the figure above shows various points on three different production possibility frontiers for a nation. A movement from X to Y

a. could be due to a change in consumers tastes and preferences
b. could occur because of an influx of immigrant labor
c. is the result of advancements in food production technology only, with no change in the technology for plastic production
d. is the result of advancements in plastic production technology only, with no change in food production technology

b

specializing in the production of a good or service in which one has a comparitive advantage enables a country to do all of the following except

a. engage in mutually beneficial trade with other nations
b. increase the variety of products that it can consume with no increase in resources
c. consume a combination of goods that lie outside its own production possibility frontier
d. produce a combination of goods that lie outside its own production possibility frontier

d

What is the difference between an "increase in demand" and an "increase in quantity demanded?

a. There is no difference between the two terms; they both refer to a shift of the demand curve.
b. An "increase in demand" is represented by a rightward shift of the demand curve while an
"increase in quantity demanded" is represented by a movement along a given demand curve.
c. There is no difference between the two terms; they both refer to a movement downward along a
given demand curve.
d. An "increase in demand" is represented by a movement along a given demand curve, while an
"increase in quantity demanded" is represented by a rightward shift of the demand curve.

b

Refer to the figure above. The graph in this figure illustrates an initial competitive equilibrium in
the market for apples at the intersection of D1 and S1 (point A). If the price of oranges, a
substitute for apples, decreases and the wages of apple workers increase how will the equilibrium
point change?

a. The equilibrium point will move from A to E.
b. The equilibrium point will move from A to B.
c. The equilibrium point will move from A to C.
d. The equilibrium will first move from A to B, then return to A

a

Which of the following statements is true?

a. An increase in demand causes a change in equilibrium price; does not cause a further
change in demand or supply.
b. A decrease in supply causes equilibrium price to rise; the increase in price then results in a decrease in demand.
c. If both demand and supply increase there must be an increase in equilibrium price;
equilibrium quantity may either increase or decrease.
d. If demand decreases and supply increases one cannot determine if equilibrium price will
increase or decrease without knowing which change is greater.

a

Each point on a demand curve shows
a. The willingness of consumers to purchase a product at different prices.
b. The consumer surplus received from purchasing a given quantity of a product.
c. The economic surplus received from purchasing a given quantity of a product.
d. The legally determined maximum price that sellers may charge for a given quantity of a
product.

a

The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in
producing men's clothing. If the market price of Marko's polo shirts is $18

a. Marko's will produce four shirts.
b. Producer surplus from the first shirt is $18.
c. Producer surplus will equal $22.
d. There will be a surplus; as a result, the price will fall to $7

c

Refer to the figure above. Suppose the market is initially in equilibrium at price P0 and now the
government imposes a tax on every unit sold. Which of the following statements best describes
the impact of the tax? For demand curve D0

a. The producer bears a greater share of the tax burden if the supply curve is S1.
b. The producer bears a greater share of the tax burden if the supply curve is S0.
c. The producer's share of the tax burden is the same whether the supply curve is S0 or S1.
d. The producer bears the entire burden of the tax if the supply curve is S0 and the consumer
bears the entire burden of the tax if the supply curve is S1.

a. The producer bears a greater share of the tax burden if the supply curve is S1.

a

Which of the following describes how negative externality affects a competitive market?

a. The externality causes a difference between the private cost of production and the social
cost.
b. The externality causes a difference between the private cost of production and the private
benefit from consumption.
c. The externality causes consumer surplus to exceed producer surplus.
d. The externality causes a difference between the private cost of production and the
equilibrium price.

a

Which of the following best illustrates the free-rider problem?

a. Since no one owns elephants and elephants are valued for their hide, meat and ivory,
elephants can be hunted to extinction.
b. For every purchase of a $30 fare card, you are entitled to five free bus rides.
c. If your neighbors professionally landscape their front yards, it is likely that the market
value of your property will increase.
d. All three homeowners in a quiet cul-de-sac have expressed the desirability of security
lighting in the common parking area. One of the homeowners installs the lighting and
asks you to contribute toward the cost. You choose not to contribute.

