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Multiple Choice Questions (Enter your
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1) The study of economics arises due to
greed.
scarcity.
resources.
money.
2) Economists assume that individuals
are rational and respond to incentives.
prefer to live in a society that values fairness above all else.
will never take actions to help others.
behave in unpredictable ways.
3) Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Is Serafina’s criticism ac- curate?
No. If we cannot assume that decisions are correct, then we will not be able to exam- ine the moral implications of these decisions.
Yes. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
No. Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits of these decisions.
Yes. Economic theory should allow for irrational behavior so that we can have more reliable predictions.
4) In Austria a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth. Further, the Aus- trian government gives monthly payouts ranging from $132 to $547, depending on the age of offspring and offers generous tax benefits for families with children. How will these benefits affect a woman’s decision to have children?
These incentives will encourage women to have children and increase the birth rate.
These incentives will encourage only less educated women to have more children.
greed.
scarcity.
resources.
money.
2) Economists assume that individuals
are rational and respond to incentives.
prefer to live in a society that values fairness above all else.
will never take actions to help others.
behave in unpredictable ways.
3) Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Is Serafina’s criticism ac- curate?
No. If we cannot assume that decisions are correct, then we will not be able to exam- ine the moral implications of these decisions.
Yes. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
No. Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits of these decisions.
Yes. Economic theory should allow for irrational behavior so that we can have more reliable predictions.
4) In Austria a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth. Further, the Aus- trian government gives monthly payouts ranging from $132 to $547, depending on the age of offspring and offers generous tax benefits for families with children. How will these benefits affect a woman’s decision to have children?
These incentives will encourage women to have children and increase the birth rate.
These incentives will encourage only less educated women to have more children.
These incentives will encourage only women with high opportunity
costs to have more
children.
These incentives will have no effect on having children; the decision to have children
is a social and psychological decision, not an economic decision.
5) Making “marginal” decisions involves
a. calculating the total benefits of an activity and determining if you are satisfied with that amount.
These incentives will have no effect on having children; the decision to have children
is a social and psychological decision, not an economic decision.
5) Making “marginal” decisions involves
a. calculating the total benefits of an activity and determining if you are satisfied with that amount.
b. calculating the total costs of an activity
and determining if you can afford to incur that expenditure. c. comparing the
additional benefits and the additional costs of an activity.
d. calculating the average benefit and the
average cost of an activity to determine if it is worthwhile to undertake that
activity.
Scenario 1-1 Suppose a cell-phone manufacturer
currently sells 20,000 cell-phones per week and makes a profit of $5,000 per
week. A manager at the plant observes, “Although the last 3,000 cell phones we
produced and sold increased our revenue by $6,000 and our costs by $6,700, we
are still making an overall profit of $5,000 per week so I think we’re on the
right track. We are producing the optimal number of cell phones.”
6) Refer to Scenario 1-1. Using marginal
analysis terminology, what is another economic term for the incremental revenue
received from the sale of the last 3,000 cell phones?
a. gross profit
b. marginal revenue
c. gross earnings
d. sales revenue
7) Automobile manufacturers produce a range of
automobiles such as sports utility vehicles, luxury sedans, pickup trucks and
compact cars. What fundamental econom- ic question are they addressing by
making this range of products?
a. How to produce goods that consumers want?
b. What goods and services will be produced?
c. Who to produce automobiles for?
d. Why produce a variety of automobiles?
8) Which of the following contributes to the efficiency
of markets?
a. Markets promote equal standards of living.
b. Markets promote competition and voluntary
exchange.
c. Governments play an active role in the
day-to-day operations of markets.
d. Markets are able to bring about an
equitable distribution of goods and services
9) Refer to Figure 1-4. Which of the following
statements is true?
a. The slope of the tangent at E is positive
and the slope of the tangent at F is negative.
b. The slope of the tangent at E and the slope
of the tangent at F are negative.
c. The slope of the tangent at E is negative
and the slope of the tangent at F is positive.
d. The slope of the tangent at E and the slope
of the tangent at F are positive.
10) The production possibilities frontier
model assumes all of the following except
a. the economy produces only two products.
b. the level of technology is fixed and
unchanging.
c. labor, capital, land and natural resources
are fixed in quantity.
d. production of goods requires full
employment of all resources.
