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BASIC ECON REVIEW QUESTIONS/ANSWERS ALL CHAPTERS

Student: ___________________________________________________________________________

1. Economics can best be described as the study of:
A. how to increase the level of productive resources so there is maximum output in society.
B. how to use productive resources to maximize income level.
C. how people, institutions, and society make choices under conditions of scarcity.
D. how business structures influence the allocation of income among firms.

2. The term "scarcity" in economics can refer to the fact that:
A. economic wants are limited and resources are abused.
B. even in the richest country some people go hungry.
C. no country can produce enough products to satisfy everybody's economic wants.
D. it is impossible to produce too much of any particular good or service in a market economy.

3. What is the economic meaning of the expression that "there is no such thing as a free lunch"?
A. It refers to "free-riders," who do not pay for the cost of a product but who receive the benefit from it.
B. It means that economic freedom is limited by the amount of income available to the consumer.
C. It means there is an opportunity cost when resources are used to provide "free" products.
D. It indicates that products only have value because people are willing to pay for them.

4. Which expression is another way of saying "marginal cost"?
A. total cost
B. additional cost
C. average cost
D. scarcity

5. Are the goods that businesses offer for "free" to consumers also free to society?
A. Yes, because the individual consumer does not have to pay for them.
B. Yes, because the marginal benefit is greater than the marginal cost.
C. No, because scarce resources were used to produce the free goods.
D. No, because society does not assign a value to free goods.

6. The statement that "the unemployment rate will increase as the economy moves into a recession" is an example of:
A. a normative statement.
B. a microeconomic statement.
C. marginal analysis.
D. a generalization.

7. A basic assumption used in most economic theories is that:
A. what is true for a part of the whole must also be true for the whole.
B. as price decreases, quantity demanded will decrease.
C. whatever goes up must come down.
D. all other things remain the same.

8. Macroeconomics focuses on:
A. the individual units that make up the whole of the economy.
B. studies of how individual markets and industries are organized.
C. total output and the general level of prices in the economy.
D. how a business determines how much output to produce.

9. Which question is an illustration of a microeconomic question?
A. Is the quantity of wine purchased in one year dependent upon the price of wine?
B. Does government spending influence the total level of employment in the economy?
C. Is the purchasing power of the dollar higher or lower today than it was in 2005?
D. Is capitalism superior to socialism?

10. When modeling consumer choice, the price ratio of the two products is the:
A. equilibrium exchange rate.
B. slope of the budget line.
C. point of tangency for equilibrium.
D. demand for the two products.

11. Assume that a consumer purchases two products and the consumer's money income increases. All other things equal, the most
likely effect is:
A. an outward shift in the production possibilities curve because the consumer can now satisfy more wants.
B. an inward shift in the budget line because the consumer can now purchase less of both products.
C. an outward shift in the budget line because the consumer can now purchase more of both products.
D. no change in the consumer's buying pattern.

12.

Refer to the above graphs. Which pairs of budget constraints represent only a decrease in the price of good A, but no change in
income?
A. Graph A
B. Graph B
C. Graph C
D. Graph D

13.

Refer to the above graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is $2.00 per pitcher and
pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph represents the set of possible combinations
of beer and pizza he can consume?
A. Graph A
B. Graph B
C. Graph C
D. Graph D

14. Money is not considered to be an economic resource because:
A. as such it is not productive.
B. money is not a free gift of nature.
C. the terms of trade can be determined in nonmonetary terms.
D. idle money balances do not earn interest income.

15. The production possibilities curve represents which of the following?
A. The amount of goods attainable with variable resources
B. The maximum amount of goods attainable with variable resources
C. The maximum combinations of goods attainable with fixed resources
D. The amount of goods attainable if prices decline

16. The following economy produces two products.

Refer to the above table. In moving from possibility A to F, the cost of a unit of steel in terms of a unit of wheat:
A. increases.
B. decreases.
C. remains constant.
D. increases from A to B, and decreases from B to F.

17. The following economy produces two products.

Given the production possibilities schedule above, a combination of three tanks and 350 autos:
A. illustrates the trade-off between tanks and autos.
B. is attainable but involves the unemployment or inefficient use of some of society's resources.
C. cannot be produced by society, given its current level of resources and production technology.
D. is not attainable because this combination is not listed in the schedule.

18. The production possibility curve:
A. is convex to the origin.
B. is based on the law of diminishing returns.
C. is the boundary between attainable and unattainable outputs.
D. reflects the mixed economy found with most economic systems.

19. Consider a society that is producing inside its production possibilities frontier. This society could best achieve efficiency in its
production of output by:
A. distributing incomes more equally.
B. fully employing all available resources.
C. increasing the levels of wages and prices.
D. producing relatively more capital goods and relatively fewer consumer goods.

20. Assume that for Indy, one hour of study time in economics is perfectly substitutable for an hour of study time in calculus.
Indy has exams in both subjects tomorrow and he determines that if spends all of his time studying economics, he will receive
scores of 96 on his economics exam and 45 on his calculus exam. If he studies only calculus, his econ score will be 81 and
his calculus score 90. Based on this information and assuming that Indy has no better alternative use of his time, what is the
opportunity cost of improving his econ score by one (1) point?
A. 1 point on his calculus exam
B. 1/3 point on his calculus exam
C. 3 points on his calculus exam
D. The opportunity cost cannot be determined with the information given.

21. The production possibilities table below shows the hypothetical relationship between the production of capital goods and
consumer goods in an economy.

Refer to the table above. What is the opportunity cost of producing the first two units of capital goods?
A. 4 units of consumer goods
B. 5 units of consumer goods
C. 9 units of consumer goods
D. 13 units of consumer goods

22. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the
concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The
opportunity cost of Tammie's trip to the concert is:
A. $300.
B. $450.
C. $500.
D. $600.

23. The overallocation of resources by society to a product means that the:
A. marginal benefit is greater than the marginal cost.
B. marginal cost is greater than the marginal benefit.
C. entrepreneurs are making too much profit in the economy.
D. workers are not being paid adequate wages and salaries.

24. Increases in resources or improvements in technology will tend to cause a society's production possibilities curve to:
A. shift inward or to the left.
B. shift outward or to the right.
C. become horizontal.
D. become vertical.

25.

The graph above shows two production possibilities curves for a nation that produces two goods, Y and Z. PP1 and PP2 show
the production possibilities for years 1 and 2. The nation's total production then decreased after year 2. This change could be
represented by a move from:
A. F to A.
B. A to E.
C. F to B.
D. E to D.

26. Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves and are on the same
point on each curve. If Beta then devotes more resources to investment goods than consumer goods when compared to Alpha,
then in the future:
A. Alpha will experience greater economic growth than Beta.
B. Beta will experience greater economic growth than Alpha.
C. Alpha will not be able to achieve full employment or productive efficiency.
D. Beta will not be able to achieve full employment or productive efficiency

27. Economics is the study of the efficient use of scarce resources to achieve maximum satisfaction of economic wants.
True False

28. The economizing problem arises from the conflict between having relatively unlimited resources and relatively limited
wants.
True False

29. Economic systems differ according to what two main characteristics?
A. Ownership of resources and methods of coordinating economic activity.
B. Quantity of output produced and who receives the output.
C. Who produces the output and what technology is used to produce it.
D. The system of government and the quantity of natural resources available.

C. D. C. produces more capital goods than consumer goods. D. The production and allocation of goods and services is determined primarily through markets. B. The production and allocation of goods and services is determined primarily through government. How do workers typically express self-interest? A. large number of sellers D. In a market system. C. B. if any. Government policies determine the production and the allocation of goods and services. To achieve your objective there must be a(n): A. Prices affect the distribution of goods in a market system but not the allocation of resources. Government policies determine the production. In a market system. B. 33. C. What goods and services will be produced? B. the economy of Hong Kong most closely approximates: A. Specialization saves time by eliminating shifting between tasks. of goods and services. D. 37. 31. Specialization fosters learning by doing. use of capital goods. Which statement best describes a capitalist economy? A. produces more consumer goods than capital goods. By seeking jobs with the best combination of wages and benefits. coincidence of wants. What goods and services should be produced by government? . Specialization capitalizes on differences in ability. 39. Which is not one of the Four Fundamental Questions? A. Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system? A. D. B. C. B. but not the allocation. pure capitalism. prices serve to ration goods and services to consumers. How will goods and services be produced? B. Specialization promotes self-sufficiency and independence. D. C. socialism. C. effect on the distribution of income in the economy. The role of individual self-interest is relatively unimportant because government makes most economic decisions. 34. B. Which statement is correct? A. How will the goods and services be produced? C. Capitalism is an economic system that: A. lack of incentives because the owner is responsible for maintenance costs. 38. but the allocation of goods and services is determined primarily by government. 35. lack of easy exchange because ownership is sometimes hard to prove. 32.The production of goods and services is determined primarily by markets. 36. How will the system promote progress? D. entry and exit from the market. As of 2012. but the allocation of goods and services is determined primarily by markets. B. buyers and sellers must be in face-to-face contact with each other. gives private individuals and corporations the right to own productive resources. By minimizing the economic losses of other business firms. The institution of private property encourages: A. B. a market economy. B. easy exchange of some property because a formal title or deed exists.The production of goods and services is determined primarily by government. The operation of a market system has little. D. Which of the following does not explain why specialization increases output? A. Consider a barter situation where you have pens and you want pencils. Society determines production and the allocation of goods and services only through markets. C. By seeking the highest price when purchasing a consumer product. a command economy. is characterized by government control of markets.30. Who will get the goods and services? 40. By maximizing the economic profits of other business firms. Which statement best describes a command economy? A. lack of maintenance because people are not forced by law to do it. D. C. How should the system promote progress? C. D. Who is to receive the output of the system? D.

product markets. D. D. supply curves are upsloping. In the circular flow model. C. 48. A widely publicized study that indicates beef increases one's cholesterol B. C. B. households: A. D. spending decisions of households. households are sellers of products. consumer sovereignty. output decisions of business firms. B. An increase in the price of a product will reduce the amount of it purchased because: A. consumers will substitute other products for the one whose price has risen. B. D. 47. D. buy products and sell resources. derived demand. B. C. derived demand. A change in the incomes of beef consumers . workers' technical skills. B. 51. specialization. The development of the Internet and e-mail to often replace regular mail services is an example of: A. C. households are buyers of productive resources. creative destruction. C. C. a pure economy. An effective advertising campaign by pork producers D. A major feature of a market system is that: A. exhibits upsloping demand and downsloping supply curves. consumers substitute relatively high-priced for relatively low-priced products. B. C.41. resource markets are sellers of products. consumer tastes and the quantity demanded. money income and quantity demanded. The demand curve shows the relationship between: A. and resource markets: A. the invisible hand. The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as: A. is an institution or mechanism that brings together buyers and sellers. B. roundabout production. 46. In a circular flow model consisting of the household sector. sell products and buy resources. A market: A. buy products and resources. the circular flow of income. D. C. D. all producers make profits. 49. there is consumer sovereignty. 45. a barter economy. sell products and resources. the higher price means that real incomes have risen. there is economic equality. 42. D. 50. D. B. What to produce in a market economy is ultimately determined by the: A. there is full employment. income plans of households. A reduction in the price of cattle feed C. B. C. businesses are sellers of products. price and production costs. B. The fact that expenditures on products and payments to owners of resources used to produce those products flow in opposite directions is known as: A. 43. C. D. 44. roundabout production. entails the exchange of goods but not services. profit maximization. price and quantity demanded. Which of the following would not shift the demand curve for beef? A. the business sector. always requires face-to-face contact between buyer and seller.

lower price shifts the demand curve rightward. C. D. 58. complementary goods. B. increase the demand for both soda and tacos. B. B. which of the following might shift the demand curve for gasoline to the left? A. lower price results in an increase in supply. 57. substitute goods. We would expect an increase in the price of pizza to: A. Assume the demand schedule for product C is downsloping. If products A and B are complements and the price of B decreases. The discovery of vast new tar sands oil reserves in Canada B. 56. but the demand curve for A will not shift. 54. If the price of C falls from $2. A large decline in the price of automobiles 55. consumer preferences have changed in favor of A so that they now want to buy more at each possible price. a change in consumer tastes that is unfavorable to X. and soda and pizza are complements. lower price shifts the demand curve leftward. 53. B. reduce the demand for soda and increase the demand for tacos. amount of B purchased will increase. the demand for C will increase. demand curves for both A and B will shift to the left. a smaller quantity of C will be demanded. Other things equal. Suppose that tacos and pizza are substitutes. The quantity demanded of a product increases as its price declines because the: A. . C. A shift to the right in the demand curve for product A can be most reasonably explained by saying that: A. the price of A has decreased and. D. consumers want to purchase less of it. demand curve is downsloping. as a result. B. reduce the demand for both soda and tacos.75: A.00 to $1. An increase in the price of train and air transportation D. D. independent goods. D. a decline in income if X is an inferior good. C. This might be caused by: A. C. the: A. a decline in the price of Z if X and Z are substitute goods.52. demand for A will increase and the amount of B demanded will increase. as a result. C. The development of a low-cost electric automobile C. D. C. B. consumer incomes have declined and they now want to buy less of A at each possible price. B. D. DVD players and DVDs are: A. the price of A has increased and. a larger quantity of C will be demanded. 59. the demand for C will decrease. inferior goods. demand for A will decline and the demand for B will increase. consumers want to purchase more of it. D. an increase in the price of Y if X and Y are complementary goods. reduce the demand for tacos and increase the demand for sodas. C. Assume the demand curve for product X shifts to the right.

When the price of oil declines significantly. A decrease in supply is depicted by a: A. B. C. 63. D. B. shift from S1 to S2. 62. Refer to the above table. 61. quantity demanded to increase. B. the equilibrium quantity of oranges will rise. B. C. This statement indicates that: A. the supply of oranges has substantially decreased. $10 and 60 units. move from point y to point x. shift from S2 to S1. D. the price of gasoline also declines. D. we would expect: A. the amount of oranges that will be available at various prices has declined. supply to decrease. C. $7 and 50 units. increase in the demand for gasoline. If the price of a product increases. . B. decrease in the demand for gasoline. The latter occurs because of a(n): A. demand to decrease. $9 and 50 units. $8 and 60 units.60. equilibrium price and quantity will be: A. D. quantity supplied to increase. decrease in the supply of gasoline. 64. the demand for oranges will necessarily rise. move from point x to point y. Because of unseasonably cold weather. Refer to the above diagram. increase in the supply of gasoline. C. the price of oranges will fall. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). C. D.