d

In England during the Middle Ages each village had an area of pasture on which any family in the
village was allowed to graze its cows and sheep without charge. Eventually, the grass in the
pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the
grass was depleted was

a. The area of pasture was nonexcludable and the consumption of the grass was rival.
b. Due to a policy of neglect on the part of the English government.
c. It did not get enough rainfall.
d. Continuing disputes between Saxons and Normans

a

The most important determinant of the price elasticity of demand for a good is

a. The definition of the market for a good.
b. The availability of substitutes for the good.
c. The share of the good in the consumer's budget.
d. Whether the good is a necessity or a luxury.

b

Assume that legalization of cocaine use led to a large decrease in its price and only a small
increase in the quantity of cocaine demanded. Economic analysis would lead one to conclude that

a. Cocaine should be legalized because the benefits of legalization would exceed the costs.
b. Cocaine should not be legalized because the benefits are uncertain.
c. Cocaine should not be legalized on moral grounds since moral benefits and costs can't be
measured.
d. Legalization is a normative issue. Economic analysis can be used to contribute to
discussion of this issue but cannot decide it.

d

Which of the following statements is true?
5

a. The supply of oil is very elastic over short time periods but becomes perfectly inelastic
over time. A given shift in supply results in a greater increase in the price of oil when the
supply of oil is perfectly inelastic.
b. The supply of oil is very inelastic over short time periods but becomes more elastic over
time. A given shift in supply results in a smaller increase in the price of oil when the
supply is more elastic.
c. The supply of oil is perfectly inelastic; therefore, as the demand for oil increases over
time the price of oil increases significantly.
d. Over short periods of time increases in the demand for oil are greater than increases in the
supply of oil. Over the long run increases in the demand and the supply of oil are about
equal. As a result, the price of oil increases greatly in the short run but is stable in the
long run.

b

Which type of business is the most difficult to set up?

a. Sole proprietorship
b. Partnership
c. Corporation
d. There is no difference in the difficulty of establishment

c

The existence of the principal-agent problem

a. Increases the risk of buying stock in a corporation.
b. Increases the risk of becoming the sole proprietor of a business.
c. Implies that managers that have the same incentives as the board of directors.
d. Does all of the above

a

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the
third year worth if the interest rate is 10%?

a. $876
b. $1,150
c. $1,045
d. $1,000

a

Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find
and make their own food. Rob and Bill spent one day each fishing and picking berries. The table
above lists the pounds of output Rob and Bill produced.
Use the table above to select the statement that accurately interprets the data in the table.

a. Rob has an absolute advantage in picking berries and Bill has an absolute advantage in
catching fish.
b. Bill has an absolute advantage in picking berries and Rob has an absolute advantage in
catching fish.
c. Bill has an absolute advantage in picking berries and catching fish.
d. Rob has an absolute advantage in picking berries and catching fish.

b

Use the table above to select the statement that accurately interprets the data in the table.

a. Bill has a comparative advantage in catching fish.
b. Rob has a comparative advantage in picking berries.
c. Rob has a comparative advantage in catching fish and picking berries.
d. Bill has a comparative advantage in picking berries.

d

In the real world we don't observe countries completely specializing in the production of goods
for which they have a comparative advantage. One reason for this is

a. Comparative advantage works better in theory than in practice.
b. Some countries have more resources than other countries.
c. Tastes for many traded goods are similar in many countries because of globalization.
d. Production of most goods involves increasing opportunity costs.

d

Referring to the figure above, what is the area that represents the deadweight loss as a result of
the quota?

a. G + H
b. G + H + I + J
c. E + I + J + M
d. E + M

d

. If marginal utility of apples is diminishing and is a positive amount, consuming one more apple
will cause

a. Total utility to decrease.
b. A consumer to get no satisfaction from consuming apples.
c. A consumer's total utility to increase.
d. A consumer to go beyond her optimal consumption of apples.

c

Referring to the table above listing Jay's marginal utilities for burgers and Pepsi. Jay has $7 to
spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1. What
is Jay's optimal consumption bundle?