Figure 2-2 above shows the production
possibilities frontier for Mendonca, an agrarian na- tion that produces two
goods, meat and vegetables
11) Refer to Figure 2-2. The linear production
possibilities frontier in the figure indicates that
a. the tradeoff between meat and vegetables is
constant.
b. Mendonca has a comparative advantage in the
production of vegetables.
c. it is progressively more expensive to
produce meat.
d. Mendonca has a comparative disadvantage in
the production of meat
Table 2-3 shows the number of labor hours
required to produce a digital camera and a pound of wheat in China and South
Korea.
12) Refer to Table 2-3. What is South Korea’s
opportunity cost of producing one pound of wheat?
a. 20 digital cameras
b. 0.05 units of a digital camera
c. 60 digital cameras
d. 5 digital cameras
13) Which of the following are flows in the
circular flow model?
a. the flow of income earned by factors of
production and the flow of expenditures on goods and services
b. the flow of goods and the flow of services
c. the flow of costs and the flow of revenue
d. the flow of income received by households
and the flow of tax revenues paid by house- holds
14. Which of the following statements about a
simple circular flow model is true?
a. Producers are neither buyers nor sellers in
the product market.
b. Households are sellers in the product
market.
c. Producers are buyers in the factor market.
d. Households are neither buyers nor sellers
in the factor market.
15) The term “property rights” refers to
a. the ability to exercise control over one’s
own resources within the confines of the law.
b. the government’s right to appropriate land
from wealthy individuals to redistribute to low income families.
c. the physical possession of a house or any
other property which the owner legally pur- chased.
d. the right of a business not to have its
assets confiscated by the government in the event that the business is accused
of committing fraud.
16) Refer to Table 3-1. The table above shows
the demand schedules for loose-leaf tee of two individuals (Sunil and Mia) and
the rest of the market. If the price of loose-leaf tea rises from $3 to $4 the
market quantity demanded would
a. decrease by 32 pounds.
b. decrease by 64 pounds.
c. increase by 64 pounds.
d. increase by 32 pounds.
17) If a firm expects that the price of its
product to be higher in the future than it is today
a. the firm has an incentive to decrease
supply now and increase supply in the future.
b. the firm has an incentive to decrease
quantity supplied now and increase quantity supplied in the future.
c. the firm will go out of business.
d. the firm has an incentive to increase
supply now and decrease supply in the future.
18) Which of the following is the correct way
to describe equilibrium in a market?
a. At equilibrium, demand equals supply.
b. At equilibrium, quantity demanded equals
quantity supplied.
c. At equilibrium, scarcity is eliminated.
d. At equilibrium, market forces no longer
apply.
19) Refer to Figure 3-4. The figure represents
the market for canvas tote bags. Assume that the price of tote bags is $15. At
this price:
a. the quantity demanded exceeds the quantity
supplied of tote bags by 75. The price will eventually rise to $25 where
quantity demanded will equal quantity supplied.
b. there is a shortage, equal to 55 tote bags;
the price of tote bags will rise until demand is equal to supply.
c. the demand exceeds the supply of tote bags
by 55. Some consumers will have an incentive to offer to buy tote bags at a
higher price.
d. there is a shortage, equal to 55 tote bags,
that will be eliminated when the price rises to $25.
20) Which of the following would cause the
equilibrium price of white bread to decrease and the equilibrium quantity of
white bread to increase?
a. a decrease in the price of flour
b. an increase in the price of butter, a
complement for white bread
c. an increase in the price of rye bread, a
substitute for white bread
d. an increase in the price of flour
21) Refer to Figure 4-6. What is the area that
represents the producer surplus after the imposition of the ceiling?
a. F + G
b. F
c. A + B+ D+ F + G
d. D +F +G
22) Which term refers to a legally determined
minimum price that sellers may receive?
a. A subsidy.
b. A tariff.
c. A price floor.
d. A price ceiling.
23) A positive externality causes
a. the marginal social benefit to be equal to
the marginal private cost of the last unit produced.
b. the marginal social benefit to exceed the
marginal private cost of the last unit pro- duced.
c. the marginal social benefit to be less than
the marginal private cost of the last unit produced.
d. the marginal private benefit to exceed the
marginal social cost of the last unit pro- duced.
Companies producing toilet paper bleach the
paper to make it white. The bleach is dis- charged into rivers and lakes and
causes substantial environmental damage. Figure 4-15 illustrates this situation
in the toilet paper market.
24) Refer to Figure 4-15. An efficient way to
get the firm to produce the socially optimal output level is a. to assign
property rights to the firms in the industry.
b. to impose a tax to make the industry bear
the external costs it creates.
c. to grant a subsidy to enable the industry
to internalize the external costs of produc- tion.
d. for government to set a quota on the
quantity of toilet paper that the toilet paper industry can produce.