C. $. $1. a change from column (1) to column (2) would mostly likely be caused by: A. a surplus of 50 units. In relation to column (3). a shortage of 50 units. Refer to the above table. consumers expecting that prices will be higher in the future. Refer to the above diagram.60 minus $. . Refer to the above diagram.60.00.10. a surplus of 100 units. D. that is. $1. A surplus of 160 units would be encountered if price was: A. D. 66. 67. C.50. $1. an increase in input prices. equilibrium. B. C.50. B. reduced taste for the good. A price of $60 in this market will result in: A. government subsidizing production of the good.65. D. $1. B.

C. 0F represents a price that would result in a surplus of AC. D. The rationing function of prices refers to the: A. which shows demand and supply conditions in the competitive market for product X. 69. price is below the equilibrium level. 70. below equilibrium. this product becoming less fashionable. C. tendency of supply and demand to shift in opposite directions. B. B. 71. with the result that quantity supplied exceeds quantity demanded. B. . the supply curve is downward sloping and the demand curve is upward sloping. below equilibrium. C. Refer to the above diagram. D. D. Refer to the above diagram. the demand and supply curves fail to intersect. with the result that quantity supplied exceeds quantity demanded. C. A surplus of a product will arise when price is: A. with the result that quantity demanded exceeds quantity supplied. B. There will be a surplus of a product when: A. 72.68. If supply is S1 and demand D0. an increase in the wages paid to workers producing this good. a surplus of GH would occur. consumers want to buy less than producers offer for sale. in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. B. ability of the market system to generate an equitable distribution of income. D. C. at any price above 0G a shortage would occur. above equilibrium. D. an increase in consumer incomes. above equilibrium. 0F represents a price that would result in a shortage of AC. In this market the indicated shift in supply may have been caused by: A. then: A. the development of more efficient machinery for producing this good. fact that ration coupons are needed to alleviate wartime shortages of goods. capacity of a competitive market to equate the quantity demanded and the quantity supplied. with the result that quantity demanded exceeds quantity supplied.

B only. B. In the following question you are asked to determine. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? A. reduce the quantity demanded but not shift the demand curve. and decrease Q. decrease P. decrease P. B. other things equal. B. economists would call a government-set maximum price of $40 a: A. C. D. increase D. D. decrease S. and increase Q. A decrease in the number of consumers of product X will: A. and decrease Q. decrease equilibrium price and quantity if the product is a normal good. C. C. increase D. decrease S. and (3) the equilibrium quantity (Q) of X. decrease P. (2) the equilibrium price (P) of X. C. or supply (S) of. increase P. and decrease Q. other things equal. have no effect on equilibrium price and quantity. B. With a downsloping demand curve and an upsloping supply curve for a product. and increase Q. fair price. D. 77. C. and decrease Q. D. increase D. increase P. (2) the equilibrium price (P) of X. and decrease Q. and increase Q. 74. or supply (S) of.73. the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for. In the following question you are asked to determine. increase equilibrium price and quantity if the product is a normal good. X. X. increase P. decrease P. An increase in the price of a product that is a complement to X will: A. . decrease D. D. price floor. 76. decrease D. equilibrium price. C only. decrease P. D only. the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for. A only. B. In the above market. price ceiling. and (3) the equilibrium quantity (Q) of X. an increase in consumer income will: A. 75. decrease D.

quantity demanded rises from 1200 to 1500. is unitary at all prices. C. quantity E. . B. An effective price floor on wheat will: A. clear the market. 1. result in a product surplus. D. result in a surplus of wheat. D. C. B.78. If price declines from $450 to $350 and. 3. C. A straight-line downward-sloping demand curve has a price elasticity of demand that: A. 1. as a result. An increase in quantity supplied might be caused by an increase in production costs. C. price B. D. an event is not likely to be sold out. 80. D. Rent controls are best illustrated by: A. 82. sensitivity of the quantity demanded for one good to a change in the price of another good. force otherwise profitable farmers out of business. result in a product shortage. clear the market for wheat. B. Refer to the above diagram. 79. D. force some firms in this industry to go out of business. 84. An effective price floor will: A. C. responsiveness of quantity demanded to a change in price. absolute changes in quantity demanded and price.78. the demand for tickets has fallen between the time tickets were originally sold and the event takes place. increases as price decreases.12. The price elasticity of demand is a measure of the: A. 81. result in a shortage of wheat. event sponsors have set ticket prices at above-equilibrium levels. True False 83.89. is zero at all prices. event sponsors have set ticket prices at below-equilibrium levels. B. Ticket scalping implies that: A. B. B. steepness or slope of a demand curve. price elasticity of demand is: A. D. C. price A. 85.42. 0. B. price C. D. decreases as price decreases. C.

unit-elastic. Over the $5-$6 range. When the quantity of product X increases from 14. B. demand is: A. B. If an increase in the supply of a product results in a decrease in the price. B. 87. Refer to the above graph. perfectly elastic. . D. B. inelastic. total revenue for the good will increase if its price decreases. perfectly inelastic. elastic. If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent. C. inelastic. inelastic. D. D. C.000 to 16. C. price elasticity of demand is zero. D. then the: A. the demand is: A. perfectly elastic. price elasticity of demand is unitary. unit elastic. C. 88. 90.000. Refer to the figure above. price elasticity of supply is zero. an increase in price will lead to an increase in total revenue for firms selling the good. a large change in price will result in a relatively small change in the quantity demanded. elastic. unitary elastic. D. 89. B. the price elasticity of demand for product X is: A. but no change in the actual quantity of the product exchanged. C.86. When the demand for a good is price-elastic at a given output level: A. elastic. price elasticity of supply is infinite. total revenue is negative.

the price elasticity of demand for the product is: A. $4 D. Gasoline C. 92. inelastic because the loss in total revenue (areas D + G + I + J) is greater than the gain in total revenue (areas C + F + H). Refer to the graph above and assume that the areas of the boxes are the same. The good is considered a necessity. 96." 95. I don't pay much attention to the price. Which product is most likely to be most price elastic? A. inelastic because the gain in total revenue (area J) is less than the loss in total revenue (areas C + F + H). A product priced at $5 has annual sales of 1. "The brand I buy is so superior to other available brands that I hardly consider the others. Refer to the table above. D.000 units.91. 94. $3 C. $5 93. C. Milk B. "I use so little of that product that when I do buy it. D. D. Other things unchanged. unitary. When price is reduced to $4. Which will cause a demand curve to be relatively elastic? A. Clothing D. elastic because the loss in total revenue (areas C + F + H) is greater than the gain in total revenue (area J). zero. Consider a situation where price decreases from P2 to P1. inelastic." D." C. Few substitutes exist. elastic because the loss in total revenue (area J) is less than the gain in total revenue (areas C + F + H). B. In this price range. B. C. Purchases of the good require a small portion of consumers' budgets. The time interval considered is long.250 units. "I pinch pennies in buying other products. What is the price with the maximum total revenue? A." B. B. quantity increases to 1. In some markets consumers may buy many different brands of a product. "The different brands are almost identical so I always buy the cheapest. C. Which of the statements below best represents a situation where demand for a particular brand would be very elastic? A. but like most people I feel I owe it to myself to get the best brand of this product. Automobiles . $2 B. elastic. demand is relatively: A.

C. If a product has a short-run elasticity of supply equal to zero. C. the law of diminishing returns applies in the long run. inelastic demand to see movies in the afternoon.000. C. fixed costs are less important to decision making in the long run than they are in the short run. $400 per month. the main differences between "the short run" and "the long run" are that: A. other things being equal. This tax would be most effective in raising new tax revenues if the price elasticity of: A. D. B. B. 99. The income elasticity of demand for a food is unity. D. D. price would stay the same and quantity would increase. A consumer's monthly income is $2. demand is relatively inelastic so changes in supply have a large effect on price. C. the amount spent on food will be: A. C. $800 per month. D. C. Refer to the graph above. demand is relatively elastic so changes in supply have a large effect on price. The Mear Corporation finds that its total spending on machine parts increases after the price of machine parts falls. D. If income doubles. increase price and leave quantity sold unchanged. of which 20 percent is spent on food. elastic demand to see movies in the evening. It is price inelastic. 101. . increase price and reduce the quantity sold to zero. $1. D. It is unit elastic. B. 98. inelastic supply of movies in the evening. in the short run all resources are fixed. 104. supply is elastic. B. Congress wants to place a special tax on private airplanes to increase tax revenue. B. demand is elastic. D. Which of the following is true about the Mear Corporation's demand for machine parts with the price change? A. supply is inelastic. D. supply is relatively inelastic so changes in demand have a large effect on price. demand is inelastic. supply is relatively elastic so changes in demand have a large effect on price. while in the long run all resources are variable. have no effect on price or quantity sold. The price of gold is often volatile because: A. C. It is perfectly inelastic.000 per month. C. leave the price unchanged and reduce the quantity sold. 102. but not in the short run. then an increase in the demand for the product will: A. price and quantity would decrease. B. To economists. price and quantity would increase. B.97. $500 per month. 100. while in the short run at least one resource is fixed. If demand increased: A. 103. Consider a situation where the U. in the long run all resources are variable. price would stay the same and quantity would decrease. B. Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an: A. elastic demand to see movies in the afternoon. It is price elastic.S.

C. Computer software B. D. resources are being devoted to the production of goods and services most desired by society. Product X C. experiences positive externalities. Product W B. . 112. Suppose that when the price of good X changes from $5 to $10. everyone: A. the quantity demanded for a good or service is greater than the quantity supplied of the good or service. pays the cost. C. 1. D. 1. C. the law of increasing opportunity costs has reached a maximum. then: A.143 and the goods are complements. 109. the market system is unable to adapt to or to accommodate change. 108. C. the demand for X is elastic.44 and the goods are complements. C. experiences negative externalities. From the economist's perspective. "market failures" basically arise when: A. the amount of other products that must be sacrificed to obtain production of a given product is at a minimum. D. Which product is a normal good but least responsive to a change in income? A. D. B. Once a government has provided a public good. -0. B.44 and the goods are substitutes. B. the quantity supplied of a good or service is greater than the quantity demanded for a good or service. Used clothing C. there are no externalities. Product Y D. Golf balls D. the government sets price floors and ceilings. Product Z 107. X and Y are complements. X and Y are independent goods. B. government can prevent consumers from buying the good. Refer to the table above. then the cross-elasticity of demand is: A.09 and the goods are complements. B.or overallocates resources to production of goods. demand and supply do not accurately reflect all the benefits and all the costs of production. X and Y are substitutes. D. 110. D. the least costly methods are being used to produce goods and services. the demand for good Y changes from 110 to 100. goods are rival in consumption. C. can obtain the benefit. 111. sellers can restrict the benefits of a good to those who pay for it. buyers can restrict other buyers from making purchases in that market.105. If a 2 percent increase in the price of product X causes the demand for product Y to increase by 6 percent. C. -0. D. B. "Excludability" means that: A. B. 113. Allocative efficiency means that: A. the competitive market system under. it is not available for others to buy. Market failures occur when: A. For which product is the income elasticity of demand most likely to be negative? A. Bread 106. when one person buys a good.

Point c on the graph shows where the: A. are willing to pay for additional units of a quantity (Qc) of the public good. marginal benefit equals the marginal cost of the public good. 116. total benefit equals the total cost of the public good. Refer to the above information. B. $6.000. $5. D. C. $20. $3. Qs represents the quantity of the public good supplied by government at each of the collective prices. Refer to the above supply and demand graph for a public good. 115. $40.000. D. B. Waybelow Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The marginal benefits of crime control for Level Two are: A. $60. total benefit equals the marginal cost of the public good. C. The university is now considering several alternative levels of crime control. $7. Refer to the above information. Pa and Pb represent the prices that citizens (a) and (b). This table shows the expected annual costs and benefits of these alternatives. D. .114. the only two people in this nation. $140.000. average benefit equals the average cost of the public good. The collective willingness of this nation to pay for the fourth unit of the public good is: A. B.000. C.

Refer to the above table and information. D. Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective. 119. 121. D. government should consider prohibiting the production of the commodity. C. The higher price you pay when you buy a heavily advertised product. $5 billion 118. The costs paid by a company to build an automated factory. spillover costs to the production of this product. If nothing is done to correct this situation: A. Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The marginal cost and the marginal benefit of each of the four projects is provided in the table. there will be an underallocation of resources to the production of paper goods. D. the control of spillovers is costless. supply curve for the product lies too far to the right to provide an efficient allocation of resources. $4 billion D. C. 120. D. the price of electricity will be lower than it should be. This supply and demand graph indicates that there is(are): A. Refer to the above information. Which is an example of a negative externality? A. It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. it can be said that the: A. $2 billion B.117. 122. there will be an overallocation of resources to the production of electricity. B. spillover costs should be considered in determining optimal output. an overallocation of resources to the production of this product. Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. Decreased property values in a neighborhood where several houses are burglarized. $3 billion C. B. An increase in the value of land you own when a nearby development is completed. B. a negative externality from the production of this product. Most economists believe that: A. all spillover costs should be eliminated. spillover costs do not cause a misallocation of resources. B. spillover benefits to the production of this product. C. D. If there are external or spillover benefits associated with consumption and production of a product. . government should consider placing a special tax on producers. there will be an overallocation of resources to the production of paper goods. C. Refer to the above supply and demand graph. What is the net benefit of undertaking all four projects? A. B. demand curve understates the total benefit from the product and resources are underallocated to its production. C.

