables to prepare soup at home
d. Tim buying Ann a dress
e. Ann and Tim buying a used microwave oven
a. Tim and Ann painting the garage themselves
b. Ann cooking dinner for Tim instead of going out
c. Ann and Tim buying vegetables to prepare soup at home
d. Tim buying Ann a dress
e. Ann and Tim buying a used microwave oven
answer
d. Tim buying Ann a dress
question
A shortcoming of national income accounting is that it ignores:
a. spending on intermediate goods.
b. the depreciation of manufactured capital.
c. spending by poor households who are receiving government transfer payments.
d. U.S. products that are sold overseas.
e. the depletion of natural resources.
a. spending on intermediate goods.
b. the depreciation of manufactured capital.
c. spending by poor households who are receiving government transfer payments.
d. U.S. products that are sold overseas.
e. the depletion of natural resources.
answer
e. the depletion of natural resources
question
Gross domestic product (GDP) will increase if illegal drugs are made legal.
a. True
b. False
a. True
b. False
answer
a. true
question
Depreciation refers to:
a. changes in exchange rates.
b. the value of leisure goods.
c. capital worn out during the production process.
d. the effects of government subsidy programs.
e. income that we earn but do not receive.
a. changes in exchange rates.
b. the value of leisure goods.
c. capital worn out during the production process.
d. the effects of government subsidy programs.
e. income that we earn but do not receive.
answer
c. capital wont out during the production process
question
Suppose a loaf of bread sold for $3.00 in 2008. The price of bread then increases to $3.60 in 2009. The price index for bread, considering 2008 as the base year, is:
a. 120
b. 83.33
c. 20
d. 100
e. 1.20
a. 120
b. 83.33
c. 20
d. 100
e. 1.20
answer
a. 120
question
Real gross domestic product (GDP) is measured in terms of:
a. current-year prices
b. base-year prices
c. hours of employment
d. the quality of goods produced
e. foreign currencies
a. current-year prices
b. base-year prices
c. hours of employment
d. the quality of goods produced
e. foreign currencies
answer
b. base-year prices
question
Which of the following statements about gold jewelry and round-trip bus tickets to Bismarck, North Dakota, is most likely to be correct?
a. They are substitutes.
b. They are complements.
c. They are unrelated.
d. They are both inferior goods.
e. Their demand curves have equal slope.
a. They are substitutes.
b. They are complements.
c. They are unrelated.
d. They are both inferior goods.
e. Their demand curves have equal slope.
answer
c. they are unrelated
question
For a given aggregate supply curve, the price level and output will both increase when aggregate demand decreases.
a. True
b. False
a. True
b. False
answer
b. false
question
A period of sustained growth in output in an economy is referred to as a(n):
a. trough
b. recession
c. expansion
d. peak
e. contraction
a. trough
b. recession
c. expansion
d. peak
e. contraction
answer
c. expansion
question
If the real gross domestic product (GDP) for the base year is $4 trillion, then the nominal gross domestic product (GDP) for that year is:
a. −$.04 trillion
b. $0.4 trillion
c. $40 trillion
d. $4 trillion
e. $400 trillion
a. −$.04 trillion
b. $0.4 trillion
c. $40 trillion
d. $4 trillion
e. $400 trillion
answer
d. $4 trillion
question
Real gross domestic product (GDP) is measured in terms of:
a. current-year prices
b. foreign currencies
c. hours of employment
d. the quality of goods produced
e. base-year prices
a. current-year prices
b. foreign currencies
c. hours of employment
d. the quality of goods produced
e. base-year prices
answer
e. base-year prices
question
When the suppliers of a good that can be easily stored expect its price to increase in the future, they will reduce its current supply.
a. True
b. False
a. True
b. False
answer
a. true
question
The law of demand states that:
a. price and quantity demanded are positively related, other things remaining constant.
b. price is the only factor that influences the quantity that people are willing and able to buy.
c. quantity demanded varies inversely with price, other things remaining constant.
d. the demand curve shifts whenever the price of a good changes, other things remaining constant.
e. firms create a demand for a product by producing it.
a. price and quantity demanded are positively related, other things remaining constant.
b. price is the only factor that influences the quantity that people are willing and able to buy.
c. quantity demanded varies inversely with price, other things remaining constant.
d. the demand curve shifts whenever the price of a good changes, other things remaining constant.
e. firms create a demand for a product by producing it.
answer
c. quantity demanded varies inversely with price, other things remaining constant
question
The gross domestic product measures the value of all final goods and services produced by resources owned by a nation.
