Download 1 .A production possibilities frontier can shift outward if a

1.A production possibilities frontier can shift outward if
a). government increases the amount of money in the economy.
b). there is a technological improvement.
c). resources are shifted from the production of one good to the production of the other good.
d). the economy abandons inefficient production methods in favor of efficient production methods.
2.For each good produced in a market economy, the interaction of demand and supply deterniines
a). the price of the good, but not the quantity.
b). the quantity of the good, but not the price.
c). both the price of the good and the quantity of the good.
d). neither price nor quantity, because prices and quantities are determined by the sellers of the goods
alone.
3. For a competitive market, which of the following statements is correct?
a). A seller can always increase her profit by raising the price of her product.
b). If a seller charges more than the going price, buyers will go elsewhere to make their purchases.
c). A seller often charges less than the going price to increase sales and profit.
d). A single buyer can influence the price of the product, but only when purchasing from several
sellers in a short period of time.
4. Economists compute the price elasticity of demand as .the
a). percentage change in price divided by the percentage change in quantity demanded.
b). change in quantity demanded divided by the change in the price.
c). percentage change in quantity demanded divided by the percentage change in price.
d). percentage change in quantity demanded divided by the percentage change in income.
5.If two supply curves pass through the same point and one is steep and the other is flat, which of the
following statements is correct?
a). The flatter supply curve represents a supply that is inelastic relative to the supply represented by
the steeper supply curve.
b). The steeper supply curve represents a supply that is inelastic relative to the supply represented by
the flatter supply curve.
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c). Given two prices with which to calculate the price elasticity of supply, that elasticity is the same
for both curves.
d). A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a
decrease in demand will decrease total revenue if the flatter supply cure is relevant.
6. A price floor is not binding if
a). the price floor is higher than the equilibrium price of the good.
b). the quantity of the good demanded with the price floor is less than the quantity demanded of the
good without the price floor.
c). the quantity of the good supplied with the price floor is less than the quantity supplied of the good
without the price floor.
d). All of the above are correct.
7. If a tax is imposed on a market with elastic demand and inelastic supply,
a). buyers will bear most of the burden of the tax.
b). sellers will bear most of the burden of the tax.
c). the burden of the tax will be shared equally between buyers and sellers.
d). it is impossible to determine how the burden of the tax will be shared.
8. If an allocation of resources is efJicient, then
a). consumer surplus is maximized.
b). producer surplus is maximized.
c). all potential gains from trade among buyers are sellers are being realized.
d). the allocation is necessarily equitable as well.
9. Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass
seed will
a). decrease, and producer surplus in the industry will decrease.
b). increase, and producer surplus in the industry will increase.
c). decrease, and producer surplus in the industry will increase.
d). increase, and producer surplus in the industry will decrease.
10. The deadweight loss from a tax
a). does not vary in amount when the price elasticity of demand changes.
b). does not vary in amount when the amount of the tax per unit changes.
c). is larger, the larger is the amount of the tax per unit.
d). is smaller, the larger is the amount of the tax per unit.
11.The more mothers are pressured by society to be housekeepers and stay out of the labor force, the
a). more elastic the supply of labor will be.
b). less elastic the supply of labor will be.
c). flatter the labor supply curve will be.
d). greater is the decrease in employment that will result fiom a tax on labor.
12.When externalities are present in a market, the well-being of market participants
a). and market bystanders are both directly affected.
b). and market bystanders are both indirectly affected.
c). is directly affected, and market bystanders are indirectly affected.
d). is indirectly affected, and market bystanders are directly affected.
13.Market failure associated with the free-rider problem is a result of
a). a problem associated with pollution.
b). benefits that accrue to those who don't pay.
c). losses that accrue to providers of the product.
d). a project in which costs exceed benefits.
14. A town engineer comes to the city council with a proposal to install a traffic light at a certain
intersection that currently has a stop sign. The benefit of the traffic light is increased safety because
the light will reduce the incidence of fatal traffic accidents by 50 percent per year. Which of the
following statements is correct?
a). The city council should vote to install the traffic light because the benefits will outweigh the costs.
b). The city council should carefully evaluate the benefits of reduced fatalities against only the
explicit costs of the light.
c). The city council should carefully evaluate the benefits of reduced fatalities against the costs of the
light and of the extra time that drivers will spend waiting for a green light.
d). The costs will invariably outweigh the benefits.