Excise taxes on coffee. B. Which of the following best reflects the ability-to-pay philosophy of taxation? A. 800. A market for pollution rights can be expected to: A. government creation of a market for externalities. B. C. increase the likelihood of car thefts to all car owners. B. C. 600. The graph above shows the market for a product where S1 is the original supply curve and S2 is the new supply curve following a tax on producers to reduce pollution. redistribute the likelihood of a car theft from those car owners with such a device to those car owners without such a device. government intervention to establish bargaining. B. C. encourage potential polluters to increase emissions. D. Private car alarm systems with red blinking lights would tend to: A. is that there must be: A. Progressive income taxes. eliminate all pollution. 126. C. provide potential polluters with a monetary incentive to reduce emissions. then the optimal level of pollution abatement in tons would be: A. 128. many people affected and involved. BG. C. decrease the likelihood of car thefts to all car owners. . clearly defined property rights. If the marginal benefit of pollution abatement increased by $150. One condition for individual bargaining to occur. Refer to the above table. AC. C. AJ. 900. according to the Coase theorem. Taxes on residential property. D. AB.000 at each level because of the community's newfound desire to attract cleaner industry. D. Excise taxes on gasoline. 124.123. D. 127. 700. produce a shortage of pollution. 125. D. The data in the table show the marginal costs and marginal benefits to a city for five different levels of pollution control. D. B. B. offer a positive externality to those car owners who did not pay for the device. The tax per unit of output is: A.

a plant. an industry.7 percent C. Refer to the above graph. 135. a vertically integrated firm. benefits-received D. C. ability-to-pay. percentage of income paid as taxes is constant as income rises. pay-as-you go C. 33. 134.2 percent B. Both A and B B. C. B. B. store. The VAT is a hidden tax. ability-to-pay. The federal income tax is consistent with the __________ principle of taxation.7 percent 133. B.5 percent D. pay-as-you-go 130. and thus easier to raise to support the expansion of government. D only C. Which of the lines in the above diagram represent(s) a regressive tax? A. C. a firm. C. Sellers bear a disproportionately large burden of the tax. 39. a conglomerate. the top 1 percent of all taxpayers in the United States paid what percent of the federal income tax? A. D. A person who purchases a corporate bond is borrowing money from a corporation. In 2007. A factory. or warehouse that performs one or more functions in making and distributing goods and services is: A. A person who purchases a corporate bond is guaranteed to earn dividends from the stock. whereas an excise tax on sporting event tickets is consistent with the ___________ principle of taxation. The VAT is regressive. 136. this is called: A. D. A. A person who purchases a corporate stock gets the option to buy other shares at lower prices.129. percentage of income paid as taxes falls as income rises. Savings and investment are discouraged because future consumption is penalized. The sales tax is a regressive tax because the: A. mine. C. D. 21. an industry. 60. a multiplant firm. . potentially leading to additional progressive taxes to offset the regressive VAT. B only 132. C only D. D. 131. If a company owns plants at various stages of the production process. B. administrative costs associated with the collection of the tax are relatively high. Which of the following is correct? A. benefits-received. tax tends to reduce the total volume of consumption expenditures. D. benefits-received. A person who purchases a corporate stock is buying ownership in the corporation. B. (Applying the Analysis) Which of the following claims is not made by opponents of a value-added tax (VAT)? A. a corporation. ability-to-pay B.

Which of the following statements concerning the relationships between total product (TP). The basic difference between the short run and the long run is that: A. costs. To the economist. may initially increase. AP continues to rise so long as TP is rising. compensations that must be received by resource owners to ensure their continued supply. MP cuts AP at the maximum AP. B. C. neither implicit nor explicit costs. Economic cost can best be defined as: A. D. while all resources are variable in the long run. Marginal product becomes negative before average product becomes negative.137. at least one resource is fixed in the short run. average product (AP). B. is not subject to a principal-agent problem. the firm does not have sufficient time to cut its rate of output to zero. but never become negative. One major advantage of limited liability is that it: A. economies of scale may be present in the short run but not in the long run. D. but not explicit. C. explicit costs from total revenue. 144. 139. D. D. Where marginal product is zero. . including a normal profit. costs. C. implicit. implicit costs from normal profits. average product is rising. B. 145. implicit costs from total revenue. is always less than average product. total product is at a maximum. but not implicit. D. and marginal product (MP) is not correct? A. 142. 141. D. all costs are fixed in the short run. diminishes at all levels of production. 140. 143. C. explicit and implicit costs from total revenue. C. C. Which of the following is not correct? A. C. a firm does not have sufficient time to change the amounts of any of the resources it employs. total cost includes: A. B. then diminish. Where total product is at a maximum. explicit. has unlimited profit sharing among the firm's owners. B. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. C. then diminish. and ultimately become negative. D. average product is also at a maximum. shields the personal assets of owners from liability claims. the law of diminishing returns applies in the long run but not in the short run. B. C. but all costs are variable in the long run. AP reaches a maximum before TP reaches a maximum. may initially increase. The basic characteristic of the short run is that: A. Where marginal product is greater than average product. all costs exclusive of payments to fixed factors of production. barriers to entry prevent new firms from entering the industry. Marginal product: A. TP reaches a maximum when the MP of the variable input becomes zero. explicit and implicit costs. is not subject to a free-rider problem. Economic profits are calculated by subtracting: A. 138. D. B. any contractual obligation to labor or material suppliers. B. the firm does not have sufficient time to change the size of its plant. D.

negative. etc. B. which of the following would be a variable cost in the short run? A. 147.146. salt. 148. Refer to the above diagram.) 149. D. is 71/2. Refer to the above data. C. C. BCDE. . Interest on business loans C. is 5. Baking supplies (flour. positive and decreasing. 0AFQ. D. C. When total product is diminishing. 0BEQ. is 7. The marginal product of the fourth worker: A. cannot be calculated from the information given. Baking ovens B. positive and increasing. B. D. At output level Q total variable cost is: A. marginal product is: A. constant. 0CDQ. If you operated a small bakery. B. Annual lease payment for use of the building D.

which of the following would happen? A. marginal cost at each level of output. Average fixed costs would rise. . $24. C. if the fixed costs of a firm were to increase by $100. Average fixed costs and average variable costs would rise. the law of diminishing returns.150. D. B. $12.000 per year. the average fixed cost at each level of output. Refer to the above diagram. 151. B. C. Average fixed costs and average total costs would rise. Other things equal. but marginal costs would fall. Refer to the above data. $16. B. Marginal costs and average variable costs would both rise. C. the presence of economies of scale. The vertical distance between ATC and AVC reflects: A. $8. D. The marginal cost of producing the sixth unit of output is: A. D. 152.

AFC. Other things equal. $21. MC. and MC to rise. AFC and ATC to fall. C. D. and MC curves respectively. Use the figure below to answer the following questions: In the above figure. Its total variable costs (TVC) change with output as shown in the accompanying table. AVC. if the wage rates paid to a firm's labor inputs were to rise. Use this information to answer the following question. Economies and diseconomies of scale explain: A. D. the profit-maximizing level of production. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. AVC. $40. and AFC curves respectively. D. Refer to the above information. and AVC curves respectively. 155. MC. The Sunshine Corporation finds its costs are $40 when it produces no output. ATC. ATC. .153.67. B. B. MC. AFC. $35. 156. B. C. C. and 4 represent the: A. B. ATC. AVC. curves 1. AVC. C. and ATC curves respectively. ATC. AFC. why the firm's long-run average total cost curve is U-shaped. D. the distinction between fixed and variable costs. we would expect the: A. 154. AFC. 3. ATC. $65. AVC. The average total cost of 3 units of output is: A. MP to fall. and MC to rise. 2.

158. 160. constant costs. Under which market model are the conditions of entry the most difficult? A. it experiences: A. When a firm does more of something. is the smallest level of output at which long-run average total cost is minimized. it gets better at it. D. B. In which two market models would advertising be used most often? A. is realized somewhere in the range of diseconomies of scale. is in the middle of the range of constant returns to scale. C. D. This learning-by-doing is: A. C. The long-run average total cost curve: A. C. B. There are significant barriers to entry into the industry. Which is a reason why there is no advertising by individual firms under pure competition? A." 159. D. C. Products are standardized or homogeneous. The minimum efficient scale of a firm: A. B. Monopolistic competition and oligopoly D. D. displays declining unit costs so long as output is increasing. Oligopoly 163. The market demand curve cannot be increased. increasing returns. B. a source of diseconomies of scale. Pure competition C. called "spreading the overhead. D. diseconomies of scale. There are price differences between firms producing the same product. Pure competition and pure monopoly C. B. The quantity of the product demanded is very large. can be derived by summing horizontally the average total cost curves of all firms in an industry. C. The industry's demand curve is perfectly elastic. As the firm in the above diagram expands from plant size #3 to plant size #5. Pure monopoly D. 164.157. Which is a feature of a purely competitive market? A. D. C. economies of scale. Pure competition and monopolistic competition B. Pure monopoly and oligopoly 162. B. Monopolistic competition B. 161. Firms do not make long-run profits. . has a shape that is the inverse of the law of diminishing returns. a source of economies of scale. called the principle of natural progression. occurs where marginal product becomes zero. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size. Firms produce a homogeneous product.

Total revenue less total cost equals zero. 5 units 168. . The marginal revenue from the third unit of output is: A. Price less average total cost equals zero. 4 units D. 2 units B. 167. B. Given the table below. D. B. Refer to the above table. C. Which is necessarily true for a purely competitive firm in short-run equilibrium? A. Line B represents: A. B. C.165. A single firm in pure competition in the short run has a: A. vertical supply curve. total revenue. 166. horizontal demand curve. vertical demand curve. horizontal supply curve. 169. C. marginal revenue. average fixed cost. D. what is the short-run profit-maximizing level of output for the firm? A. Marginal revenue is zero. $40. D. average total cost. C. $50. B. $120. 3 units C. D. $160. Refer to the above graph for a firm in pure competition. Marginal revenue less marginal cost equals zero.

173. C. B.00 and the market price is $2.00. C. Refer to the above graph. Increase output if the minimum possible average variable cost is $2.00. The marginal cost of the product at the current output is $3. oligopolistic market.50.00. . D. The table below shows cost data for a firm that is selling in a purely competitive market. produce three units. Refer to the above table. Decrease output if the minimum possible average variable cost is $2. 0K. B. shut down. monopolistic market. D. C. Increase output if the minimum possible average variable cost is $2.50. the competitive firm will: A. Shut down if the minimum possible average variable cost is $2. produce two units. Refer to the above data. This firm is selling its output in a(n): A. 171. B. If the market price for the firm's product is $70. 0B. The level of output at which this firm is maximizing an economic profit is: A. C. D. What should the firm do? A. 0C. B. 172. 0A. produce one unit. imperfectly competitive market. D. A firm sells a product in a purely competitive market.170. purely competitive market.

its fixed costs but not its variable costs. keep producing because variable costs are covered. If variable costs are $2 per box and it has $125. When a firm produces less output. $0.000 in fixed operating costs. shut down as fixed costs are not being covered. Refer to the above graph. abef 177. 0beg B. a horizontal line equal to the market price.00 D.50 C. $1. identical to the marginal-cost curve. marginal revenue. . in the short run the CCC should: A. D. its variable costs but not its fixed costs. C.25 175. Candy Cane Corporation (CCC) produces 100. average fixed cost. the rising portion of the average-total-cost (ATC) curve. D. B. D.000 boxes of candy bars per year that sell for $3 a box. C. bcde C. purely competitive firm operating in the short run. C.000. the supply curve of a purely competitive firm is: A. In general. $0. It shows a profit-maximizing. The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1600 boxes to maximize its profits. B. reduce production until the break-even point is reached. it can reduce: A. 176. the rising portion of the marginal-cost curve above the AVC curve. $1. Which area in the graph represents the amount of economic loss for the firm? A. keep producing as profits are $25.25 B. What is the per-unit profit on a box of crawfish at the profit-maximizing level of output if the variable cost is $1 per box and fixed costs are $1200? A. acdf D. in the short run. B.174. 178.

184. where P = MC. C. S will increase. S will decrease. S will increase. D. this is an increasing-cost industry. maximizing profits by producing where MR = MC. increasing-cost industry is perfectly elastic. Refer to the above graphs. Refer to the above diagram. C. P will decrease. D. B. cost minimization. . Productive efficiency refers to: A. produce Q2 units and suffer a loss. P will increase. the firm will: A. 182. If a purely competitive firm is in short-run equilibrium and its marginal cost exceeds its average total cost. C. a decreasing-cost industry. D. P will decrease. B. firms will enter the industry in the long run. where P = minimum ATC. B. D. C. What will happen in the long run to industry supply and the equilibrium price of the product? A. produce Q5 units and break even. Which statement is correct? The long-run supply curve for a purely competitive: A. firms will exit the industry in the long run. production. C. a variable-cost industry. this is a decreasing-cost industry. The long-run supply curve would be downsloping in: A. D. close down to avoid a loss. 180. produce Q2 units and make an economic profit. B. 183. S will decrease. D. 181. P will increase. All data are for the short run. an increasing-cost industry.179. C. we can conclude that: A. If product price is P2. decreasing-cost industry is upsloping. B. a constant-cost industry. increasing-cost industry is less elastic than the industry's short-run supply curve. B. increasing-cost industry is upsloping. setting TR = TC.

B. average total cost. decrease total revenue. is less elastic than a purely competitive firm's demand curve. Elastic product demand 191. The firm produces a good or a service for which there are no close substitutes. there is no advertising. D. 190. equals marginal revenue. total cost. is perfectly inelastic. One feature of pure monopoly is that the demand curve: A. B. coincides with its marginal revenue curve. If there is allocative efficiency in a purely competitive market for a product. B. D. B. B. and decrease profit. Which is a barrier to entry? A. decrease total cost. but not over price. the firm is a price taker. 188. The nondiscriminating monopolist's demand curve: A. A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will: A. is greater than marginal revenue. equal to the minimum price producers are willing to accept. C. increase total cost. equals marginal cost. Economic profits 192. increase total revenue. Under conditions of pure monopoly: A. B. C. Profit maximization D. C D. is horizontal. Which is most characteristic of a pure monopoly? A. and decrease profit. increase total revenue. C. C. 195. total cost. Revenue maximization C. the maximum price consumers are willing to pay is: A. Which is a barrier to entry in an industry? A. C. B C. decrease total revenue. D . There is a dominant firm in a multifirm industry. slopes downward. B. Economies of scale B. is vertical. and profit. Allocative efficiency C. 189.185. D. greater than marginal cost. marginal cost. Resources are efficiently allocated when production occurs at that output level where price: A. D. increase total cost. Profit maximization D. average variable cost. 187. B. entry is blocked. D. A B. Patents B. all firms produce at minimum: A. D. and decrease profit. In long-run equilibrium under conditions of pure competition and productive efficiency. equal to the amount of efficiency or deadweight losses. D. C. is equal to average variable cost. C. 186. 193. The firm has considerable control over the quantity of the output produced. D. Which of the above shows the correct relationship between demand and marginal revenue? A. less than marginal benefit. C. Exit from the industry is blocked but entry into the industry is relatively easy. slopes upward. there are close substitutes. 194. is perfectly elastic.

201. B. 200. the pure monopolist can increase its price and increase its volume of sales simultaneously. If marginal costs decrease. Allocative inefficiency due to unregulated monopoly is characterized by the condition: A. C. Pure monopolists do not always realize economic profits. the pure monopolist will charge the highest price it can get for its product. B. continue producing to minimize losses. shut down immediately. 199. Q = 3 D. confront demand curves that are perfectly inelastic.196. continue producing as long as price is greater than marginal cost. maximize MR. D. sell where P > MC. C. C. Q = 5 B. D. Which statement is correct? A In the short run. 198. P > AVC. P = MC. B. increase price and reduce quantity of output. reduce price and increase quantity of output. D. continue producing to make economic profits. Q = 4 C. the pure monopolist will maximize total profits by producing at that level of output where the difference . . C. P = $16. D. C. Because of its ability to administer prices. are price takers. Q = 2 197. increase price and increase quantity of output. P > MC. Pure monopolists: A. B. In the short run. What is the profit-maximizing output and price for this monopolist? A. between price and average total cost is greatest. P = $12. P = MR. reduce price and reduce quantity of output. P = $18. The data below relate to a pure monopolist and the product it produces. D. A profit-maximizing monopolist facing the situation shown in the graph above should: A. P = $14. a typical monopolist will: A. B.