a. 1 burger and 2 Pepsis
b. 2 burgers and 3 Pepsis
c. 3 burgers and 1 Pepsi
d. 3 burgers and 2 Pepsis

b

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.
The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the
last novel was 32 units of utility (utils) what was the marginal utility of the last audio book
purchased?

a. 2 util.s
b. 12 utils.
c. 16 utils.
d. 64 utils.

d

When a firm experiences a positive technological change

a. The price of a share of the firm's stock rises.
b. The firm is able to produce more output using the same inputs, or the same output using
fewer inputs.
c. The value of the firm's assets rises.
d. The firm will hire additional workers in order to increase production

b

The level of output at which all economies of scale have been exhausted is known as

a. Constant returns to scale.
b. Minimum efficient scale.
c. The economically efficient output level.
d. Optimal economic size

b

Which of the following is a reason why a firm would experience diseconomies of scale?

a. To finance an increase in the size of its plant a firm must borrow more money or sell
more shares of stock.
b. As the size of the firm increases, it becomes more difficult to find markets where it
doesn't already have operations.
c. As the size of the firm increases it becomes more difficult to coordinate the operations of
its manufacturing plants.
d. As the size of the firm increases, it must operate in other countries where differences in
language, customs and laws increase its average costs

c

A very large number of small sellers who sell identical products imply

a. The inability of one seller to influence price.
b. A downward sloping demand for each seller's product.
c. A multitude of vastly different selling prices.
d. Chaos in the market

a

The figure above shows the cost and demand curves for a profit-maximizing firm in a perfectly
competitive market. If the market price is $30, the firm's optimal output level is

a. 0.
b. 130.
c. 180.
d. 240.

c

If a typical firm in a perfectly competitive industry is incurring losses, then

a. Some firms will exit in the long run causing market supply to decrease and market price
to fall increasing losses for the remaining firms.
b. Some firms will exit in the long run causing market supply to decrease and market price
to rise increasing profits for the remaining firms.
c. Some firms will enter in the long run causing market supply to increase and market price
to rise increasing profit for all firms.
d. All firms will continue to lose money.

b

Ordinarily, governments attempt to promote competition in markets. Why do governments use
patents to block entry into some markets when this prohibits competition?

a. Patents encourage firms to spend money on research necessary to create new products.
b. Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses
for political reasons.
c. Patents are an important source of government revenue.
d. Patents are justified because they are an important means for creating network
externalities

a

Referring to the figure above, if the monopolist charges price P for output Q, in order to
maximize profit or minimize loss in the short run, it should

a. Continue to produce because price is greater than average variable cost.
b. Shut down because price is greater than marginal cost.
c. Shut down because price is less than average total cost.
d. Continue to produce because a monopolist always earns a profit.

a

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes
a monopoly. As a result of this change

a. Price will be higher, output will be lower and the deadweight loss will be eliminated.
b. Consumer surplus will be smaller, producer surplus will be greater and there will be a
reduction in economic efficiency.
c. Price will be higher, consumer surplus will be greater and output will be greater.
d. Consumer surplus will be smaller and producer surplus will be greater. There will be a
net increase in economic surplus.

b

Which of the following will prevent firms from engaging in price discrimination?

a. Yield management
b. Arbitrage
c. Transactions costs
d. Odd pricing

b

Which of the following is necessary in order for a firm to successfully practice price
discrimination?

a. The firm must practice product differentiation.
b. The demand for the firm's product is inelastic.
c. The firm must be able to segment the market for the product.
d. The firm's transactions costs must be zero

b

Movie theaters often charge different people different prices for admission. Why don't theaters
charge different prices for popcorn and other food items?

a. Although the elasticity of demand for admission differs among customers, most people
have the same elasticity of demand for food items.
b. Concession stand personnel are too busy to ensure that different people pay different
prices for food items.
c. Once people are in the theater, concession stands have monopoly power and can charge
everyone the same high prices for food.
d. It is difficult to limit the resale of food items from those who pay low prices to those who
would have to pay high prices from the concession stand.