15. Economic profit is equal to
a). total revenue minus the explicit cost of producing goods and services.
b). total revenue minus the opportunity cost of producing goods and services.
c). total revenue minus the accounting cost of producing goods and services.
d). average revenue minus the average cost of producing the last unit of a good or service.
16. Marginal cost tells us the
a). value of all resources used in a production process.
b). marginal increment to profitability when price is constant.
c). amount by which total cost rises when output is increased by one unit.
d). amount by which output rises when labor is increased by one unit.
17. Suppose that when 2 units of labor, the only variable input into the production process, are hired,
the total cost of production is $100 and that when 3 units of labor are hired the total cost of
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production is $120. In addition, assume that the variable cost per unit of labor is the same regardless
of the number of units of labor that are hired. What is the firm's fixed cost?
a). $40
b). $60
c). $80
d). $100
18. A competitive firm's marginal cost curve is regarded as its supply curve because
a). the position of the marginal cost curve determines the price for which the firm should sell its
product.
b). anlong the various cost curves, the marginal cost curve is the only one that slopes upward.
c). the marginal cost curve determines the quantity of output the firm is willing to supply at any price.
d). the firm is aware that marginal revenue must exceed marginal cost in order for profit to be
maximized.
19. An industry is a natural monopoly when
(i) the government assists the firm in maintaining the monopoly.
(ii) a single firm owns a key resource.
(iii)a single firm can supply a good or service to an entire market at a smaller cost than could two or
more firms.
a). (ii) only
b). (iii) only
c). (i) and (ii)
d). (ii) and (iii)
20. The prisoners' dilemma game
a). is a situation in which two players both have dominant strategies which lead to the highest total
payoff for the two players.
b). has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an
incentive to switch to another strategy.
c). has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would
agree to if they could cooperate with each other.
d). Both a and c are correct.
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1. Gross domestic product serves as a measure of two things:
a). the total spending of everyone in the economy and the total saving of everyone in the economy.
b). the total income of everyone in the economy and the total expenditure on the nation's output of
goods and services.
c). the value of the nation's output of goods and services for domestic citizens and the value of the
nation's output of goods and services for the rest of the world.
d). the nation's saving and the nation's investment.
2. The price index in the first year is 150; in the second year it is 160; and in the third year it is 175.
The inflation rate is about
a). 1.07 percent between the first and second years, and 1.09 percent between the second and third
years.
b). 5.4 percent between the first and second years, and 9.4 percent between the second and third
years.
c). 6.7 percent between the first and second years, and 9.4 percent between the second and third years.
d). 10 percent between the first and second years, and 1.09 percent between the second and third
years.
3. The nominal interest rate tells you
a). how fast the number of dollars in your bank account rises over time.
b). how fast the purchasing power of your bank account rises over time.
c). the number of dollars in your bank account today.
d). the purchasing power in your bank account today
4. If the production function for an economy had constant returns to scale, the labor force doubled,
and all other inputs stayed the same, then real GDP would
a). stay the same.
b). increase by 50 percent.
c). increase, but by something less than double.
d). double.
5. In the small closed economy of San Lucretia, the currency is the denar. Statistics for last year
show that private saving was 60 billion denars, taxes were 70 billion denars, governnlent purchases
of goods and services were 80 billion denars, there were no transfer payments by the government,
and GDP was 400 billion denars. What were consumption and investment in San Lucretia?
a). 270 billion denars, 50 billion denars
b). 260 billion denars, 60 billion denars
c). 250 billion denars, 70 billion denars
d). None of the above is correct.
6.0ther things the same, a higher interest rate induces people to
a). save more, so the supply of loanable funds slopes upward.
b). save less, so the supply of loanable funds slopes downward.
c). invest more, so the supply of loanable funds slopes upward.
d). invest less, so the supply of loanable funds slopes downward
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7. In 2004, based on concepts similar to those used to estimate U.S. employment figures, the Italian
adult non-institutionalized population was 45.020 million, the labor force was 24.065 million, and
the number of people employed was 22.105 million. According to these numbers, the Italian laborforce participation rate and unemployment rate were about
a). 45.1%, 8.1%
b). 45.1%, 4.4%
c). 53.5%, 8.1%
d). 53.5%, 4.4%
8. If the minimum wage were currently above the equilibrium wage, than a decrease in the minimum
wage would
a). increase both the quantity demanded and the quantity supplied of labor.
b). decrease both the quantity demanded and the quantity supplied of labor.
c). increase the quantity of labor demanded and decrease the quantity supplied.
d). decrease the quantity of labor demanded and increase the quantity supplied.