D. D. B. Successful price discrimination will provide the firm with more profit than if it does not discriminate. C. D. the pricing difference indicates that demand is: A. Successful price discrimination requires that: A. C. buyers with inelastic demand be charged higher prices than buyers with elastic demand. Successful price discrimination implies that the producer can separate customers into easily identifiable groups. 208. 204. the same in both markets X and Y. If a price-discriminating monopolist sells the same product in two markets but charges a lower price in market X and a higher price in market Y. decreases as the amount of competition stays the same. D. An unregulated. diseconomies of scale in production. D. network effects. D. 207. It exists when price differences depend critically on different buyers' evaluations of a product. B. in which of the following cases would economic profit be the greatest? A. Assume the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. B. A regulated monopolist charging a price equal to average total cost D. rent-seeking. 206.202. Other things equal. more elastic in market X than market Y. consumer sovereignty. the likely result would be: A. price will increase and quantity produced will decrease. an increase in both price and output. if the firms in a purely competitive industry were replaced by a profit- maximizing monopolist. Which is not true of price discrimination? A. rent-seeking. has no relationship to the amount of competition in an industry. socially optimal pricing. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly. all buyers be charged the same price regardless of their elasticity of demand. the amount of X-inefficiency in an industry: A. nondiscriminating monopolist C. C. If a monopolized industry should become purely competitive without any change in cost conditions: A. 203. 209. increases as the amount of competition increases. buyers with inelastic demand be charged lower prices than buyers with elastic demand. In general. An unregulated monopolist who is able to engage in price discrimination B. C. C. an increase in price and unchanged output. D. D. both price and quantity produced will increase. less elastic in market X than market Y. an increase in price and reduced output. B. C. B. simultaneous consumption. C. A product's ability to satisfy a large number of consumers at the same time is called: A. A regulated monopolist charging a price equal to marginal cost . price will decrease and quantity produced will increase. Economists refer to these expenditures as: A. increases as the amount of competition decreases. B. 210. unchanged price and reduced output. Assuming no economies of scale and identical costs. perfect price discrimination. both price and quantity produced will decrease. C. B. B. 205. more elastic in market Y than market X. all buyers have the same price elasticity of demand.

negative slope and the marginal revenue curve has a negative slope. C. C. B. 900 rounds. 219. There are significant barriers to entry into the market. D. Which industry would be considered to be monopolistically competitive? A. then over the course of a full seven-day week this price-discriminating. 740 rounds. 213. True False 214. monopolistic competition has significant barriers to entry. True False 216. Refer to the figures above. 218. Section 8 of the Clayton Act. P denotes the price of a round of golf and Q is the quantity of rounds sold each day. Section 1 of the Sherman Act. One difference between monopolistic competition and pure competition is that: A. Section 2 of the Sherman Act. Firms are prohibited from entering into contracts. 300 rounds. Vacuum cleaners D. 212. Relatively easy entry. A monopolist seeks maximum profit per unit. products can be standardized or differentiated in pure competition. profit-maximizing golf course should sell a total of: A. A relatively small number of firms. There is no collusion among firms. D. D. 217. Absence of nonprice competition. C. combinations. firms differentiate their products in pure competition. B. B. B. there is some control over price in monopolistic competition.211. the Wheeler-Lea Act. B. C. D. If the left graph represents the demand during weekdays and the right graph the weekend demand. B. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly). D. C. Small-arms ammunition 220. D. Breakfast cereals C. negative slope and the marginal revenue curve has a positive slope. There are few buyers and sellers. C. positive slope and the marginal revenue curve has a positive slope. 1200 rounds. Equilibrium for the monopolist occurs where P > MR > MC > Average total cost. The demand curve for a monopolistically competitive firm has a: A. Firms make identical products. . Standardized product. True False 215. Asphalt paving B. Which is a characteristic of monopolistic competition? A. Which assumption is part of the model of monopolistic competition? A. and conspiracies that restrain trade by: A. Patents and licenses are barriers to entry. positive slope and the marginal revenue curve has a negative slope.

Assume that in a monopolistically competitive industry. This situation will: A. C. C. cause firms to standardize their product to limit the degree of competition. slightly more than the profits of a purely competitive firm. the same as the profits for a monopolist. D. D. firms are earning economic profit. the same as the profits for a purely competitive firm. is more elastic than the monopolist's demand curve. this monopolistically competitive firm will set price at: A. $50 and produce 35 units of output.221. In the short run. $65 and produce 45 units of output. C. D. In the long run. Demand B. Marginal revenue D. make the industry allocatively efficient as each firm seeks to maintain its profits. Refer to the above graph representing an individual firm. Average total cost 225. 222. B. 224. . reduce the excess capacity in the industry as firms expand production. D. C. B. What does line 3 represent? A. The demand curve faced by a monopolistically competitive firm: A. $65 and produce 35 units of output. profits for a monopolistic competitor will be: A. B. Refer to the above graph of a representative firm in monopolistic competition. B. will shift outward as new firms enter the industry. Marginal cost C. is less elastic than the monopolist's demand curve. The graph depicts a monopolistically competitive firm. slightly less than the profits of a monopolist. is more elastic than the demand curve faced by the purely competitive firm. attract other firms to enter the industry since the barriers to entry are low. $50 and produce 50 units of output. 223.

230. C. provides greater product differentiation and achieves greater productive efficiency. b. D. D. B. provides greater product differentiation at the cost of some excess capacity. C. . C. offers less product differentiation and lower productive efficiency. Refer to the above graph of the representative firm in monopolistic competition. In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output. c. B. Which statement concerning monopolistic competition is false? A. a. which means that: A. A. Refer to the above graphs. D. Firms may experience positive economic profits in the long run since barriers to entry are significant. monopolistic competition: A. Firms differentiate their products. B. Firms may experience losses in the short run. minimum ATC is less than MC. In the long run P = AC > MC. C. D. price is greater than minimum ATC. C. D. minimum ATC is less than MR. B. C. offers less product differentiation but attains equal productive efficiency. D.226. price is greater than MC. d. Compared to pure competition. 227. Marginal revenue and marginal cost intersect at point: A. 229. B. but the products are relatively substitutable. 228. B. The long-run equilibrium for a monopolistically competitive firm is represented by graph: A.

primary steel industry is best described as a: A.231. 237. A few firms play an important role in the sale of an identical or differentiated product. . It can be concluded that the: A. D. a monopolistically competitive firm achieves: A. that is. C. Which statement about oligopoly is false? A. C. The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output. D. D. C. 236. In long-run equilibrium. low barriers to entry. productive and allocative efficiency. D. The U.S. C. It assumes when one oligopolist raises the price. The portion of the demand curve above the kink is more elastic than the portion below. In the kinked-demand model. It addresses the question of price stickiness. neither allocative efficiency nor productive efficiency. marginal revenue curve. product differentiation exists. mutual interdependence. when compared with other industry types. D. 234. B. there will be a vertical break in the firm's: A. cartel. is: A. B. differentiated oligopoly. D. 235. standardized products. B. Prices in oligopoly are predicted to fluctuate widely and frequently. C. B. diminishing marginal returns. each firm must consider the possible reactions of rivals when establishing price policy. B. Assume that in long-run equilibrium a purely competitive firm has the same cost curves as that of the monopolistically competitive firm shown. A unique feature of oligopolies. B. productive efficiency but not allocative efficiency. C. B. it also necessarily chooses some specific level of output. There is no single predicted pattern of action and reaction for oligopolists because one firm's behavior is a function of what its rivals do. D. each seller faces a completely inelastic demand curve. C. allocative efficiency but not productive efficiency. C. Which statement concerning the kinked demand curve model of oligopoly is false? A. firms produce close substitutes but not identical products. D. Mutual interdependence means that: A. all others follow. 232. 233. purely competitive firm would have higher profits. Oligopolistic firms recognize their interdependence. monopoly. homogeneous oligopoly. purely competitive producer would produce less at a higher ATC. Refer to the above graph. marginal cost curve. purely competitive firm would have lower profits. B. 238. average total cost curve. demand curve. monopolistically competitive producer would produce less at a higher ATC. when a pure monopolist chooses a price.

P = MC and P > minimum ATC C. It provides information that reduces search costs. will operate at the level of output associated with the kink in the demand curve. 240. D. price and output results in this industry will be most accurately predicted by which of the following models? A. C. reduce their reliance on nonprice competition. a higher price and sell less output. has the incentive to cheat by cutting its price. the same price and sell the same amount of output. the same price and sell more output. Price-leadership model of oligopoly. Monopolistic competition model. the firm will charge: A. 244. D. if the oligopolist's MC curve shifts from MC1 to MC2. If oligopolistic firms facing similar cost and demand conditions successfully collude. . To assess the economic efficiency of specific industries in the economy. To analyze the environmental cost of economic growth. B. B. C. To determine whether there is a fair and equitable distribution of income in the economy. face a kinked-demand curve. will be protected from the economic effects of a recession. D. total revenue will remain the same. total revenue will increase. It is designed to persuade rather than inform consumers. On the above graph. has a perfectly elastic demand for its product. B. How would many economists view inefficiency in oligopoly? A. C. B.239. C. it can't be determined whether total revenue will increase. Pure monopoly model. If the cartel were to hire a consulting firm to monitor the production rates of member countries. D. A cartel is formed among the major firms in an industry that maximizes joint profits of the firms. B. make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price. tacitly collude. 243. conspire to form a cartel. To measure changes in the value of goods and services produced in the economy. It promotes economic concentration in industry. Price leadership represents a situation where oligopolistic firms: A. The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways like an international cartel. C. B. detect those member countries that are depressing prices by producing more than their assigned quotas. D. D. D. Kinked-demand curve model of oligopoly. B. It reduces economic efficiency in the economy. Which is a primary use for national income accounting? A. 241. 242. C. make sure that each member country is producing at an output level at which price equals marginal cost. a higher price and total revenue will increase. Each firm: A. C. P > MC and P = minimum ATC B. P = MC and P = minimum ATC D. P > MC and P > minimum ATC 246. make sure all the member countries produce at least their quotas so that there will be no oil shortage. the economic reason for this monitoring is to: A. What is a positive effect of advertising? A. 245.

increased it by $25 billion in year 1 and decreased it by $5 billion in year 2. depreciation. excluded from the calculation of GDP because they make no contribution to current production of goods and services.247. businesses have larger inventories at the end of the year than they had at the start. 249. The sale of a retail department store building by Sears to JCPenney 255. plus gross private domestic investment. C. The purchase of newly issued shares of stock in Dell D. businesses sell machinery and equipment to one another. the sum of wage and salary compensation of employees. noninvestment transaction. Gross domestic product (GDP) is equal to personal consumption expenditures: A. B. The consumption of fixed capital from each year's production activities is called: A. inventory reduction. plus government spending. nonmarket transaction. included in the calculation of GDP because they make a contribution to the current production of goods and services. C. The sale of a used automobile would not be included in the GDP for the current year because it is a: A. and plus net exports. indirect business taxes. An example of a final good in national income accounts would be a new: A. 252. 251. and net exports. 248. B. decreased it by $25 billion in year 1 and increased it by $5 billion in year 2. . plus government spending. C. D. and minus net exports. and rental income. B. plus government spending. the market value of all intermediate goods and services produced by the economy in one year. A definition of the gross domestic product (GDP) is: A. B. public transfer payment. inventories rose by $25 billion. plus gross private domestic investment. microcomputer purchased by an executive for business use. C. 253. tractor purchased by a construction company. D. a nation's imports of goods and services exceed its exports. increased it by $25 billion in year 1 and decreased it by $20 billion in year 2. C. The construction of a new plant by Ford C. C. 256. nonproduction transaction. interest income. The value of corporate stocks and bonds traded in a given year is: A. In year 1. D. national income accountants would have: A. the consumption of private fixed capital exceeds private domestic investment. Net exports is a positive number when: A. C. C. included in the calculation of net private domestic investment. The building of an apartment complex. Public transfer payments B. minus gross private domestic investment. C. depreciation is greater than gross private domestic investment. automobile purchased by a travel agency. B. Purchase of shares of company stock. In calculating total investment. D. Construction of a new factory. gross private domestic investment. In year 2. B. B. a nation's exports of goods and services exceed its imports. D. D. 257. personal consumption expenditures. inventories fell by $20 billion. investment. 250. decreased it by $25 billion in year 1 and increased it by $20 billion in year 2. and plus net exports. D. From an economist's perspective. and plus net exports. included in the calculation of gross private domestic investment. D. B. microcomputer purchased by an executive for personal use. the prices of investment goods rise faster than the prices of consumer goods. gross private domestic investment is greater than depreciation. Additions to inventories at steel plants. D. B. Disinvestment occurs when: A. B. Which would be considered an investment according to economists? A. minus government spending. C. which is not considered to be an investment? A. D. plus gross private domestic investment. the market value of final goods and services produced by the economy in one year. 254.

C. $41. $100. D. prices are 130 percent higher than in the base year. $56. B. $90. B. 70 percent. D. Year 2 is the base year. Output and price data for a five-year period are given. B. Assume that year 2 is the base year. then real GDP for year 5 is: A. C. 109. If year 2 is the base year.13 times higher than in the base year. prices are 30 percent higher than in the base year. 259. 260. $120. The following data about a hypothetical economy are in billions of dollars. Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. If the price index is 130. 67 percent. Refer to the above data. C. this means that: A. Refer to the above data. 108. (GDP figures are in billions of dollars.6. 113.2. 75 percent. D. If year 2 is the base year. Assume an economy is producing only one product.258. $30. prices are .3. Personal consumption expenditures are approximately what percent of GDP in this economy? A.) Refer to the above table. $60. nominal GDP must be inflated to determine the real GDP. 261. 111. real GDP in year 5 is: A. . B. C. D.5. C. B. D. $50. 262. 72 percent. What is the GDP price index in year 1? A.