25) What is the rationale behind a tradable
emissions allowance scheme?
a. to create a market for externalities: the
scheme brings together buyers and sellers of marketable permits
b. to raise revenue for the government through
the sale of emission permits and at the same time set an emissions target
c. to provide firms with the incentive to
consider less costly alternatives to pollution reduction by making firms pay
for the right to pollute beyond their specified allowance
d. to discipline polluting firms by specifying
the maximum amount of emissions allowed and giving them permits to pollute up
to their allowance
1) What type of business is the easiest to set
up? a. a partnership b. a sole proprietorship c. a corporation d. all types of
business require the same amount of effort and expense.
2) Which type of business has the most
government rules and regulations affecting it? a. a corporation b. a
partnership c. a sole proprietorship d. All types of business have the same set
of rules and regulations.
3) Who controls a sole proprietorship? a.
bondholders b. the sole proprietor c. stockholders d. All of above
4) Jeremy is thinking of starting up a small
business selling NASCAR memorabilia. He is considering setting up his business
as a sole proprietorship. What is one advantage to Jeremy of setting up his
business as a sole proprietorship? a. As a sole proprietor, Jeremy would face
limited liability. b. As a sole proprietor, Jeremy would have both ownership
and control over the business. c. As a sole proprietor, Jeremy would have the
ability to share risk with shareholders. d. All of the above would be
advantages of setting up his business as a sole proprietor- ship.
5) Which of the following is not an advantage
of starting a new business as a corpora- tion? a. separation of ownership and
business liability b. ability to share risks c. possibility of double taxation
d. enhanced ability to raise funds
6) Who operates and controls a corporation in
its day-to-day activities? a. the employees b. the board of directors c. the
corporation’s management d. the stockholders
7) What do economists call a situation where a
hired manager does not have the same interests as the owners of a business? a.
a financial intermediary problem b. the financial problem c. conquest and
control d. a principal-agent problem
8) Which of the following does not take place
in the direct finance market? a. Corporate bonds are sold to savers. b.
Deposits from savers are accumulated and loans made to borrowers. c. Ownership
in corporations is sold in the form of common stock. d. Ownership in
corporations is sold in the form of preferred stock.
9) If a corporation earns a profit, how do
owners of the firm share in the profit? a. by raising the interest rate on bonds
b. dividend payments on shares of that firm’s stock c. coupon payments on that
firm’s bonds d. by selling any bonds or stocks owned and realizing a capital
gain
10) If a corporation retains all its profits
and distributes none of the profit to owners, how can owners benefit? a. If the
retained earnings are expected to create future profits, the market price of
the firm’s stock will increase and create a capital gain for stockholders if
the stock is sold. b. Owners will only benefit if some profits are paid out in
the form of dividends. c. Shares of stock can be converted into bonds so
stockholders will be able to earn cou- pon payments. d. The owners’ federal
income tax liability is reduced by their share of the corporation’s retained
earnings.
11) David Myers, former controller for
WorldCom, pleaded guilty to falsely reported costs for WorldCom that were
________ than they actually were, resulting in reported ac- counting profits
for WorldCom that were ________ than their actual level. a. higher; higher b.
higher; lower c. lower; lower d. lower; higher
12) Most people would prefer to drive a luxury
car that has all the options, but more people buy less expensive cars even
though they could afford the luxury car because
a. b. c. d. car buyers are irrational. the
marginal utility per dollar spent on the less expensive car is higher than that
spent on luxury cars. the total utility of less expensive cars is greater than
that of luxury cars. luxury cars cost a lot more than non-luxury cars.
13) Refer to Table 6-2. What is Keira’s
marginal utility per dollar spent on the third cup of soup? a. 72 units of
utility b. 36 units of utility c. 6 units of utility d. 12 units of utility
14) Firms pay famous individuals to endorse
their products because a. the firms are irrational and are wasting advertising
expenditures. b. famous people obviously know what are the best goods and
services. c. famous people only consume high quality products. d. apparently
demand is affected not just by the number of people who use a product but also
by the type of person that uses the product.
15) If 20 units of a good are sold at a price
of $50 and 30 units are sold at a price of $40, what is the absolute value of
the price elasticity of demand? Use the midpoint formula. a. 1. b. 0.56. c. 2.5
d. 1.8.