9.The money supply increases when the Fed
a). lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
b). lowers the discount rate. The increase will be larger the larger the reserve ratio is.
c). raises the discount rate. The increase will be larger the smaller the reserve ratio is.
d). raises the discount rate. The increase will be larger the larger the reserve ratio is.
10.Which of the following lists two things that both decrease the money supply?
a). raise the discount rate, make open market purchases
b). raise the discount rate, make open market sales
c). lower the discount rate, make open market purchases
d). lower the discount rate, make open market sales
11. When the money market is drawn with the value of money on the vertical axis, as the price level
increases, the value of money
a). increases, so the quantity of money demanded increases.
b). increases, so the quantity of money demanded decreases.
c). decreases, so the quantity of money demanded decreases.
d). decreases, so the quantity of money demanded increases.
12. The banking system currently has $10 billion of reserves, none of which are excess. People hold
only deposits and no currency, and the reserve requirement is 10%. If the Fed raises the reserve
requirement ratio to 20% and at the same time buys $1 billion dollars of bonds, then by how much
does the money supply change?
a). It falls by $45 billion.
b). It falls by $52 billion.
c). It falls by $55 billion.
d). None of the above is correct.
13. If a country has a trade deficit
a). it has positive net exports and positive net capital outflow.
b). it has positive net exports and negative net capital outflow.
c). it has negative net exports and positive net capital outflow.
d). it has negative net exports and negative net capital outflow.
14. If people decide to hold less currency relative to deposits, the money supply
a). falls. The Fed could lessen the impact of this by buying Treasury bonds.
b). falls. The Fed could lessen the impact of this by selling Treasury bonds.
c). rises. The Fed could lessen the impact of this by buying Treasury bonds.
d). rises. The Fed could lessen the impact of this by selling Treasury bonds.
15. In the market for foreign-currency exchange in the open economy macroeconomic model, the
amount of net capital outflow represents the quantity of dollars
a). supplied for the purpose of selling assets domestically.
b). supplied for the purpose of buying assets abroad.
c). demanded for the purpose of buying U.S. net exports of goods and services.
d). demanded for the purpose of importing foreign goods and services.
16. The quantity of money has no real impact on things people really care about like whether or not
they have a job. Most economists would agree that this statement is appropriate concerning
a). both the short run and the long run.
b). the short run, but not the long run.
c). the long run, but not the short run.
d). neither the long run nor the short run.
17.When taxes decrease, consumption
a). increases as shown by a movement to the right along a given aggregate demand curve.
b). increases, shifting aggregate demand to the right.
c). decreases, shifting aggregate supply to the right.
d). None of the above is correct.
18.According to liquidity preference theory,
a). an increase in the interest rate reduces the quantity of money demanded. This is shown as a
movement along the curve. An increase in the price level shifts money demand right.
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b). an increase in the interest rate increases the quantity of money demanded. This is shown as a
movement along the curve. An increase in the price level shifts money demand left.
c). an increase in the price level reduces the quantity of money demanded. This is shown as a
movement along the curve. An increase in the interest rate shifts money demand right.
d). an increase in the price level increases the quantity of money demanded. This is shown as a
movement along the curve. An increase in the interest rate shifts money demand left.
19. According to the crowding-out effect, an increase in government spending
a). increases the interest rate and so increases investment spending.
b). increases the interest rate and so decreases investment spending.
c). decreases the interest rate and so increases investment spending.
d). decreases the interest rate and so decreases investment spending
20. If inflation expectations decline, than the short-run Phillips curve shifts
a). left, meaning that at any given inflation rate unemployment will be lower in the short run than
before.
b). right, meaning that at any given inflation rate unemployment will be lower in the short run than
before.
c). right, meaning that at any given inflation rate unemployment will be higher in the short run than
before.
d). left, meaning that at any given inflation rate unemployment will be higher in the short run than
before.