B. the production possibilities curve would shift inward and the long-run aggregate supply curve would shift leftward. 264. 267. is excluded from GDP figures. the production possibilities curve would shift outward and the long-run aggregate supply curve would shift leftward. B. increase unemployment in the agriculture sector. 265. The quantity and quality of labor. B. movement from a point inside to a point outside of the production possibilities curve. the production possibilities curve would shift inward and the long-run aggregate supply curve would shift rightward. Which is not a supply factor in economic growth? A. D. A supply factor.263. favorable attitude toward work and risk-taking. leftward shift of the production possibilities curve. B. D. causes GDP to be overstated. D. Technological knowledge. An efficiency factor. If the average real output per worker-hour is $10. B. D. . C. If there is an increase in labor productivity: A. C. C. If the production possibilities curve of an economy shifts from AB to EF. A demand factor. denial of the rights of property ownership. Economic growth can best be portrayed as a: A. Refer to the above diagram. $100 million. the production possibilities curve would shift outward and the long-run aggregate supply curve would shift rightward. then total output or real GDP will be: A. movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities curve. B. strict social regulation of production and progress. C. Gordon James is a person who sells narcotics "on the street. $40 million. is estimated and included in GDP figures. B. enforcement of contracts by the market. C. An efficient allocation of resources. increase labor productivity. C. D. 268. Natural resources. Assume that an economy has 2000 workers. 269. reduce the rate of productivity growth. would be considered double counting in calculating GDP. B. D. C. reduce unemployment in the industrial sector. One major aspect of the sociocultural-political environment of the United States that has generally been conducive to economic growth is the: A. C. An allocation factor. $80 million. each working 4000 hours per year. D. rightward shift of the production possibilities curve. it is most likely the result of what factor affecting economic growth? A. The shift of labor out of agriculture to industry in the United States has tended to: A. $20 million. 266. D. 270." This type of illegal activity: A.

D. 279. the reallocation of labor from manufacturing to agriculture. employment. network effects. D. C. Assuming the total population is 200 million. coordination problems in large organizations. C. the quality of life. 273. the minimum point in the business cycle before the recovery phase. a fall in the natural rate of unemployment. Which of the following is a true statement? A. more specialized inputs. D. B. 10 percent. D. Mainstream economists disagree as to whether the rate or productivity growth was higher between 1995 and 2009 than between 1973 and 1995. 276. the accumulated financial wealth of households. C. economies of scale. C. Recovery 278. ratio of private to public goods production. 6 percent. size of the labor force. recession. the use of fewer inputs of labor. and 92 million workers are employed. 275. B. C. D. C. D. Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs. C. a rise in the natural rate of unemployment. D. Most economists believe that the recent productivity acceleration implies an end to the business cycle. More than half the growth of real GDP in the United States is caused by: A. 280.271. 272. 274. noncyclical fluctuation. business cycle. the unemployment rate is: A. inflation rate. The recurrent ups and downs in the level of economic activity extending over several years are a description of a: A. C. C. B. a fall in real GDP that lasts six months or longer. 277. a falling price level. D. . 8 percent. 4 percent. B. B. the labor force is 100 million. education. The level of total spending is the immediate determinant of the: A. Which phase of the business cycle would be most closely associated with an economic contraction? A. Recession C. An antigrowth view states that there may be a significant trade-off between productivity and: A. physical capital owned by households rather than businesses. business trough. Economists who support economic growth say that it is the most practical route to the higher standards of living the vast majority of people desire. B. Peak B. D. level of real output and employment. All of the following are sources of increasing returns and economies of scale except: A. spreading of development costs. A recession is defined as: A. Human capital refers to: A. machinery used by labor in production. B. B. Trough D. the skills and knowledge that enable a worker to be productive. B. increases in the productivity of labor.

He tried to find another job for a year but was unsuccessful and quit looking for work. 4 286. B. sustained rise in the general level of prices. Official unemployment rate statistics may: A. The Survey of Manufactures. A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment? A. D. sustained decline in the general level of prices. Refer to the above information. The GDP price index. The civilian labor force is 50 million. B. 282. structural rate of unemployment. the unemployment rate is rising. B. 283. 288. The unemployment rate in an economy is 12 percent. Which individual is cyclically unemployed? A. A headline states: "Real GDP falls again as the economy slumps. 24 million. Ricardo lost his job last year when his company downsized and laid off middle-level managers. 2 C. movement of the economy toward full employment. natural rate of unemployment. Cyclical C. C. 3. C. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. D. Structural B. Frictional D. D. 6 million. He expects to return to work in several months when national economic conditions improve. actual GDP is greater than potential GDP. Structural 285. Natural 284. D. C. . 44 million. C. C. full-employment rate of unemployment. then: A. The Retail Trade survey. She has been looking for similar work for a year. Mollie just graduated from college and is now looking for work. Which measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers? A. He was laid off six months ago as the economy weakened. 1. C. frictional rate of unemployment. George works in an automotive assembly plant. Wait B. 2." This condition is most likely to produce what type of unemployment? A. D. The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. The Consumer Price Index. 42 million. 4. 3 D. understate the amount of unemployment by excluding part-time workers from the calculations. 1 B. Inflation is a: A. The rate of unemployment when the economy is at its potential output is called the: A. Cyclical C. The number of employed workers in the economy is: A. B. B. potential GDP is greater than actual GDP.281. Frictional D. 289. overstate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment. overstate the amount of unemployment by including part-time workers in the calculations. B. D. understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment. one-time change in the general level of prices. 287. the inflation rate is falling. but no company seems interested in her aircraft design skills. If the GDP gap is positive. She has had three job interviews in the past month.

295. B. D. real income approximates percentage change in nominal income minus percentage change in price level. the official unemployment rate would: A. Susie has lost her job in a Vermont textile plant because of import competition. C." 292. 6 percent. D. if the rate of inflation was anticipated to be 4 percent. 2 percent. 299. B. 50 percent. D. C. Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years.000. It raises real output but redistributes a decreased level of real income. B. The price level has doubled in 35 years. 2 percent. B. 296. 5 percent. But. $15. It raises real output and redistributes an increased level of real income.000 and the price level index is 180." D. a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. creditors are hurt. D. increase in the short run but eventually decline. B. 4 percent. be unchanged. What are the primary effects of cost-push inflation? A. Which of the following formulas is correct? Percentage change in: A.000. B. ." B. $30. C. both creditors and debtors are hurt. C. 20 percent. B. "Too much money chasing too few goods. debtors are hurt. 297. A statement that is often used to describe demand-pull inflation is: A. the bank would most likely charge the firm an annual interest rate of: A. D. We can say that Susie is faced with: A. "Money is easily earned. $25. "A rising tide lifts all boats. 298. 10 percent. 1 million of them become discouraged over their job prospects and cease to look for work. If the average level of nominal income in a nation is $45. cyclical unemployment. price level approximates percentage change in real income minus percentage change in nominal income.000. C. She intends to take a short course in electronics and move to Oregon. The approximate annual percentage rate of increase in the price level over this period has been: A. nominal income approximates percentage change in price level minus percentage change in real income. frictional unemployment. increase. C. $20. With no inflation. B.000. but not easily saved. 291. secular unemployment. real income approximates percentage change in price level minus percentage change in nominal income. 294. C. structural unemployment. It reduces real output but redistributes an increased level of real income. It reduces real output and redistributes a decreased level of real income. D. D. both creditors and debtors benefit. 5 percent. lenders should charge a nominal interest rate of: A." C. 2 percent. C. Based on this. C. Suppose there are 5 million unemployed workers seeking jobs. "It's important to have some skin in the game. decline. D. 3 percent. B. 293. When unanticipated inflation occurs: A. After a period of time. where she anticipates that a new job will be available. As a result of this. 7 percent. but creditors benefit.290. but debtors benefit. D. the average real income would be about: A.

C. A reduction in the excess capital of the existing capital stock. price level and the sales of producers. 303. C. A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n): A. A decrease in the price level that results in a foreign purchases effect. If the dollar appreciates in value relative to foreign currencies: A. If the U. increase aggregate supply. 305. A reduction in business and personal tax rates. increase aggregate demand and aggregate supply. increase aggregate demand. A decrease in the national incomes in foreign nations. C. increase in the price level. 308. decrease in the level of income. D. Which factor will shift AD1 to AD2? A. C. D. C. C. C. B. 301. aggregate demand decreases. B. D. D. decrease aggregate demand. B. cause a movement along the aggregate supply curve.300. Which set of events would most likely increase aggregate demand? A. An increase in productivity. increase in the level of income. . A decrease in incomes in foreign nations and an appreciation of the dollar. A depreciation of the dollar. C. An increase in investment spending. Which event would most likely increase aggregate demand? A. B. An increase in incomes in foreign nations and a depreciation of the dollar. aggregate demand increases. B. 302. The aggregate demand curve is the relationship between the: A. An appreciation of the dollar. A decrease in incomes in foreign nations and a depreciation of the dollar. Refer to the above graph. The foreign purchase effect. dollar depreciates in value relative to foreign currencies. 307. decrease in the price level. An increase in incomes in foreign nations and an appreciation of the dollar. B. An increase in investment spending. Which set of events would most likely decrease aggregate demand? A. C. decrease aggregate demand and aggregate supply. 306. An increase in personal income tax rates. then this will: A. cause a movement along the aggregate demand curve. The real-balances effect. D. 304. increase aggregate demand. price level and the distribution of real domestic output. An increase in expected future income will: A. price level and the purchasing of real domestic output. D. B. real domestic output bought and the real domestic output sold. B.S. D. B. the quantity of real domestic output demanded decreases. D. the quantity of real domestic output demanded increases. D.

then per-unit production costs would: A. C. direct relationship between the price level and real GDP purchased. The short-run aggregate supply curve shows the: A. price level that producers are willing to accept and the price level buyers are willing to pay. 314. inverse relationship between the price level and real GDP purchased. decrease aggregate demand and aggregate supply. D. An increase in business taxes would tend to: A.309. 312. 311. An aggregate supply curve represents the relationship between the: A. A rise in national income abroad. increase aggregate demand. 316. B. price level and the buying of real domestic output. . A decrease in the capital stock. increase and aggregate demand would decrease. real domestic output bought and the real domestic output sold. and the price of each input is $9. D. C. B. D. C. C. If productivity increased such that 400 units are now produced with the quantity of inputs still equal to 50. B. Suppose that real domestic output in an economy is 300 units. Which would increase aggregate supply? A. C. direct relationship between the price level and real GDP produced. B. If personal income taxes and business taxes increase. increase aggregate supply. 315. decrease aggregate supply and aggregate demand. D. Which factor will shift AS1 to AS2? A. Refer to the above graph. D. A reduction in business taxes. inverse relationship between the price level and real GDP produced. D. An increase in business regulation. decrease and aggregate demand would increase. D. price level and the production of real domestic output. A decline in productivity. increase aggregate supply and aggregate demand. A decline in consumer confidence. D. then this will: A. B. An increase in government spending. B. increase aggregate demand and decrease aggregate supply. B. C. C. 310. decrease and aggregate supply would increase. decrease aggregate demand and increase aggregate supply. An increase in productivity will: A. An increase in business subsidies. increase aggregate demand and increase aggregate supply. B. the quantity of inputs is 50. 313. increase aggregate demand and decrease aggregate supply. decrease aggregate demand and decrease aggregate supply. C. increase aggregate demand and aggregate supply. decrease and aggregate supply would decrease. decrease aggregate demand and increase aggregate supply.

at point a. 4 319. 3 B. A change in which factor is most likely to change both aggregate demand and aggregate supply? A. Refer to the above list. at point b. . 5 C. B. 3 D. 7 D. Refer to the above graph. This economy is at equilibrium: A. Refer to the above graph. C. 1 B. Which line shows the full-employment output for the economy? A. D. The following list contains items that are related to aggregate demand and/or aggregate supply.317. 2 C. at price level P2 and output Q2. 9 318. at price level P1 and output Q1.

320. The table shows the aggregate demand and aggregate supply schedule for a hypothetical economy.

Refer to the above table. If the quantity of real domestic output demanded increased by $2000 at each price level, the new
equilibrium price level and quantity of real domestic output would be:
A. 350 and $8000.
B. 300 and $8000.
C. 250 and $7000.
D. 200 and $6000.

321.

Refer to the above diagram. When AD1 shifts to AD2, then at P1Q3 output demanded will:
A. equal output supplied.
B. exceed output supplied.
C. be less than output supplied.
D. be at stable full-employment GDP.

322. A decrease in aggregate supply means:
A. both the real domestic output and the price level would decrease.
B. the real domestic output would increase and rises in the price level would become smaller.
C. the real domestic output would decrease and the price level would rise.
D. both the real domestic output and rises in the price level would become greater.

323. The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation?

A. Productivity has increased.
B. Input prices have increased.
C. Excess capacity has decreased.
D. Government regulations have been reduced.

324.

Refer to the above diagram. If aggregate supply shifts from AS1 to AS2, then the price level will:
A. increase and real domestic output will increase.
B. decrease and real domestic output will increase.
C. increase and real domestic output will decrease.
D. decrease and real domestic output will decrease.

325. Aggregate demand decreases and real output falls, but the price level remains the same. Which factor most likely contributes to
downward price inflexibility?
A. The multiplier effect.
B. The wealth effect.
C. Fear of price wars.
D. Business taxes.

326. When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because
of a:
A. ratchet effect.
B. interest-rate effect.
C. real-balances effect.
D. foreign-purchases effect.

327. The multiplier can be calculated by dividing:
A. the initial change in spending by the change in real GDP.
B. the change in real GDP by the initial change in spending.
C. one by one minus the marginal propensity to save.
D. one by one minus the marginal propensity to invest.

328. When the federal government uses taxation and spending actions to stimulate the economy, it is conducting:
A. fiscal policy.
B. incomes policy.
C. monetary policy.
D. employment policy.

329. Fiscal policy is enacted through changes in:
A. interest rates.
B. the supply of money.
C. unemployment and inflation.
D. taxation and government spending.

330. If the Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an
example of a(n):
A. supply-side fiscal policy.
B. expansionary fiscal policy.
C. contractionary fiscal policy.
D. nondiscretionary fiscal policy.

331. The combination of fiscal policies that would reinforce each other and be most expansionary would be a(n):
A. increase in government spending and taxes.
B. decrease in government spending and taxes.
C. decrease in government spending and an increase in taxes.
D. increase in government spending and a decrease in taxes.

332.

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3?
A. An increase in taxes and an increase in government spending
B. A decrease in taxes and an increase in government spending
C. An increase in taxes and a decrease in government spending
D. A decrease in taxes and a decrease in government spending

333.

Refer to the above diagram. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control
demand-pull inflation?
A. Decrease aggregate demand by increasing taxes.
B. Increase aggregate demand by decreasing taxes.
C. Decrease aggregate supply by increasing taxes.
D. Increase aggregate demand by increasing government spending.

334. If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most
likely be recommended to correct this macroeconomic problem would be:
A. increased government spending or increased taxation, or a combination of the two actions.
B. increased government spending or decreased taxation, or a combination of the two actions.
C. increased government spending or increased taxation, but not a combination of the two actions.
D. decreased government spending or decreased taxation, or a combination of the two actions.

335.

Refer to the above graph. Assume that the economy initially has a price level of P2 and output level Q2. The price level is
flexible and the government decides to adopt a contractionary fiscal policy. What would most likely be the new equilibrium
price level and output?
A. P2 and Q4
B. P1 and Q1
C. P2 and Q2
D. P1 and Q3

336. Discretionary fiscal policy is so named because it:
A. is undertaken at the option of the nation's central bank.
B. occurs automatically as the nation's level of GDP changes.
C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.
D. is invoked secretly by the Council of Economic Advisers.