c

The marginal product of labor is

a. The payment made to workers for their contribution to the output they produce.
b. Equal to the demand for labor.
c. The change in a firm's revenue as a result of hiring one more worker.
d. The additional output a firm produces as a result of hiring one more worker

d

Referring to the figure above, which of the following is true if the wage rate increases from W0 to
W1?

a. The income effect is larger than the substitution effect.
b. The substitution effect is larger than the income effect.
c. The income effect and the substitution effect are equal.
d. The supply curve is unit-elastic.

b

The total value to society of having garbage removed is greater than the value of baseball games.
Why, then, are baseball players paid more than garbage collectors?

a. Although the total value of garbage removal is greater than the total value of baseball,
wages are determined by average values.
b. Garbage removal results in significant external benefits that are not captured in the price
paid for garbage removal. As a result, wages of garbage collectors do not reflect their
social benefits.
c. There is greater competition in the garbage collection industry than there is in Major
League Baseball.
d. Wages do not depend on total values but marginal values. The marginal revenue product
of baseball players exceeds the marginal revenue product of garbage collectors

d

One implication of compensating differentials is that laws passed to protect the health and safety
of workers may not make workers better off than they were prior to the passages of the laws.
Why is this so?

a. Workers may suffer from cognitive dissonance, which means that the perception workers
have that their jobs are hazardous is not true.
b. If the laws make the work environment safer, there is no reason to pay workers a
compensating differential for the risk associated with their jobs.
c. The principal-agent problem that exists in the workplace may cause workers to shirk
more after the work environment becomes safer.
d. In non-competitive markets workers are unlikely to receive a compensating differential to
compensate for jobs with extra risk. As a result, after the laws are passed their wages will
not change.

b

Gross domestic product in the economy is measured by the

a. Total number of goods and services produced in the economy.
b. Dollar value of all final goods and services produced in the economy.
c. Total number of goods produced in the economy.
d. Total number of services produced in the economy.

b

How are intermediate goods treated in the calculation of GDP?

a. Their value is not counted separately, but included as part of the value of the final good
for which they are an input.
b. Their value is counted separately, and their value is also included as part of the value of
the final good for which they are an input.
c. They are included in the year that they are produced.
d. They are included only if they are imported.

a

In the circular flow diagram, _____ supply the factors of production, and _____ goods and
services.

a. Households; sell
b. Households; buy
c. Firms; sell
d. Firms; buy

b

The largest component of spending in GDP is

a. Consumption spending.
b. Investment spending.
c. Government spending.
d. Net export spending.

a

The underground economy can be described as

a. Production of intermediate goods and services.
b. Economic production that includes mining.
c. Economic activity that is hidden from the government to avoid taxes or because the
activity is illegal.
d. Production of infrastructure that spurs growth in the rest of the economy.

c

Which of the following would increase disposable income?

a. A decrease in transfer payments received
b. A decrease in taxes paid
c. A decrease in personal income
d. All of the above would increase disposable income.

b

The labor force is the sum of

a. Employed workers and discouraged workers.
b. Employed workers and unemployed workers.
c. Employed workers and individuals not looking for work.
d. Employed workers and the working age population.
e. Unemployed workers and the working age population.

b

The labor force participation rate is defined as

a. The percentage of the working-age population that is employed.
b. The percentage of the working-age population that is unemployed.
c. The percentage of the labor force that is employed.
d. The percentage of the labor force that is unemployed.
e. The percentage of the working-age population in the labor force

e

Unemployment arising from a persistent mismatch between the skills and characteristics of
workers and the requirements of jobs is called

a. Frictional unemployment.
b. Structural unemployment.
c. Cyclical unemployment.
d. Seasonal unemployment.
e. Unnatural unemployment.

b

Which of the following is an example of a worker experiencing cyclical unemployment?

a. A worker that changes jobs to move closer to her family.
b. An assembly line worker who loses his job because of automation.
c. A Freightliner employee that got laid off because of the recession of 2001.
d. A lifeguard who was hired during the summer season is laid off after summer is over.
e. A worker quits his job because he does not get along with his boss.