a. True
b. False
a. True
b. False
answer
b. false
question
Since the Great Depression, business fluctuations have become more severe and longer in duration
a. True
b. False
a. True
b. False
answer
b. false
question
Disposable income equals personal income minus net taxes.
a. True
b. False
a. True
b. False
answer
b. false
question
Gross domestic product ( GDP) does not reflect many things that individuals do for themselves.
a. True
b. False
a. True
b. False
answer
a. true
question
If consumption = $5,000; investment = $800, government purchases = $700, exports = $30, imports = $60, and transfer payments = $340, then:
a. GDP = $7,740
b. GDP = $3,140
c. GDP = $6,470
d. GDP = $6,840
e. GDP = $7,400
a. GDP = $7,740
b. GDP = $3,140
c. GDP = $6,470
d. GDP = $6,840
e. GDP = $7,400
answer
c. GDP = $6,470
question
The slope of the consumption function equals the marginal propensity to consume.
a. True
b. False
a. True
b. False
answer
a. true
question
An increase in the marginal propensity to consume (MPC) will cause the consumption function to become steeper.
a. True
b. False
a. True
b. False
answer
a. true
question
An increase in the interest rate, other things constant, decreases the amount of investment spending.
a. True
b. False
a. True
b. False
answer
a. true
question
An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.
a. True
b. False
a. True
b. False
answer
a. true
question
The current level of investment depends on the current level of income.
a. True
b. False
a. True
b. False
answer
b. false
question
Aggregate expenditure means total or combined spending.
a. True
b. False
a. True
b. False
answer
a. true
question
If there are no unintended changes in inventories, the economy is at its equilibrium level of real gross domestic product (GDP) demanded.
a. True
b. False
a. True
b. False
answer
a. true
question
If current aggregate expenditure equals current production, an economy is in equilibrium.
a. True
b. False
a. True
b. False
answer
a. true
question
A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.
a. True
b. False
a. True
b. False
answer
a. true
question
The most important determinant of a household's consumption spending is:
a. its disposable income.
b. the interest rate.
c. the ratio of wage to non-wage income of the household.
d. the in-kind transfers received by the household.
e. the level of education of the members of the household.
a. its disposable income.
b. the interest rate.
c. the ratio of wage to non-wage income of the household.
d. the in-kind transfers received by the household.
e. the level of education of the members of the household.
answer
a. its disposable income
question
Which of the following is an effect of an increase in the price level in an economy?
a. The aggregate demand curve will shift rightward.
b. The equilibrium real gross domestic product will decrease.
c. There will be downward movement along a particular aggregate demand curve.
d. The aggregate expenditure line will shift upward.
e. The real value of dollar-denominated assets will increase.
a. The aggregate demand curve will shift rightward.
b. The equilibrium real gross domestic product will decrease.
c. There will be downward movement along a particular aggregate demand curve.
d. The aggregate expenditure line will shift upward.
e. The real value of dollar-denominated assets will increase.
answer
b. the equilibrium real gross domestic product will decrease
question
Which of the following is true of the simple spending multiplier?
a. It is the sum of the marginal propensity to consume and the marginal propensity to save.
b. It equals the difference between the marginal propensity to save and the marginal propensity to consume.
c. It is the reciprocal of the marginal propensity to consume.
d. It equals the ratio of the marginal propensity to consume to the marginal propensity to save.
e. It is the reciprocal of the marginal propensity to save.
a. It is the sum of the marginal propensity to consume and the marginal propensity to save.
b. It equals the difference between the marginal propensity to save and the marginal propensity to consume.
c. It is the reciprocal of the marginal propensity to consume.
d. It equals the ratio of the marginal propensity to consume to the marginal propensity to save.
e. It is the reciprocal of the marginal propensity to save.
answer
e. it is the reciprocal of the marginal propensity to save
question
If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is:
a. 1/8.
b. 2.
c. 1/2.
d. 8.
e. 4.
a. 1/8.
b. 2.
c. 1/2.
d. 8.
e. 4.
answer
d. 8
question
Which of the following is not true of a change in the price level?
a. It will result in a new value of equilibrium real GDP demanded.
b. It will change the real value of dollar-denominated assets.
c. It will shift the aggregate expenditure curve.
d. It will shift the consumption function.
e. It will shift the aggregate demand curve.
a. It will result in a new value of equilibrium real GDP demanded.
b. It will change the real value of dollar-denominated assets.
c. It will shift the aggregate expenditure curve.
d. It will shift the consumption function.
e. It will shift the aggregate demand curve.