337.

Refer to the above diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most
appropriate if the economy's present aggregate demand curve were at:
A. AD0.
B. AD2.
C. AD3.
D. None of these.

C. reduce unemployment compensation benefits. C. political business cycle. D. directly with the level of government spending. C. D. it would be appropriate for the government to: A. C. increase. cause crowding out and reduce equilibrium GDP. B. inversely with the level of government spending. decrease. B. If government tax revenues change automatically and in a countercylical direction over the course of the business cycle.338. D. increase government expenditures or reduce taxes. inversely with the level of GDP. D. remain constant. With a regressive tax system. and subsidies: A. this would be called a(n): A. B. If the economy's current aggregate demand curve is AD3. D. reduce government expenditures and taxes by equal-size amounts. 341. produce the standardized budget. contribute to the recognition lag with fiscal policy. B. Refer to the above diagram. . 340. either increase or decrease. expansionary fiscal policy. A new member of Congress notes that "[p]ersonal income tax collections automatically fall and transfers and subsidies automatically rise as national income declines. tax revenues vary: A. serve as built-in stabilizers. nondiscretionary fiscal policy. reduce government expenditures or increase taxes. 339. B. 342. directly with the level of GDP. transfers. the average tax rate will: A. discretionary fiscal policy. as the level of income increases in an economy. in which Qf is the full-employment output. C. In the above graph." This observation best describes how the personal income tax.

the federal government is lending money. fiscal policy was expansionary. B. D. C. cyclically adjusted budget deficit. Another term for the full-employment budget is the: A. It can be concluded from year 1 to year 2 that: A. C. . 347. fiscal policy is expansionary. the federal government is borrowing money. If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years: A. If the cyclically adjusted deficit as a percentage of GDP is zero in one year and 1 percent of GDP the next year. C. B. cyclically adjusted budget. B. it can be concluded that: A. D. the economy is currently at A. This deficit becomes 3 percent of GDP in year 2. Refer to the above diagram. This economy has a(n): A. B. actual budget deficit. Assume that G and T1 are the relevant curves. 344.343. cyclically adjusted budget surplus. fiscal policy was contractionary. administrative budget. and the full- employment GDP is B. D. fiscal policy is neutral. fiscal policy is contractionary. D. B. C. the federal government is decreasing spending. actual budget. cyclical budget. fiscal policy is contractionary. the federal government is increasing taxes. 346. the tax system is progressive. 345. C. actual budget surplus. D. fiscal policy is expansionary. The cyclically adjusted deficit as a percentage of GDP is 2 percent in year 1.

Refer to the above diagram. the shift of curve T2 to T1. C. There is general agreement among economists that a proposed fiscal policy should be evaluated for its: A. start of the recession and the time it takes to recognize that the recession has started. One timing problem with fiscal policy to counter a recession is an "operational lag" that occurs between the: A. time the need for the fiscal action is recognized and the time that the action is taken. 354. C. imports are replacing domestic production. increased by less than $100 billion. saving is increasing at the expense of investment. B. B. potential positive and negative effects on short-run business indebtedness. decrease the effectiveness of contractionary fiscal policy. increased by more than $100 billion. B. not increased. B. time fiscal action is taken and the time that the action has its effect on the economy. the current federal budget: A. D. a movement from a to c along curve T2. D. Assume that when there is no crowding out. B.348. a movement from d to b along curve T1. D. If monies added to. 353. D. C. D. Discretionary fiscal policy designed to expand GDP is illustrated by: A. increase the effectiveness of contractionary fiscal policy. The crowding-out effect works through interest rates to: A. private investment is increasing at the expense of government spending. C. B. C. there is a trade-off among goals that tends to make the economic policies of state and local governments procyclical. If there had been partial crowding out. 355. B. D. D. C. increase the effectiveness of expansionary fiscal policy. 349. the cyclically adjusted budget is a better indicator of the state of the economy than the actual budget. an increase in government spending increases GDP by $100 billion. contribution to the growth of exports and imports in the economy. deficit would nearly disappear. D. deficit would be substantially larger. or subtracted from. C. 351. The crowding-out effect of expansionary fiscal policy suggests that: A. contribution to the purpose of "fine-tuning" the economy. C. Proponents of the notion of a "political business cycle" suggest that: A. 352. potential positive and negative effects on long-run productivity growth. increased by $100 billion. surplus would be substantially smaller. 350. then GDP would have: A. . cyclical swings in the economy are produced by the inherent instability found in capitalist economies. government spending is increasing at the expense of private investment. end of the recession and the time it takes to recognize that the recession has ended. a possible cause of economic fluctuations is due to the use of fiscal policy for political purposes. B. surplus would nearly disappear. the shift of curve T1 to T2. decrease the effectiveness of expansionary fiscal policy. the Social Security trust fund were excluded from federal budget calculations.

C. 25 percent C. All data are in billions of dollars. The following is budget information for a hypothetical economy. B. ratio of all past deficits to all past surpluses. increase incentives to work and bear risk. debt held by citizens and institutions in foreign nations. rather than prosperity. Year 5 358. Year 1 B. D. 363. In which year is there a budget surplus? A. In 2010. Year 2 C. $250 billion D. increases during a period of recession. it transfers a portion of real output to foreign nations. 357. $100 billion B. B. C. paper currency in circulation. B. Most of the public debt is owed to citizens and domestic institutions. Year 4 D. All data are in billions of dollars. B. 17 percent D. is primarily for capital-type goods. What is the public debt in this economy? A. Refer to the above data. This is one reason that the public debt: A. Refer to the above data. is financed by taxation.S. decrease the potential for higher taxation in the United States. incentives to work are increased. 7 percent B.356. the stock of capital inherited by future generations is likely to be smaller when government spending: A. C. One important consequence of the public debt in the United States is that: A. D. approximately what percentage of the public debt was held by foreign individuals and institutions? A. C. $150 billion C. D. 362. does not impose a burden on future generations. 361. amount of U. Assume that year 1 is the first year for this economy and year 5 is the current year. 32 percent 360. increase the inequality in the distribution of income. The following is budget information for a hypothetical economy. crowds out private investment. C. D. D. can result in the bankruptcy of the federal government. total of all past deficits minus all past surpluses. The public debt is the: A. An increase in the public debt will: A. B. Other things equal. $300 billion 359. decrease the U. difference between current government expenditures and revenues. income inequality is reduced. is financed by borrowing. has a procyclical economic effect on the economy. there is greater saving at every level of disposable income.S. .

exchange. $5899 billion. Paper money in the United States comes in the form of: A. 371. Federal Reserve Notes. and aggregate supply. Treasury bonds. and government spending. The functions of money are to serve as a: A. What function is money serving when you deposit money in a savings account? A. D. D. B. Treasury bills. escape the complications of barter. factor of production. One major advantage of the medium of exchange function of money is that it allows society to: A. small time deposits. U. unit of account. $2054 billion. method for accounting. D. currency. near monies. B. D. Refer to the above table. store of value. reduce the economy's future productive capacity. $2696 billion. and medium of exchange. 370. D. C. A checkable deposit. . transfer purchasing power from the present to the future. investment. 368. increase the amount of private capital stock in the future. token money. increase the amount of public capital stock in the future. B. C. A store of value. C. determinant of consumption. federal legal tender. Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely: A. B. B. C. A unit of account. The size of the M2 money supply is: A. C. resource allocator. checkable deposits. checkable deposits. A medium of exchange. savings deposits. C. D. 369. 367. $6792 billion. D. measure the relative worth of products. D. crowd out future public investment. 366. All coins in circulation within the United States are: A. The largest component of the money supply (M1) is: A.364.S. use credit cards instead of currency. and means of income distribution. C. time deposits.S. 365. U. B. C. B. B.

setting the Fed's monetary policy and directing the purchase and sale of government securities. 380. C. district banks of the Federal Reserve System. C. Holding the money deposits of businesses and households and making loans to the public are the basic functions of: A. interest rates are rising. New York City B. B. protecting checkable deposits at financial institutions with deposit guarantees. appointed by the presidents of the 12 Federal Reserve Banks. commercial banks and thrift institutions. $3730. B. C. M1 increases and M2 decreases. 373. B. Michelle transfers $4000 from her savings account to her checking account. issuing currency and acting as the fiscal agent for the federal government. If the value of the dollar is falling. appointed by the president with the confirmation of the Senate. supervising banks to make sure markets are open to all and remain competitive. D. 379. natural resources. cities is one of the 12 Federal Reserve Banks located? A. D. such as land. elected by Congress from a slate of nominees provided by the president. C. D. $4330. the price index is falling. D. 376. Seattle C. control over the money supply designed to keep the value of money relatively stable over time. B. How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System? A. C. Which group is responsible for the policy of the Federal Reserve on purchasing and selling government securities? A. In which of the following U. The size of the M2 money supply is: A.372. Denver 378. B. C. appointed by the Senate Finance Committee. $3980. the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation. real incomes are falling. D. M1 decreases and M2 increases. the Open Market Committee and the Board of Governors. 4 years C. 375. The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for: A. C. D. maintaining cash reserves that can be used to settle international transactions. B.S. 381. The federal backing for the money in the United States comes from: A. Federal Open Market Committee. Refer to the above table. B. B. The seven members of the Board of Governors of the Federal Reserve System are: A. 14 years 377. and public buildings as collateral for outstanding currency. 7 years D. What effect is this change likely to have on M1 and M2? A. then it follows that: A. C. the price index is rising. Office of Management and Budget. 374. D. pledging physical assets. . Federal Advisory Council. 2 years B. Miami D. D. Thrift Advisory Council. M2 increases and M1 stays the same. $4470. M1 increases and M2 stays the same. providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation.

$10. its reserves and checkable deposits will now be: A. 10 percent B. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. In the United States. D. B. In what direction and by what amounts has the supply of money changed? A. All of these 384. R = m - 1. B. D. The deposit increases the loan capacity of the bank by: A. this would be an example of: A. C. A fractional reserve banking system: A. $25. which of the following is an example of a financial institution? A. $6000.000 respectively. credit cards account for about what percentage of the dollar volume of transactions for goods and services? A. D. D. . prevents money creation through the lending process. Use the following balance sheet for the ABC National Bank in answering the next question. Later the same day Swanson negotiates a loan for $2000 at the same bank. 65 percent 383.000 and $122. token money. 25 percent C.382. then for the banking system: A.000 respectively. an asset. capital stock. Increased by $2000. and has a check cleared against it for that amount. B. B. $11. B. Decreased by $1650. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit. C. C.000 in a commercial bank. Decreased by $350. a liability. 386. m = R - 1. Refer to the above data. C. R = m/1. In the bank's balance sheet. If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio. 387. C. Cash held by a bank is sometimes called: A. net worth. Within the financial services industry. prevents the Federal Reserve from influencing the money supply. m = 1/R. only tends to exist in developing economies. D.000 and $110. 390. Assume that Johnson deposits $350 of currency in his account in the XYZ Bank.000 and $105. $22. D. Thrifts B. Insurance companies C. 389. 385. 40 percent D. B.000 respectively.000. Increased by $2350. C. fractional reserves. 388. Assume the required reserve ratio is 20 percent. B. A bank has $2 million in checkable deposits. C. vault cash. Pension funds D.000 and $115. legal tender. $32. is susceptible to bank panics. $22. $9600. D.800.000 respectively. An individual deposits $12.

393. and the legal reserve ratio is 10 percent. . $100.000.000. the banking system can expand the supply of money by a maximum of: A. 396. If the reserve ratio is 25 percent. B. $600 billion. B. B. B. D.000. Answer the next question based on the following balance sheet for the First National Bank. C.000. The maximum amount by which the commercial banking system can expand the supply of money by lending is: A. Refer to the above data. Answer the next question based on the following consolidated balance sheet for the commercial banking system. then excess reserves are: A. C.391. 1/MPC. the excess reserves of this single bank are: A. $500. 394. $0. 1/MPS. $18. Refer to the above data. $5000. C. All figures are in billions of dollars. D. Assume the reserve ratio is 15 percent. C. C. $250 billion. 1/Required reserve ratio. $25.000.000. $75. zero. B. This commercial bank has excess reserves of: A. D. D. D. $32. If actual reserves in the banking system are $8000.000 of outstanding checkable deposits and actual reserves of $85. 392. $450 billion. Assume the required reserve ratio is 12 percent. Answer the next question on the basis of the following table for a commercial bank or thrift: Refer to the above table. $5000. The value of the monetary multiplier is: A. $350 billion. $30. C. D. $27. $1000. $15. checkable deposits are $70. When the legal reserve ratio is 25 percent. Suppose a commercial banking system has $240. B. $1000.000. $2000. 1/Excess reserves.000.000.000. 395.

403. In the United States. This action would be an example of the: A. in which Dt is the transactions demand for money. A decrease in the required reserve ratio. An increase in the required reserve ratio. $250. and thrift institutions. B. 404. 401. use of money as a medium of exchange. C. commercial banks. C. D. B. The transactions demand for money in this money market is: A. Dm is the total demand for money. B. the quantity of money demanded for transactions purposes will be: A. B. Bank purchases of government bonds to meet liquidity demands. Refer to the above graph. $200 billion. B. When nominal GDP is $800 billion and. C. D. decrease the transactions demand and total demand for money. transactions demand for money. Which factors contributed to a further reduction in the money supply in addition to the withdrawal of currency from banks during the 1930-1933 bank panic? A. True False 399. $175. asset demand for money. D. on average. The transactions demand for money will shift to the: A. creation of fiat money.397. C. increase the transactions demand and total demand for money. True False 400. Bank sales of government bonds to meet liquidity demands. An increase in nominal GDP will: A. D. $800 billion. $400 billion. and Sm is the supply of money. 398. left when nominal GDP increases. $3200 billion. decrease the transactions demand for money but increase the total demand for money. $125. $325. increase the transactions demand for money but decrease the total demand for money. C. right when nominal GDP decreases. B. each dollar is spent four times in the economy over a year. . The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive. C. left when nominal GDP decreases. all money is essentially the debt of government. 402. A wealthy executive is holding money for a good time to invest in the stock market. right when the interest rate increases. D. D.

and the asset demand for money is that shown in the table. Sm2. Refer to the above graph.405. H. 1 percent. What will be the new equilibrium point following an increase in the money supply? A. 2 percent. The initial equilibrium point is A. If the nominal GDP is $2000 billion. D. D. . 4 percent. and Dm3 represent different demands for money and Sm1. 7 percent. D. 3 percent. the supply of money is $800 billion. 4 percent. Refer to the above graph. 6 percent. the equilibrium interest rate is: A. C. C. which shows the supply and demand for money where Dm1. Dm2. 407. C. B. 5 percent. 406. and Sm3 represent different levels of the money supply. G. B. D. the interest rate would be: A. Suppose the transactions demand for money is equal to 20 percent of the nominal GDP. If the supply of money was $250 billion. B. Refer to the above table. C.