c

Which of the following explains why many European countries have unemployment rates that are
higher than in the United States?

a. Technological change occurs at a faster rate in Europe, so structural unemployment is
higher in Europe.
b. European countries offer higher unemployment benefits than the United States.
c. Firms in European countries offer employees higher wages and higher benefits than do
firms in the United States.
d. The minimum wage in Europe is lower than it is in the United States

b

If the CPI changes from 125 to 120 between 2007 and 2008, how did prices change between 2007
and 2008?

a. Prices increased by 5%.
b. Prices decreased by 5%.
c. Prices increased by 25%
d. Prices decreased by 4%.

d

If consumers purchase fewer of those products that increase most in price and more of those
products that decrease in price as compared to the CPI basket, then

a. Changes in the CPI accurately reflect the true rate of inflation.
b. Changes in the CPI understate the true rate of inflation.
c. Changes in the CPI overstate the true rate of inflation.
d. Changes in the CPI are unrelated to the true rate of inflation.

c

If the nominal interest rate is 6% and the expected inflation rate is 9%, then the real interest rate is

a. 3%
b. -3%
c. 15%
11
d. 6.67%

b

If inflation increases unexpectedly, then

a. Borrowers pay a higher real interest rate than they expected.
b. Lenders receive a lower real interest rate than they expected.
c. Lenders gain and borrowers gain.
d. Neither borrowers nor lenders lose

b

The only way the standard of living of the average person in a country can increase is if _____
increases faster than _____.

a. Production; population
b. Income; population
c. Population; production
d. Population; income

b

The best measure of the standard of living is

a. Nominal GDP.
b. Real GDP.
c. Nominal GDP per capita.
d. Real GDP per capita.

d

If GDP grows at a rate of 3% per year, how long will it take for GDP to double in size?

a. 21 years
b. 12 years
c. 23 years
d. 35 years

c

What is human capital?

a. A slang term for the underground labor market
b. Manufactured goods that are used to produce other goods
c. Accumulated knowledge and skills acquired by a worker
d. The manager or owner of a business

c

Which one of the following is not considered a financial intermediary?

a. A bank
b. A pension fund
c. An insurance company
d. A credit counselor

d

Which of the following would increase public savings?

a. An increase in taxes
b. An increase in transfers
c. An increase in government purchases
d. All of the above would increase public savings

a

The demand for loanable funds has a _____ slope because the lower the interest rate, the _____
number of investment projects are profitable, and the _____ the quantity of loanable funds
demanded.

a. Negative; greater; greater
b. Negative; greater; lesser
c. Negative; lesser; greater
d. Positive; lesser; lesser

c

A decrease in the real interest rate will

a. Increase consumption and reduce investment.
b. Increase savings and investment.
c. Decrease investment and government spending.
d. Increase consumption and investment

d

Which of the following is a true statement about the length of recessions and expansions in the
United States economy?

a. After 1950, the length of expansions equal the length of recessions.
b. After 1950, the length of expansions were much less than the length of recessions.
c. After 1950, the length of expansions were much longer than the length of recessions.
d. After 1950, the length of expansions were brief and almost nonexistent.

c

Which of the following accurately describes economic growth and standards of living between
1,000,000 BC and 1300 AD?

a. Standards of living in 1300 AD were substantially better than what they were in
1,000,000 BC.
b. Standards of living substantially decline from 1,000,000 BC to 1300 AD.
c. Significant economic growth took place between 1,000,000 BC and 1300 AD.
12
d. No sustained economic growth occurred between 1,000,000 BC and 1300 AD.

d

In the long run, _____ differences in economic growth rates result in _____ differences in GDP
per capita.