16) At a price of $100, Beachside Canoe
Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes
were rented. Calculate the absolute value of the price elasticity of demand for
canoe rentals, using the midpoint formula. a. 0.75 b. 0.9 c. 2 d. 1.25
17) A demand curve that is horizontal
indicates that the commodity a. is a necessity. b. must be very cheap. c. has a
large number of substitutes. d. has few substitutes.
18) With the increased usage of cell-phone
services, what has happened to the price elasticity of demand for land-line
telephone services? a. It has become more elastic. b. It has become more a
luxury. c. It has become unit-elastic. d. It has become more inelastic.
19) Suppose the absolute value of the price
elasticity of demand for meals at Fortune Buffet House is ∞. What happens to
sales revenue if the restaurant increases its price by 5 percent? a. Sales
revenue falls by less than 5 percent. b. Sales revenue remains unchanged. c.
Sales revenue cannot be determined without information on prices. d. Sales
revenue falls to zero.
20) A characteristic of the long run is a.
plant capacity cannot be increased or decreased. b. all inputs can be varied.
c. there are both fixed and variable inputs d. there are fixed inputs.
21) Refer to Figure 7-1. The average product
of the 4th worker a. is 68. b. is 11. c. is 17. d. cannot be determined.
22) Average total cost is equal to a. total
cost divided by the number of workers. b. marginal cost plus variable cost. c.
average fixed cost minus average variable cost. d. total cost divided by the
quantity of output produced.
23) Adam spent $10,000 on new equipment for
his small business, “Adam’s Fitness Studio.” Membership at his fitness center
is very low and at this rate, Adam needs an additional $12,000 per year to keep
his studio open. Which of the following is true? a. The variable cost of
running the studio is $22,000. b. The fixed cost of running the studio is
$22,000. c. The $10,000 Adam spent on equipment is the total cost of starting
the business and the $12,000 he’ll need to continue operations is a marginal
cost. d. The $10,000 Adam spent on equipment is a fixed cost of business and
the $12,000 he’ll need to continue operations is a variable cost.
24) Long run average cost curves are U-shaped
because a. of the law of diminishing returns. b. of the law of demand. c. of
economies and diseconomies of scale. d. of the law of supply.
25) Manufacturers of flat-panel televisions
expect continued rapid increases in the de- mand for their products. In
response to this forecast, manufacturers are building increasingly larger
plants. At the same time, they expect to sell flat-panel televisions at lower
prices. Which of the following must be true if manufacturers plan to lower
prices and yet expect to cover the average cost of production in their larger
plants? a. They expect that the demand for flat-panels televisions is
relatively elastic and there- fore lowering prices will lead to an increase in
total revenue which will comfortably cover the cost of production. b. The cost
of building a larger plant must be lower than the cost of building smaller
plants. c. Larger plants are more efficient than smaller plants because the
bulk of the cost of production is fixed costs. d. They expect that economies of
scale will make the cost of production in the larger plants lower than the cost
of production in the smaller plants.
1) “Between 1997 and 2001, many apple farmers
switched from traditional to organic growing methods, increasing production of organically
grown apples from 1.2 million boxes per year to more than 3 million boxes.” If
the market for organic apples is per- fectly competitive, which of the
following statements is inconsistent with the state- ment above? a. Organic
apple farmers earned short-run economic profits between 1997 and 2001. b. The
price of organic apples is likely to rise over time as more and more farmers
switch to organic methods of farming. c. The additional supply of organic
apples resulted in a lower price for organic apples. d. It is relatively easy
to enter the organic apples market.
2) Refer to Table 8-1. If the market price of
each camera case is $8 what is the firm’s total revenue? a. $2,400 b. $3,200 c.
$4000 d. $4,800
3) Refer to Figure 8-2. Suppose the firm is currently
producing Q2 units. What happens if it expands output to Q3 units?
It will be moving toward its profit-maximizing
output. It makes less profit. It incurs a loss. Its profit increases by the
size of the vertical distance df.
4) For a perfectly competitive firm, which of
the following is not true at profit maximiza- tion?
5) A firm’s total profit can be calculated as
all of the following except
6) Refer to Figure 8-4. If the market price is
$30, should the firm represented in the diagram continue to stay in business?
a. Yes, because it is covering part of its fixed cost. b. No, it should shut
down because it cannot cover its variable cost. c. Yes, because it is making a
profit. d. No, it should shut down because it is making a loss.
7) If, for a given output level, a perfectly
competitive firm’s price is less than its average variable cost, the firm a.
should increase output. b. should shut down. c. should increase price. d. is
earning a profit.