B. quantity of money demanded exceeds the quantity of money supplied.S. Federal Reserve Notes. $100 billion. D. D. 410. The conduct of monetary policy in the United States is the main responsibility of the: A. C. B. D. increased by $100 billion. . the supply of money would be: A. Bureau of Economic Analysis. 409. quantity of money supplied exceeds the quantity of money demanded. U. Reserve ratio. the supply of money would have: A. B. Federal Reserve. demand for money increases. If the interest rate is 5 percent. Refer to the above graph. C. D. Treasury. increased by $50 billion. B. If the interest rate falls from 4 percent to 3 percent. D. $50 billion. C. 411. Treasury deposits. supply of money decreases. increased by $150 billion. 412. C. Which one of the following is a tool of monetary policy for altering the reserves of commercial banks? A. Refer to the above graph. $150 billion. $200 billion. C. B. The interest rate will fall when the: A. decreased by $50 billion. Budget surplus or budget deficit. Bureau of the Public Debt.408.

Lowering the discount rate has the effect of: A. decreases the amount of excess reserves banks must keep. the Fed pays for the securities by check. To achieve the long-run goal of a noninflationary full-employment output Qfin the economy. and also by $20 billion if the securities are purchased directly from commercial banks. $12 billion. B. $20 billion. D. The interest rate and the level of investment spending in the economy are at point B on the investment demand curve. Raising the reserve ratio: A. 416. raising the discount rate. changing required into excess reserves. the Fed should: A. D. decrease the interest rate from 6 to 4 percent. which when deposited at commercial . The central banks sell bonds to commercial banks. The central banks sell bonds to the public. the public pays for the securities by writing checks that when cleared will increase . 417. banks will increase their reserves at the Fed. C. Which increases the excess reserves of commercial banks? A. AD2. increasing taxes. which when deposited at commercial . If the Fed buys government securities from the public in the open market: A the Fed gives the securities to the public. 414. Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. respectively. If the securities are purchased from the public. D. C. and also by $16 billion if the securities are purchased directly from commercial banks. making it less expensive for commercial banks to borrow from the central banks. The Federal Reserve can increase aggregate demand by: A. All numbers are in billions of dollars. B. in which the numbers in parentheses near the AD1. Refer to the above graphs. B. commercial bank reserves at the Fed. decrease the interest rate from 8 to 6 percent. D. changes excess reserves to required reserves. B. and AD3 labels indicate the level of investment spending associated with each curve. C. D. D the public gives the securities to the Fed. raising the reserve requirement. buying government securities in the open market. this action has the potential to increase bank lending by a maximum of: A. but by $16 billion if the securities are purchased directly from commercial banks. B.413. banks will decrease their reserves at the Fed. increases the discount rate. D. C. $4 billion. B. increase investment spending from $30 to $60 billion. The Board of Governors increases the discount rate. decrease the interest rate from 10 to 8 percent. forcing commercial banks to call in outstanding loans from their best customers. decreases the discount rate. C. 415. the Fed gives the securities to the public. C. The central banks buy bonds from commercial banks. $4 billion. B. the public pays for them by writing checks that when cleared will decrease commercial bank reserves at the Fed. C the public gives the securities to the Fed. . 418. but only by $1 billion if the securities are purchased directly from commercial banks. changing excess into required reserves. 419. the Fed pays for the securities by check.

420. What is the desired level of investment spending in this economy if it is to achieve a noninflationary full-employment level of real GDP (Qf)? A. $100. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Qf)? A. D. C. and AD3 labels indicate the level of investment spending associated with each curve. $225. and AD3 labels indicate the levels of investment spending associated with each curve. AD2. B. Decrease the money supply from $225 to $150 billion. C. The interest rate in the economy is 4 percent. Refer to the above diagrams. Refer to the above diagrams. Selling government securities and raising the discount rate. Increase the money supply from $75 to $150 billion. Increase the money supply from $150 to $225 billion. Buying government securities and lowering the discount rate. D. Which set of actions by the Fed would be most consistent with this policy? A. All figures are in billions. $50. AD2. . Selling government securities and lowering the discount rate. $150. The economy is experiencing a low rate of economic growth and the Fed decides to pursue an expansionary money policy. D. Buying government securities and raising the discount rate. 421. Make no change in the money supply. in which the numbers in parentheses near the AD1. 422. All figures are in billions. B. C. in which the numbers in parentheses near the AD1. B.

B. $257B D. Sell government securities in the open market and increase government spending. 431. exports of services ______ U. D. a decrease in aggregate demand will increase output and employment. The opportunity for broad political influence. $257B 430. D. 429. In 2010.S. inflation rates are low. $646 billion. worldwide output and consumption levels will be highest when goods are produced in nations where: A. an increase in excess reserves will decrease the money supply. In the chain of cause and effect between changes in the excess reserves of commercial banks and the resulting changes in output and employment in the economy: A. C. tractors. Sell government securities in the open market and decrease government spending. use tariffs and quotas to protect the production of vital products for the nation. According to the principle of comparative advantage.S. fell short of. wheat. . Its control over the size of federal budget deficits. B. C. inflexibility of monetary policy tools. B. B. $455 billion. A Federal Reserve official notes: "A restrictive monetary policy can force a contraction of the money supply. B. 424. Suppose the economy is at full employment with a high inflation rate. D. the prime interest rate but not the Federal funds rate. exceeded. The Fed directly sets: A. 427. The principal concept behind comparative advantage is that a nation should: A. a decrease in the rate of interest will decrease aggregate demand. neither the Federal funds rate nor the prime interest rate. Which combination of government policies is most likely to reduce the inflation rate? A. Buy government securities in the open market and increase taxes. the exchange rate is falling. What is one of the advantages of monetary policy over fiscal policy? A. The best example of a land-intensive commodity is: A. B. In 2010. make the nation self-sufficient in the production of essential goods and services. B. the balance of trade is in a surplus position. imports of services by about _____. B. $146B C. the trade deficit in goods for the United States was about: A. 425. D. DVD players. D. D. C. C. change in taxes on monetary policy.423. but an expansionary monetary policy may not achieve an expansion of the economy. chemicals. C. the discount rate and the prime interest rate. political acceptability of monetary policy. D. concentrate production on those products for which it has the lowest domestic opportunity cost. B. C. $55 billion. A. D. 426. C. cyclical asymmetry of monetary policy. exceeded. C. C. The quickness with which it can be used. an increase in the money supply will decrease the rate of interest. both the Federal funds rate and the prime interest rate. Buy government securities in the open market and decrease taxes. fell short of. compare its volume of trade with other nations. domestic opportunity costs are lowest. U. $107 billion. Its domination of major sectors of the economy. $146B B. D. 432." The official has described the problem of the: A. 428.

10Y.000 bushels of wheat. country A has a comparative advantage in producing houses and meat. country B has a comparative advantage in chemicals. 435. B. 15X and 5Y. 434. As a result of complete specialization according to comparative advantage. country A has a comparative advantage in producing meat. The high cost producer of soybeans is country X. country A has a comparative advantage in both commodities.433. country B can produce more meat than country A. . Refer to the above graphs and information. C. The production possibilities for country Y are 2000 bushels of soybeans and 4000 bushels of wheat. Assume that prior to specialization and trade Italy and Greece preferred points I and G on their production possibilities curves. country B can produce more houses than country A. C. D. 5X and 15Y. The production possibilities for country X are either 6000 bushels of soybeans or 10. Suppose the world economy is composed of just two countries: A and B. It can be seen that: A. D. Which of the following is true? A. Country Y should specialize in the growing of soybeans according to the principle of comparative advantage. The domestic opportunity cost of wheat production is lower in country Y. D. Each can produce steel or chemicals but at different levels of economic efficiency. B. B. The table below shows points from straight-line production possibilities schedules for two countries and indicates that: A. it is more costly in terms of resources to produce steel in country A. C. Country X is the least-cost producer of wheat. B. C. 436. The domestic production possibilities curves are shown in the graphs below. Refer to the above diagrams. the resulting gains in output will be: A. D. 25X. country B can produce more of both goods than A.

D. D. 440. B. then: A. 1 Swiss franc = 14 yen. B. The following are hypothetical exchange rates: $1 = 140 yen. Assume that a system of freely floating exchange rates is in place. . Alpha and Beta. 441. B. the currency used in the hypothetical nation of Libra.40.00. Answer the next question on the basis of the following production possibilities data for two countries. C. C. $5. D. Beta: A. should specialize in catching fish and trade with Alpha for chips. will not realize gains from specialization and trade. the dollar rate of exchange for the pound is: A.000 British pounds for $90. We can conclude that: A. which have populations of equal size. 439.000.25. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won.00. downsloping because a lower dollar price of pounds means British goods are more expensive to Americans. Americans will buy fewer Korean goods and services. $3. fewer U. upsloping because a lower dollar price of pounds means British goods are cheaper to Americans. $6. If an American can purchase 40.S. demand for British pounds is: A. the dollar has depreciated in value. C. B. $2. $2. goods and services will be demanded by the South Koreans. should specialize in producing chips and trade with Alpha for fish. 1 yen = 280 Swiss francs. which indicates the dollar price of libras. 1 Swiss franc = $. $4. D. 1 Swiss franc = 28 yen. $1.S. B. $2. Answer the next question on the basis of the following table. 438. C. B.10. will export both fish and chips to Alpha. C. D. downsloping because a higher dollar price of pounds means British goods are cheaper to Americans. 1 yen = 14 Swiss francs. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans. 442. The equilibrium dollar price of libras is: A. D. The U.437. C. the won has appreciated in value.

Which is a likely result of imposing tariffs to increase domestic employment? A. A protective tariff will: A. Maintaining military self-sufficiency B. create an efficiency gain in the domestic economy. Allowing infant industries to mature and become competitive D. Promoting specialization and increasing worldwide production levels 450. Dumping is the sale of a product in a foreign market: A. B. The infant-industry argument 446. D. D. and is the principal means used to enforce nontariff barriers. The increase-domestic-employment argument B. diversification-for-stability argument for tariffs. increased-domestic-employment argument for tariffs. The diversification-for-stability argument D. An increase in the possibility of retaliatory tariffs 449. The bulk of U. Which of the following arguments comes closest to constituting a legitimate economic exception to the case for free trade? A. C. depreciate the dollar. C. C. 444. B. Which is not commonly offered as a reason to support protectionism and abandon free trade? A. D. tariffs are a variation of the: A. exports and imports are with developing nations. The following diagram is a flexible exchange market for foreign currency: Other things equal. 448. Increasing domestic employment C. True False . increase the price and sales of domestic producers. 447. and is encouraged by voluntary export restraints. B. A decrease in consumer prices B. increase the welfare of domestic consumers. at a price below its domestic price or cost of production. As used in strategic trade policy. An increase in the number of jobs D. reduce the equilibrium quantity of euros. C. a rightward shift of the demand curve would: A. D.S. military self-sufficiency argument for tariffs. infant-industry argument for tariffs. A decrease in the tariff rates of foreign nations C. B. appreciate the dollar. 445.443. increase the sales of foreign exporters. that does not meet the quality standards in the domestic market. The cheap-foreign-labor argument C. depreciate the euro.

C 3. D 33. C 19. B 11. C 13. C 22. B 5. C 9. A 14. B 27. C 12. C 6. A 10. A 37. BASIC ECON REVIEW QUESTIONS/ANSWERS ALL CHAPTERS Key 1. D 32. C 36. C 16. A 15. C 34. B 20. D 26. A 17. FALSE 29. D 35. C 2. A 30. C 21. B 18. D 23. B 25. C 4. B . D 7. D 8. D 31. TRUE 28. B 24.

D 59. C 54. C 42. B 44. D 39. B 67. C 69. D 41. A 56. C 63. A 40. D 68. B 60. B 52. B 62. A 66. B 73. D 48. C 49. C 45. B 47. B 58. B 43. C 64.38. C 65. C 51. C 74. A 53. D 72. B 55. B 70. C 46. C 57. C 50. B 75. D . D 71. C 61.

C 100. A 92. D 88. B 90. D 102. A 108. C 104. C 81. C 113. B 106. D 109. FALSE 83. A 89. B 98. D 99. D 103. C 111. C 84. B 87. C 82. B 107. A 78. C 105. D 97. B 86. A 95. A 77. B 91. A 79. B 101. B 96. B . A 85.76. B 80. D 94. B 93. A 112. B 110.

C 143. B 146. B 129. A 144. D 127. A 124. D 120. D 141. B 142. C . A 140. B 135. D 148. B 151. C 136. B 126. C 139. A 123. A 147. C 116.114. B 115. C 145. B 132. D 149. C 122. C 130. C 128. C 119. D 121. C 134. B 117. C 125. C 133. C 118. D 138. B 137. A 150. A 131.

B 189. D 156. C 154. A 187. D 166. B 159. B 161. B 176. D 180. C 168. C 174. B 157. D 172. D 188. D 164. C 171. A 165. C 162. D 181. C 182. C 184. D 160. A 169. D 153.152. B 177. B 155. B 183. D 179. A 186. A 185. C 178. A 175. B 167. A 170. D . C 158. C 173. C 163.

C 221. C 205. D 204. B 227. B 220. B 195. D 217. A 225. A 211. C 198. B 223. TRUE 214. D 201. C 213. B 197. A 194. A 207. C 226.190. FALSE 216. B 219. FALSE 215. A 209. A 222. B 218. B 206. A 192. D 208. C 202. D 212. D . A 210. D 193. B 200. A 191. A 199. D 203. B 224. B 196.

C 241. C 259. A 229. D 258. D 233. D 245. B 255. B 252. D 232.228. B 238. A 265. C 249. B 250. C 256. B 237. B 263. A 231. D 230. C 239. C 264. C 247. C 236. A . C 254. D 248. B 251. D 234. C 262. D 253. B 261. C 243. D 242. D 244. C 240. D 235. C 260. D 246. D 257.

B 296. B 287. D 282. B 297. B 284. C 273. A 300. B 294. D 272. D 291. A 276. B 280. B 289. C 279. B 286. C 293. D 295. D 299. C 277. C 268. B 301. D .266. D 288. D 275. C 271. D 303. B 302. C 298. A 274. A 269. B 278. D 270. D 267. D 283. D 285. C 281. B 290. C 292.

B 310. B 339. B 335. D 330. B 322. A . B 336. A 307. B 312.304. B 317. B 328. C 318. C 337. A 306. C 316. D 308. A 334. D 319. A 327. C 321. A 329. C 325. C 320. C 323. A 338. A 309. C 311. B 331. D 340. A 305. A 341. D 314. B 324. C 313. C 333. C 326. D 332. D 315.