a. Large; small
b. Large; no
c. Small; large
d. Small; no

c

In the long run, a country will experience an increasing standard of living only if it experiences

a. A high rate of consumption.
b. Continuous technological change.
c. A high rate of labor force growth.
d. A slow rate of population growth

b

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

a. Some new products unleash a gale of destruction that drives other new products out of
the market.
b. New products unleash a gale of destruction that drives old products out of the market.
c. New products are created by the destruction of capital.
d. The creation of new products never involves the destruction of old products

b

To what do economists attribute the rapid growth of labor productivity in the United States
relative to other countries?

a. The flexibility of U.S. labor markets and the efficiency of the U.S. financial system.
b. The strict government rules in the U.S. that regulate a firm's ability to hire and fire
workers.
c. The low rate of job mobility in the U.S.
d. The high level of unemployment benefits the U.S. pays relative to other countries like
Canada.

a

Globalization is positively associated with

a. Poverty.
b. Declining rates of investment.
c. Declining standards of living.
d. Economic growth

d

If property rights are not enforced in a country,
a. The market system will still work smoothly.
b. Entrepreneurs are unlikely to risk their own funds investing in such an economy.
c. That country's growth rate will not be affected.
d. That country will growth more rapidly because of the reduction of law suits.

b

The rapid growth of China's economy relative to the United States has benefited U.S. consumers
because
a. Competition from China has made jobs harder to find in the U.S.
b. U.S. consumers can purchase more lower-priced goods made in China.
c. The U.S. has comparative advantage in more goods than China does.
d. Goods made in China are always of higher quality than goods made in the U.S

b

A decrease in consumer confidence can put your job at risk if
a. Consumers expect firms to increase investment in the future.
b. Aggregate expenditures rise.
c. Aggregate expenditures fall.
d. Consumers expect their incomes to rise in the future.

c

Aggregate expenditure includes spending on

a. C + I + G
b. C + I + G - NX
c. C + I + depreciation - NX
d. C + I + G + NX

d

When aggregate expenditure is less than GDP, which of the following is true?

a. All of the above must be true when aggregate expenditure is greater than GDP.
b. Firms spent more on capital goods than they anticipated.
c. Households bought more new homes than they anticipated.
d. There was unplanned inventory investment

d

The marginal propensity to consume is defined as

a. The change in consumption divided by the change in disposable income.
b. The change in disposable income divided by the change in consumption.
c. Disposable income divided by consumption
d. Consumption divided by disposable income.

a

Referring to the figure above, if the economy is at point L, what will happen?
a. Inventories have fallen below their desired level, and firms increase production.
b. Inventories have fallen below their desired level, and firms decrease production.
c. Inventories have risen above their desired level, and firms increase production.
d. Inventories have risen above their desired level, and firms decrease production

d

If an increase in autonomous consumption spending of $10 million results in a $50 million
increase in equilibrium real GDP, then

a. The MPC is .8.
b. The MPC is .75.
c. The MPC is .9.
d. The MPC is .5.

a

What impact does a decrease in the price level in the United States have on net exports and why?

a. A decrease in the price level reduces net exports because lower prices raise the value of
the dollar.
b. A decrease in the price level reduces net exports because lower prices increase American
spending on imports.
c. A decrease in the price level increases net exports because lower prices increase the value
of the dollar.
d. A decrease in the price level increases net exports by reducing the relative cost of
American goods.

d

The static aggregate demand and aggregate supply curve model helps explain

a. Short term fluctuations in real GDP and the price level.
b. Long term growth.
c. Price fluctuations in an individual market.
d. Output fluctuations in an individual market.

a

The aggregate demand curve shows the relationship between the _____ and _____.

a. Inflation rate; quantity of real GDP demanded.
b. Real interest rate; quantity of real GDP supplied
c. Nominal interest rate; quantity of real GDP demanded
d. Price level; quantity of real GDP demanded

d

Spending on the war in Iraq is essentially categorized as government purchases. How do
increases in spending on the war in Iraq affect the aggregate demand curve?

a. They will move the economy up along a stationary aggregate demand curve.
b. They will move the economy down along a stationary aggregate demand curve.
c. They will shift the aggregate demand curve to the left.
d. They will shift the aggregate demand curve to the right.