8) Refer to Figure 9-7. The firm would
maximize profit by producing a. Q1 units. b. Q2 units. c. Q3 units. d. Q4
units.
9) Refer to Figure 9-1. If the firm’s average
total cost curve is ATC3 the firm will a. break even. b. make a profit. c.
suffer a loss. d. face competition.
10) Refer to Table 9-1. What is the marginal
revenue from the sale of the third unit? a. -$5 b. $160 c. $120 d. $80
11) Refer to Figure 9-3. What is the
monopoly’s profit? a. $2,700 b. $12,600 c. $10,400 d. $4,200
12) A market economy benefits from market
power a. under no circumstances. b. if the majority of the population are
entrepreneurs. c. if firms with market power do research and development with
the profits earned. d. if market power gets so bad the government creates
public enterprises.
13) Economic efficiency requires that a natural
monopoly’s price be a. equal to the lowest price the firm can charge and still
make a normal profit. b. equal to average variable cost (AVC) where the AVC
curve intersects the demand curve. c. equal to average total cost (ATC) where
the ATC curve intersects the demand curve. d. equal to marginal cost (MC) where
the MC curve intersects the demand curve
14) If a firm faces a downward-sloping demand
curve a. it will always make a profit. b. it can control both price and
quantity sold. c. it must reduce its price to sell more output. d. the demand
for its product must be inelastic.
15) A monopolistically competitive firm will
a. have some control over its price because its product is differentiated. b.
always produce at the minimum efficient scale of production. c. charge the same
price as its competitors do. d. produce an output level that is productively
and allocatively efficient
16) Refer to Table 10-1. The table shows a. an
inelastic segment of the demand curve. b. a demand curve with an elastic
segment of the demand curve from $7.50 to $6.50 followed by an inelastic
segment. c. an elastic segment of the demand curve. d. a demand curve with an
inelastic segment of the demand curve from $7.50 to $6.50 followed by an
elastic segment.
17) Refer to Figure 10-3. What area represents
the total variable cost of production? a. 0P0aQa b. P0abP1 c. P1bdP3 d. 0P1bQa
18) Refer to Figure 10-7. If the diagram
represents a typical firm in the designer watch market, what is likely to
happen in the long run? a. Some firms will exit the market causing demand to
increase for firms remaining in the market. b. Inefficient firms will exit the
market and new cost efficient firms will enter the market. c. The firms that
are making losses will be purchased by their more successful rivals. d. Firms
will have to raise their prices to cover costs of production.
19) Suppose in 2006 you purchased a house
built in 2000. Which of the following would be included in gross domestic
product for 2006? a. The value of the house in 2006 minus depreciation b. The
value of the house in 2000 c. The value of the services of the real estate
agent d. The value of the house in 2006
Scenario 11-1 CANOES-R-US makes canoes. It
buys the shell of the canoe from another firm for $300 and uses its labor and
intermediate goods to make the canoe. It sells the finished canoe to a retail
canoe store for $800. The retail canoe store then sells the canoe to a consumer
for $1,200.
20) Refer to Scenario 11-1. The value of each
canoe in gross domestic product equals a. $400. b. $800. c. $1,200. d. $500.
21) Suppose Bob works for Mary as a
proofreader. Mary and Bob fall deeply in love, marry and have eight children.
Bob stops working for Mary in order to care for the children. What will be the
effect on GDP? a. GDP will not change. b. GDP will decrease. c. GDP will
increase. d. GDP may increase or may decrease depending on inflation
22) Disposable personal income equals personal
income a. minus government transfer payments plus personal tax payments. b.
plus government transfer payments. c. minus personal tax payments plus
government transfer payments. d. minus personal tax payments.
23) The Bureau of Labor Statistics would
categorize a retiree who is not working as ________. a. a discouraged worker b.
unemployed c. employed d. out of the labor force
24) Refer to Table 12-1. The labor force
participation rate for this simple economy equals a. (1,000/1,100) x 100. b.
(1,100/15,000) x 100. c. (1,100/20,000) x 100. d. (1,000/15,000) x 100.
25) Suppose that at the beginning of a loan
contract the real interest rate is 4% and expected inflation is 6%. If actual
inflation turns out to be 7% over the loan contract period, then a. lenders
gain 3%. b. borrowers lose 3%. c. borrowers gain 1%. d. lenders gain 1%.