C 369.342. B 343. A 349. A 356. C 363. A 347. A 378. C 355. C 365. B 350. C 352. B 353. C 357. C 368. C 351. C 373. B 376. C 374. B 354. A 379. D 377. D 371. A 345. A 358. B 366. A 367. A 346. C 372. C 375. A 370. B 364. C 344. D . D 359. A 348. B 361. C 362. D 360.

B 386. C 387. D 391. D 392. B 406. C 407. D 384. A 404. B 403. C 416. A 409. B 389. A 408. A 385. B 412. B 390. A 381. D 394. B 393. A 402. A 405. A 413. B 401. A 410. FALSE 400.380. B 396. B 388. TRUE 399. D 397. C 414. C 415. A 395. B 398. B 382. B 383. C . B 411. D 417.

A 436. A 438. B 445. A 444. D 420. D 443. C 434. C 427. B 422. D 429. C 440. C 428. B 419. D 423.418. D 449. C 421. A 437. C 431. D 446. A 448. B 435. FALSE . C 433. D 424. C 425. A 430. A 432. D 450. C 442. B 439. D 447. D 441. B 426.

Chapter 02 19 Brue .and overallocations of resources.Chapter 05 25 Brue . 4 Learning Objective: 06-01 Identify features of the corporate form of business organization that have made it so dominant. 2 Learning Objective: 05-05 Distinguish between proportional.Chapter 11 24 Brue . and regressive taxes. 5 Learning Objective: 04-03 Describe price elasticity of supply and how it can be measured.Chapter 10 30 Brue .Chapter 07 27 Brue .Chapter 03 35 Brue . 8 Learning Objective: 03-04 Explain how changes in supply and demand affect equilibrium prices and quantities.Chapter 14 35 Brue .Chapter 09 30 Brue . 4 Learning Objective: 02-02 List the main characteristics of the market system. Learning Objective: 05-04 Describe the differences between the benefits-received and ability-to-pay principles of taxation. 7 02 Identify how public goods are distinguished form private goods. 6 Learning Objective: 03-03 Relate how supply and demand interact to determine market equilibrium. 4 Learning Objective: 04-01 Discuss price elasticity of demand and how it can be measured. and how they might be corrected. 6 Learning Objective: 01-02 Describe the role of economic theory in economics. 9 Learning Objective: 04-02 Explain how price elasticity of demand affects total revenue. 5 Learning Objective: 05-01 Differentiate between demand-side market failures and supply-side market failures. 2 Learning Objective: 05. BASIC ECON REVIEW QUESTIONS/ANSWERS ALL CHAPTERS Summary Category # of Questions AACSB: Analytic 383 AACSB: Reflective Thinking 67 Blooms: Analyze 12 Blooms: Apply 167 Blooms: Remember 211 Blooms: Understand 60 Brue . 6 Learning Objective: 02-03 Explain how the market system answers the four fundamental questions. 6 Learning Objective: 01-05 Apply production possibilities analysis. progressive. 3 Learning Objective: 03-01 Describe demand and explain how it can change. 12 Learning Objective: 03-02 Describe supply and explain how it can change. Learning Objective: 05. 4 Learning Objective: 04-05 Explain income elasticity of demand and cross-elasticity of demand and how they can be applied.Chapter 08 28 Brue . and explain the method for determining the optimal quantity of a public good. 6 Learning Objective: 03-05 Identify what government-set prices are and how they can cause product surpluses and shortages. 10 03 Explain how positive and negative externalities cause under.Chapter 04 26 Brue . 4 Learning Objective: 06. increasing opportunity costs.Chapter 06 27 Brue . and economic growth. 2 Learning Objective: 01-03 Distinguish microeconomics from macroeconomics.Chapter 16 23 Difficulty: 1 Easy 150 Difficulty: 2 Medium 266 Difficulty: 3 Hard 34 Learning Objective: 01-01 Define economics and the features of the economic perspective. 3 02 Explain why economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs. 6 Learning Objective: 02-05 Describe the mechanics of the circular flow model.Chapter 12 28 Brue .Chapter 01 28 Brue . .Chapter 15 28 Brue . 12 Learning Objective: 02-01 Differentiate between a command system and a market system.Chapter 13 37 Brue . 2 Learning Objective: 01-04 List the categories of scarce resources and delineate the nature of the economizing problem. 3 Learning Objective: 04-04 Apply price elasticity of demand and supply to real-world situations.

8 04 Describe the distinctions between fixed and variable costs and among total. 3 Learning Objective: 16-01 List and discuss several key facts about U. 4 Learning Objective: 11-02 Illustrate how unemployment and inflation are measured. and recession. 3 Learning Objective: 16-02 Define comparative advantage and demonstrate how specialization and trade add to a nations output. Learning Objective: 10-06 Explain why the etrnd rate of U. 7 Learning Objective: 08-04 Describe why a monopolist might prefer to charge different prices in different markets. 4 Learning Objective: 09-07 Contrast the positive and potential negative effects of advertising. 11 Learning Objective: 14-02 Describe what "backs" the money supply. 2 Learning Objective: 14-03 Discuss the makeup of the Federal Reserve and the U. 13 Learning Objective: 10-02 Describe how economists distinguish between nominal GDP and real GDP. 1 Learning Objective: 07-05 Discuss how industry entry and exit produce economic efficiency. porductivity growth has increased since the earlier 1973-1995 period. demand. composition. 9 Learning Objective: 12-02 Define aggregate supply (AS) and explain the factors that cause it to change. 8 Learning Objective: 11-03 Explain the types of unemployment and inflation and their various economic impacts. 1 Learning Objective: 06-03 Relate the law of diminishing returns to a firms short-run production costs. fiscal policy. 11 Learning Objective: 07-04 Explain why the marginal-cost curve and supply curve of competitive firms are identical. and efficiencoy rcfes that give rise to economic growth. 2 Learning Objective: 06. 5 Learning Objective: 10.S. 4 Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of U. 12 Learning Objective: 12-01 Define aggregate demand (AD) and explain the factors that cause it to change. international trade. 13 Learning Objective: 09-03 Describe the characteristics of oligopoly.S. Learning Objective: 06-05 Use economies of scale to link a firms size and its average costs in the long run. 4 05 Describe "growth accounting" and the specific factors accounting for economic growth in the United States. 6 Learning Objective: 08-03 Discuss the economic effects of monopoly. 3 Learning Objective: 16-02 Define comparative advantage and demonstrate how specialization and trade add to a nations output. 7 Learning Objective: 08-01 List the characteristics of pure monopoly and discuss several barriers to entry that relate to monopoly. Learning Objective: 13-01 Identify and explain the purposes. 3 Learning Objective: 06-03 Relate the law of diminishing returns to a firms short-run production costs.S. and consequences of the U. 11 Learning Objective: 15-02 List and explain the goals and tools of monetary policy. 2 Learning Objective: 10-07 Discuss differing perspectives as to whteher growth is desirable and sustainable. increasing-cost. 1 Learning Objective: 10-01 Explain how gross domestic product (GDP) is defined and measured. 10 Learning Objective: 12-03 Discuss how AD and AS determine an economys equilibrium price level and level of real GDP. 7 Learning Objective: 15-04 Discuss the effectiveness of monetary policy and its shortcomings. 1 Learning Objective: 06-03 Relate the law of diminishing returns to a firms short-run production costs.S. 5 Learning Objective: 09-05 Relate why the demand curve of an oligopolist may be kinked. 14 Learning Objective: 15-01 Discuss how the equilibrium interest rate is determined in the market for money. 4 . public debt. 5 Learning Objective: 08-05 Identify the antitrust laws that are used to deal with monopoly. Learning Objective: 14-08 Describe how banks create money in a "fractional reserve" banking system. 1 Learning Objective: 09-01 List the characteristics of monopolistic competition. cost. 5 Learning Objective: 14. 3 Learning Objective: 12-04 Describe how the AD. 1 07 Identify the main subsets of the financial services industry in the United States and provide examples of some firms in each cate gory. and marginal costs. 5 Learning Objective: 07-03 Describe how purely competitive firms maximize profits or minimize losses. 16 Learning Objective: 14-01 Identify and explain the functions of money and the components of the U. banking system. money supply. 4 push inflation. 11 Learning Objective: 13-02 Explain the role of built-in stabilizers in dampening business cycles. and limitations of fiscal policy. making us willing to accept it as payment. 5 Learning Objective: 07-01 Give the names and summarize the main characteristics of the four basic market models. 1 Learning Objective: 07-06 Identify the differences between constant-cost.AS model explains periods of demand-pull inflation. and decreasing-cost industries.S. average. 9 Learning Objective: 08-02 Explain how a pure monopoly sets its profit-maximizing output and price. 7 Learning Objective: 15-05 Describe how the Fed has used monetary policy in recent years to promote macroeconomic stability. 5 Learning Objective: 10-04 Identify the genearl supply. 2 Learning Objective: 14-04 Identify the functions and responsibilities of the Federal Reserve. 4 Learning Objective: 09-02 Explain why monopolistic competitors earn only a normal profit in the long run. 2 Learning Objective: 12-03 Discuss how AD and AS determine an economys equilibrium price level and level of real GDP. 3 Learning Objective: 09-06 Compare the incentives and obstacles to collusion among oligopolists. 2 Learning Objective: 07-02 List the conditions required for purely competitive markets.S.Learning Objective: 06-03 Relate the law of diminishing returns to a firms short-run production costs. 6 Learning Objective: 13-04 Discuss the size. tools. 1 Learning Objective: 11-01 Describe the business cycle and its primary phases.

6 Learning Objective: 16-04 Analyze the validity of the most frequently presented arguments for protectionism. 6 Topic: Accounting for growth 2 Topic: Advertising 1 Topic: Aggregate demand 9 Topic: Aggregate supply 9 Topic: Antitrust laws 1 Topic: Applications of price elasticity 4 Topic: Apportioning the tax burden 6 Topic: Arguments for protectionism 3 Topic: Assessment/recent policy 2 Topic: Banking system: multiple-deposit creation 1 Topic: Banking system: multiple-deposit expansion 4 Topic: Barriers to entry 2 Topic: Built-in stabilizers 4 Topic: Change in demand versus change in quantity demanded 2 Topic: Changes in equilibrium price and quantity 6 Topic: Characteristics of the market system 6 Topic: Circular flow model 3 Topic: Collusion. definitions 2 Topic: Flexible exchange rates. cartels. 1 Learning Objective: 16-03 Explain how exchange rates are determined in currency markets. exit. and economic efficiency 1 Topic: Equilibrium 9 Topic: Equilibrium price level 1 Topic: Equilibrium. changes in equilibrium 4 Topic: Exchange rates 5 Topic: Externalities and government intervention 7 Topic: Federal Reserve System 1 Topic: Fiscal policy and the AD-AS model 3 Topic: Fiscal policy. price leadership 4 Topic: Comparative advantage 8 Topic: Competitive firms supply curve 1 Topic: Costs: explicit and implicit 2 Topic: Cross and income elasticity 5 Topic: Cyclically adjusted budget 6 Topic: Demand and demand curve 3 Topic: Demand curve 2 Topic: Demand for money 5 Topic: Demand-pull and cost-push inflation 1 Topic: Determinants of demand 7 Topic: Determinants of price elasticity 3 Topic: Determinants of supply 3 Topic: Discount rate 1 Topic: Discretionary fiscal policy 6 Topic: Downward price and wage inflexibility 2 Topic: Economic effects of monopoly 7 Topic: Economic perspectives 6 Topic: Economic systems 4 Topic: Economics 6 Topic: Efficiency aspects 5 Topic: Elasticity of supply 3 Topic: Entry. fixed exchange rates 1 Topic: Four fundamental questions 6 Topic: Four market models 2 Topic: Fractional reserve system 3 Topic: Functions of money 3 Topic: GDP 1 .Learning Objective: 16-02 Define comparative advantage and demonstrate how specialization and trade add to a nations output.

demand curve 4 Topic: Rationing function 6 Topic: Real versus nominal GDP 2 Topic: Real versus nominal GDP. growth accounting 2 Topic: Individuals economic problem 2 Topic: Individuals economic problem 2 Topic: Inflation effects 4 Topic: Ingredients and graphical analysis 4 Topic: Inputs and productivity 1 Topic: Investment and the capital stock 1 Topic: Kinked-demand curve model 3 Topic: Law of diminishing returns 5 Topic: Legal forms of business 4 Topic: Long-run aggregate supply 1 Topic: Long-run costs 5 Topic: Macroeconomics and microeconomics 2 Topic: Market failure 2 Topic: Market for externality rights 3 Topic: Measurement of inflation 3 Topic: Monetary policy and the economy 7 Topic: Monopolistic competition: definition. and complications 6 Topic: Production possibilities model 9 Topic: Profit maximization 6 Topic: Profit maximizing in long run 3 Topic: Profit maximizing in short run 12 Topic: Profits 1 Topic: Protectionism 2 Topic: Public debt 10 Topic: Public goods 1 Topic: Pure competition and efficiency 4 Topic: Pure competition defined. definition 3 Topic: Monopoly demand curve 4 Topic: Multiple deposit expansion 3 Topic: Multiplier effect 1 Topic: Nominal versus real income 2 Topic: Oligopoly: definition. characteristics 4 Topic: Monopoly concept. price indexes 2 Topic: Recent productivity acceleration 1 Topic: Reserve ratio 1 Topic: Short run versus long run 2 Topic: Short-run costs 8 Topic: Single commercial bank 3 Topic: Societys economic problem 1 . criticisms.Topic: GDP accounting: expenditure approach 2 Topic: GDP and social welfare 1 Topic: GDP concept 3 Topic: GDP gap 1 Topic: GDP measurement 6 Topic: Government-set prices 4 Topic: Growth debate 2 Topic: Growth record. characteristics 4 Topic: Open-market operations 3 Topic: Optimal quantity of a public good 4 Topic: Price discrimination 5 Topic: Price elasticity of demand 6 Topic: Price-output behavior 7 Topic: Private goods 2 Topic: Problems.

Topic: Societys economic problem 1 Topic: Subsets and examples of financial services industry 1 Topic: Supply and supply curve 2 Topic: Supply of money (definition. and models 2 Topic: Tools of monetary policy 2 Topic: Total revenue test 5 Topic: Trade facts 3 Topic: U.) 10 Topic: Targeting the Federal funds rate 1 Topic: Tariffs and quotas 1 Topic: The business cycle 4 Topic: The market for money-interest rate determination 6 Topic: Theories. value. and the future 3 Type: Graph 1 . financial system 6 Topic: Unemployment 9 Topic: Unemployment. growth. principles. etc.S.