d

Potential GDP is also referred to as

a. Realized GDP
b. Full-employment GDP
c. Politico-economic GDP
d. Balanced-budget GDP

b

The short run aggregate supply curve has a(n) _____ slope because as prices of _____ rise, prices
of _____ rise more slowly.

a. Positive; final goods and services; inputs
b. Infinite; final goods and services; inputs
c. Positive; inputs; final goods and services
d. Infinite; inputs; final goods and services

b

Referring to the figure above, suppose the economy is at point A. If investment spending
increases in the economy, where will the eventual long run equilibrium be?

a. A
b. B
c. C
d. D

c

Referring to the figure above, given the economy is at point A in year 1, what will happen to the
unemployment rate in year 2?

a. It will rise.
b. It will fall.
c. It will remain constant.
d. Not enough information to answer the question

a

In the dynamic aggregate demand and aggregate supply model, inflation occurs if

a. AD shifts out/right faster than AS.
b. AD shifts out/right slower than AS

a

Money is

a. An asset that people are willing to accept in exchange for goods and services.
b. A liability that people are willing to accept in exchange for goods and services.
c. The income one earns over a period of time.
d. One's assets net of one's liabilities at any point in time.

a

When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a

a. Medium of exchange.
b. Unit of account.
c. Store of value.
d. Standard of deferred payment.

a

Which of the following is an asset for a bank?

a. Deposits of its customers.
b. Short-term borrowing.
c. Shareholders' equity.
d. Loans.

d

A bank holds its reserves as _____ and _____.

a. Securities; loans
b. Securities; deposits at the Federal Reserve
c. Vault cash; deposits at the Federal Reserve
d. Vault cash; loans

c

A cash withdrawal from the banking system

a. Decreases reserves
b. Decreases deposits.
c. Decreases excess reserves.
d. All of the above are correct

c

A central bank can help stop a bank panic by

a. Raising the required reserve ratio.
b. Calling in consumer loans.
c. Acting as a lender of last resort.
d. Decreasing income taxes

c

Which of the following is (are) responsible for managing the money supply in the United States?

a. The Federal Reserve Bank of New York.
b. The twelve Federal Reserve Banks.
c. The Federal Open Market Committee.
d. The Board of Governors.

c

If the Fed buys U.S. Treasury securities, then this

a. Increases reserves, encourages banks to make more loans, and increases the money
supply.
b. Decreases reserves, causes banks to reduce their loans, and decrease the money supply.
c. Decreases reserves, causes banks to reduce their loans, and increases the money supply.
d. Increases reserves, causes banks to reduce their loans, and increases the money supply.

a

Hyperinflation is caused by

a. A constant increase in the money supply.
b. A high rate of growth in the money supply.
c. Real GDP growing more rapidly than the money supply.
d. The money supply growing more slowly than GDP

b

The US unemployment rate is:

a. 3% or less.
b. More than 3% but less than or equal to 6%.
c. More than 6% but less than or equal to 9%.
d. More than 9%

c

The US real growth rate is:

a. 3% or less.
b. More than 3% but less than or equal to 6%.
c. More than 6% but less than or equal to 9%.
d. More than 9%.

a

The US inflation rate is:

a. 3% or less.
b. More than 3% but less than or equal to 6%.
c. More than 6% but less than or equal to 9%.
d. More than 9%

a

With respect to external trade, compared to the rest of the countries in the world, the US is

a. Large exporter and our external balance is positive.
b. Small exporter and our external balance is positive.
c. Large exporter and our external balance is negative.
d. Small exporter and our external balance is negative.

a

An economic policy is politically efficient when:

a. Both the benefit and burden of the policy are limited to clearly defined groups.
b. Both the benefit and burden of the policy are diffused among the members of a large
poorly-defined group.
c. The benefit of the policy is limited to a clearly defined group but the burden is diffused
among the members of a large poorly-defined group.
d. The benefit of the policy is diffused among the members of a large poorly-defined group
but the burden is limited to a clearly defined group.

c

It is very unlikely that a government policy will be:

a. Both economically and politically efficient.
b. Both economically and politically inefficient.
c. Economically efficient but politically inefficient.
d. Economically inefficient but politically efficient.