1) Refer to Table 13-1. Calculate the average
annual growth rate from 2002 to 2005. a. 3% b. 1% c. 2% d. 1.5%
2) What two factors are the keys to
determining labor productivity? a. the average level of education of the
workforce and the price level b. the business cycle and the growth rate of real
GDP c. technology and the quantity of capital per hour worked d. the growth
rate of real GDP and the interest rate
3) Long-run economic growth requires all of
the following except a. technological change. b. government provision of secure
property rights. c. increases in capital per hour worked. d. political
instability.
4) Which of the following is most liquid? a. a
dollar bill b. a government bond c. a corporate bond d. a mutual fund share
5) Financial securities that represent
promises to repay a fixed amount of funds are known as a. stocks. b. insurance
premiums. c. pension funds. d. bonds.
6) In a closed economy, public saving is equal
to which of the following? (Y = GDP, C = Consumption, G = Government purchases,
T = Taxes, and TR = Transfers)
7) Refer to Scenario 13-1. Based on the
information above, what is the level of public saving?
8) What is investment in a closed economy if
you have the following economic data?
9) If Ebenezer Scrooge spends rather than
saves his vast wealth he will
10) Refer to Figure 13-1. Which of the
following is consistent with the graph depicted above? a. Technological change
increases the profitability of new investment. b. The government runs a budget
surplus. c. Households become spendthrifts and begin to save less. d. An
expected recession decreases the profitability of new investment.
11) Which of the following would encourage
economic growth through increases in the capital stock? a. an increase in
household savings b. a change from an income tax to a consumption tax c. a
decrease in the government deficit d. all of the above
12) During the expansion phase of the business
cycle, which of the following eventually increases? a. employment b. income c.
production d. all of the above
13) From 1991 until 2001 the United States was
in a period of
14) As the economy nears the end of a
recession, which of the following do we typically see? a. increased spending on
capital goods by firms b. increasing interest rates c. further decreases in
consumer spending d. all of the above
15) When the economy enters a recessionary
phase of the business cycle, unemployment tends to a. increase. b. decrease. c.
be unchanged. d. change in the same direction as the rate of inflation.
16) Since 1950, expansions in the United
States have become ________, while reces- sions have become ________. a.
shorter; longer b. longer; shorter c. shorter; shorter d. longer; longer
17) The aggregate demand curve shows the
relationship between the ________ and ________. a. real interest rate: quantity
of real GDP supplied b. nominal interest rate; quantity of real GDP demanded c.
inflation rate; quantity of real GDP demanded d. price level; quantity of real
GDP demanded
18) Which of the following best describes the
“wealth effect”? a. When the price level falls, the nominal value of household
wealth rises. b. When the price level falls, the real value of household wealth
rises. c. When the price level falls, the real value of household wealth falls.
d. When the price level falls, the nominal value of household wealth falls
19) Potential GDP is also referred to as a.
politico-economic GDP. b. balanced-budget GDP. c. full-employment GDP. d.
realized GDP.
20) The short-run aggregate supply curve has a
a. negative slope. b. slope equal to zero. c. slope equal to infinity. d.
positive slope.
21) If workers leave a country to seek out
better opportunities in another country, then this will a. shift the short-run
aggregate supply curve of the original country to the right. b. shift the
short-run aggregate supply curve of the original country to the left. c. move
the original economy down along a stationary short-run aggregate supply curve.
d. move the original economy up along a stationary short-run aggregate supply
curve.
22) Workers expect inflation to rise from 3%
to 5% next year. As a result this should a. move the economy up along a
stationary short-run aggregate supply curve. b. move the economy down along a
stationary short-run aggregate supply curve. c. shift the short-run aggregate
supply curve to the right. d. shift the short-run aggregate supply curve to the
left.
23) Which of the following correctly describes
the automatic mechanism through which the economy adjusts to long-run
equilibrium? a. the leftward shift in short-run aggregate supply that occurs
after a recession b. the rightward shift in short-run aggregate supply that
occurs after a recession c. the rightward shift in aggregate demand that occurs
after a recession d. the leftward shift in aggregate demand that occurs after a
recession
24) Suppose the economy is at full employment
and firms become more optimistic about the future profitability of new
investment. Which of the following will happen in the short run? a. Aggregate
demand will shift to the left. b. Output will decline. c. Unemployment will
decline. d. Prices will decline.
25) Which of the following can explain why
there is an increase in potential GDP but the equilibrium level of GDP does not
rise? a. AD shifted to the right by less than SRAS. b. SRAS shifted to the
right by more than LRAS. c. SRAS and AD do not shift. d. AD shifted to the
right by more than SRAS.
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