answer
e. it will shift the aggregate demand curve
question
If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals:
a. 3
b. 4
c. 2
d. 5
e. 1
a. 3
b. 4
c. 2
d. 5
e. 1
answer
c. 2
question
If the marginal propensity to consume (MPC) is 4/5, the value of the simple multiplier is:
a. 5/4.
b. 4/5.
c. 1/5.
d. 5.
e. 4
a. 5/4.
b. 4/5.
c. 1/5.
d. 5.
e. 4
answer
d. 5
question
An increase in the marginal propensity to consume (MPC) will, other things constant:
a. decrease the value of the multiplier
b. shift the aggregate expenditure curve downward
c. cause a downward movement along the aggregate expenditure curve
d. increase the marginal propensity to save
e. increase the value of the multiplier
a. decrease the value of the multiplier
b. shift the aggregate expenditure curve downward
c. cause a downward movement along the aggregate expenditure curve
d. increase the marginal propensity to save
e. increase the value of the multiplier
answer
e. increase the value of the multiplier
question
If households save $40 billion less at each level of income and the marginal propensity to consume (MPC) is 0.8, the aggregate expenditure line will:
a. shift downward by $200 billion because of the multiplier mechanism
b. shift upward by $200 billion because of the multiplier mechanism
c. shift downward by $40 billion
d. intersect the 45-degree line at a real GDP of $40 billion
e. shift upward by $40 billion
a. shift downward by $200 billion because of the multiplier mechanism
b. shift upward by $200 billion because of the multiplier mechanism
c. shift downward by $40 billion
d. intersect the 45-degree line at a real GDP of $40 billion
e. shift upward by $40 billion
answer
e. shift upward by $40 billion
question
If the spending multiplier is greater than 1.0, a $200 billion increase in autonomous investment will cause:
a. equilibrium investment to decrease by more than $200 billion.
b. equilibrium saving to decrease by more than $200 billion.
c. equilibrium investment to increase by less than $200 billion.
d. equilibrium real GDP demanded to increase by more than $200 billion.
e. equilibrium real GDP demanded to decrease by less than $200 billion.
a. equilibrium investment to decrease by more than $200 billion.
b. equilibrium saving to decrease by more than $200 billion.
c. equilibrium investment to increase by less than $200 billion.
d. equilibrium real GDP demanded to increase by more than $200 billion.
e. equilibrium real GDP demanded to decrease by less than $200 billion.
answer
d. equilibrium real GDP demanded to increase by more than $200 billion
question
If the marginal propensity to consume (MPC) equals 0.9, the multiplier is:
a. 5
b. 12
c. 10
d. 2
e. 1
a. 5
b. 12
c. 10
d. 2
e. 1
answer
c. 10
question
At the potential level of output, there is no seasonal unemployment.
a. True
b. False
a. True
b. False
answer
b. false
question
The natural rate of unemployment includes frictional, cyclical, and structural unemployment.
a. True
b. False
a. True
b. False
answer
b. false
question
The nominal cost per unit of output rises when production is pushed beyond an economy's potential output.
a. True
b. False
a. True
b. False
answer
a. true
question
An expansionary gap generally creates inflationary pressure in an economy.
a. True
b. False
a. True
b. False
answer
a. true
question
Actual output can exceed an economy's potential both in the short run and the long run.
a. True
b. False
a. True
b. False
answer
b. false
question
Wage rates are typically flexible upward but "sticky" downward.
a. True
b. False
a. True
b. False
answer
a. true
question
If the rate of increase in the price level exceeds the rate of increase in nominal GDP, real GDP declines.
a. True
b. False
a. True
b. False
answer
a. true
question
If the price level increases by 5 percent and the nominal wage increases by 3.5 percent, the real wage will decrease by 1.5 percent.
a. True
b. False
a. True
b. False
answer
a. true
question
During a particular year, nominal wages increased by 4 percent but real wages declined by 2 percent. This implies that the price level increased by 6 percent.
a. True
b. False
a. True
b. False
answer
a. true
question
Floods in the Midwest that diminish farm output would shift the aggregate supply curve outward.
a. True
b. False
a. True
b. False
answer
b. false
question
The international oil price hike by OPEC was an adverse supply shock faced by the U.S. in the 1970s.
a. True
b. False
a. True
b. False
answer
a. true
question
Which of the following is true of the short-run aggregate supply curve?
a. It shows an inverse relationship between the price level and real GDP.
b. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
c. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant.
d. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant.
e. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant.
a. It shows an inverse relationship between the price level and real GDP.
b. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
c. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant.
d. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant.
e. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant.
answer
b. it shows the relation between the price level and the quantity of aggregate output firms supply, other things constant
question
When an economy is producing its potential output, which of the following is true?
a. The nominal wage is equal to the real wage.
b. The price level is higher than that expected by workers.
c. The actual price level is less than the expected price level.
d. The unemployment rate is about 14 percent.
e. The economy is producing its maximum sustainable output.
a. The nominal wage is equal to the real wage.
b. The price level is higher than that expected by workers.
c. The actual price level is less than the expected price level.
d. The unemployment rate is about 14 percent.
e. The economy is producing its maximum sustainable output.
answer
e. the economy is producing its maximum sustainable output
question
When an economy produces its potential output, _____ is zero.
a. seasonal unemployment
b. disguised unemployment
c. cyclical unemployment
d. frictional unemployment
e. structural unemployment
a. seasonal unemployment
b. disguised unemployment
c. cyclical unemployment
d. frictional unemployment
e. structural unemployment
answer
c. cyclical unemployment
question
An expansionary gap is closed in the long run by a(n):
a. leftward shift of the short-run aggregate supply curve.
b. increase in aggregate demand.
c. rightward shift of the short-run aggregate supply curve.
d. decrease in aggregate demand.
e. upward movement along a fixed short-run aggregate supply curve.
a. leftward shift of the short-run aggregate supply curve.
b. increase in aggregate demand.
c. rightward shift of the short-run aggregate supply curve.
d. decrease in aggregate demand.
e. upward movement along a fixed short-run aggregate supply curve.
answer
a. leftward shift of the short-run aggregate supply curve
question
Which of the following is true of an expansionary gap?
a. In the long run, this gap will close when resource suppliers negotiate higher resource payments.
b. In the long run, this gap will close when the short-run aggregate supply curve shifts rightward.
c. It measures the amount by which actual output falls short of the economy's potential.
d. It develops when the expected price level exceeds the actual price level.
e. In the long run, this gap will close when resource suppliers negotiate lower resource payments.
a. In the long run, this gap will close when resource suppliers negotiate higher resource payments.
b. In the long run, this gap will close when the short-run aggregate supply curve shifts rightward.
c. It measures the amount by which actual output falls short of the economy's potential.
d. It develops when the expected price level exceeds the actual price level.
e. In the long run, this gap will close when resource suppliers negotiate lower resource payments.
answer
a. in the long run, this gap will close when resource suppliers negotiate higher resource payments.
question
Discretionary fiscal policy works by shifting the aggregate demand curve.
a. True
b. False
a. True
b. False
answer
a. true
question
A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in net taxes.
a. True
b. False
a. True
b. False
answer
b. false
question
Either an increase in autonomous net taxes or a decrease in government purchases can close an expansionary gap.
a. True
b. False
a. True
b. False
answer
a. true
question
Classical economists believed that the economy automatically moves toward equilibrium at full employment.
a. True
b. False
a. True
b. False
answer
a. true
question
According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP.
a. True
b. False
a. True
b. False
answer
a. true
question
Government transfer payments are a good example of an automatic stabilizer.
a. True
b. False
a. True
b. False
answer
a. true
question
The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.
a. True
b. False
a. True
b. False
answer
a. true
question
One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.
a. True
b. False
a. True
b. False
answer
a. true
question
The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.
a. True
b. False
a. True
b. False
answer
b. false
question
The supply-side effect of higher tax rates would include a fall in the economy's potential GDP.
a. True
b. False
a. True
b. False
answer
a. true
question
Fiscal policy is concerned with _____.
a. money supply and taxation
b. government spending and changes in money supply
c. government spending and taxation
d. government spending, taxation, and money supply
e. only money supply
a. money supply and taxation
b. government spending and changes in money supply
c. government spending and taxation
d. government spending, taxation, and money supply
e. only money supply
answer
c. government spending and taxation
question
Supply-side economics emphasized government policies to:
a. lower interest rates to boost saving.lower interest rates to boost saving.
b. restrict aggregate spending and boost aggregate supply.
c. increase government tax revenues in order to increase government purchases.
d. stimulate real GDP by improving incentives to work.
e. increase minimum wage to improve labor productivity.
a. lower interest rates to boost saving.lower interest rates to boost saving.
b. restrict aggregate spending and boost aggregate supply.
c. increase government tax revenues in order to increase government purchases.
d. stimulate real GDP by improving incentives to work.
e. increase minimum wage to improve labor productivity.
answer
d. stimulate real GDP by improving incentives to work.
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