a

Economist John Maynard Keynes (and President Obama) argue that an increase in government
spending will lead to an increase in short-term GDP while economist Alan Walters argued:

a. (The same as Keynes) that an increase in government spending leads to an increase in
short-term GDP.
b. (The opposite of Keynes) that an increase in government spending leads to a decrease in
short-term GDP.
c. That an increase in government spending may lead to an increase or decrease in shortterm
GDP depending on the level of cyclical unemployment.
d. That an increase in government spending may lead to an increase or decrease in shortterm
GDP depending on the level of private sector confidence.

d

If Walters analysis is an accurate description of the US situation in 2009 then the government
should:

a. Increase government spending.
b. Decrease tax rates.
c. Increase government borrowing to finance microeconomic job programs.
d. All of the above.
e. None of the above.

b

The national security argument for imposing tariffs or a quota may be valid but actually executing
this policy requires answering the following questions:

a. Determining which industries are truly essential for national security.
b. Determining which products can be obtained from long-term allies.
c. Determining the most efficient means of maintaining domestic production.
d. All of the above.
e. None of the above

d

Maintaining US tariffs or quotas on imports as negotiating chips is:

a. Hurts foreign producers more than domestic (US) consumers.
b. Hurts domestic (US) consumers more than foreign producers

b

For a future event to be a matter of risk, it is necessary that:

a. It is a well-defined event.
b. The event is not uncertain.
c. There is a sufficient sample size.
d. All of the above.
e. Both (a) and (c) but not (b)

e

Which of the following is most likely a matter of risk?

a. Likelihood that an asteroid will strike the earth tomorrow.
b. Likelihood that it will rain tomorrow.
c. Likelihood that the US will engage in a war with another country within the next six months.
d. Likelihood that there will be a "nuclear meltdown" within the next six months.

b

The characteristics of a successful entrepreneur are:

a. Ability
b. Willingness
c. Power to give financial guarantees
d. All of the above

d

An entrepreneur operates a business - bringing together the factors of production - to produce
goods and services.

a. True
b. False

a

Adam Smith's three requirements for economic growth and development are:

a. Adequate provision of public goods such as roads.
b. Universal elementary education.
c. Strong labor unions to represent workers' interests.
d. All of the above.
e. None of the above.

e

Economists spend a more time studying perfectly competitive markets than monopolistic markets
because:

a. Perfectly competitive markets support more long-term research and development than monopolies.
b. Perfectly competitive markets tend to produce at the minimum average total cost.
c. More US industries are perfectly competitive than monopolistic.
d. All of the above are true.
d. None of the above is true

b

In any market, the largest amount of a good/service will be actually purchased when:

a. There is a price floor in the market.
b. There is a price ceiling in the market.
c. There is neither a price floor nor a price ceiling.

c

In any market, the largest amount of a good/service will be actually purchased when:

a. There is a price floor in the market.
b. There is a price ceiling in the market.
c. There is neither a price floor nor a price ceiling.

c

Your accountants and engineers tell you that you can produce 200 oil rig drill bits for an average
total cost of $300 each OR you can produce 201 oil rig drill bits for an average total cost of $301
each. Since your customers have only ordered 200 oil rig drill bits for delivery in 2010, you
decide that, next year, you will produce only 200 oil rig drill bits. However, in March 2010, a
new customer asks if you would increase your production to 201 oil rig drill bits so that he can
buy one. Obviously, you would like to sell a 201st oil rig drill bit for as much as possible but
what is the MINIMUM price that you would be willing to accept to sell a 201st oil rig drill bit?

a. $302
b. $502
c. $702
d. More than $702

b

Since 1970, air quality has improved dramatically in the US. Why?

a. A long-term reduction in high altitude winds has reduced cross border pollution.
b. Clean air is a normal good and incomes have increased since 1970.
c. Technological change has made it cheaper to prevent air pollution.
d. All of the above
e. Answers (b) and (c) but not (a)

e