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What are the three phases of the inflation-unemployment cycle?

Select one:
a. The expansionary phase, the full-employment phase, and the contractionary phase
b. The Phillips phase, the stagflation phase, and the growth phase
c. The Phillips phase, the stagflation phase, and the recovery phase
d. The expansionary phase, the stagflation phase, and the recovery phase

The principle stating that, for virtually all goods and services, there is a negative relationship
between price and quantity demanded, all other things unchanged, is the law of:
Select one:
a. supply.
b. demand.
c. scarcity.
d. increasing opportunity costs.

The economy’s potential output corresponds to the level of


Select one:
a. natural employment.
b. frictional unemployment.
c. structural unemployment.
d. cyclical unemployment.

The study of how people choose among the alternatives available to them is the:
Select one:
a. definition of economics.
b. model of demand.
c. theory of opportunity costs.
d. method of distinguishing between microeconomics and macroeconomics.

An economic system is the set of rules that define _______ and _______ .
Select one:
a. resources; prices
b. who gets to vote; when elections will be held
c. market prices; factors of production
d. how an economy's resources are to be owned; how decisions about the resources are to be
made

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will
Select one:
a. increase interest rates and increase exchange rates.
b. increase interest rates and decrease exchange rates.
c. decrease interest rates and increase exchange rates.
d. decrease interest rates and decrease exchange rates.

Consider a bakery that buys flour to bake cakes. Which of the following statements is true?
Select one:
a. The value of the cake and the flour used to make the cake are counted as part of GDP.
b. Only the value of the cake is counted in GDP.
c. Only the value of the flour used to make the cake is counted in GDP.
d. Only the difference between the value of the cake and the value of the flour is counted in
GDP.

Any item that serves as a medium of exchange is called


Select one:
a. gold.
b. capital.
c. silver.
d. money.

According to Marx, the value of a commodity is determined:


Select one:
a. exclusively by the labor required to produce it.
b. exclusively by capitalists.
c. exclusively by its demand.
d. by both labor and demand.

Economic data that are adjusted for price-level changes are said to be expressed in terms of:
Select one:
a. indexed dollars.
b. deflated dollars.
c. nominal dollars.
d. real dollars.

Potential output is
Select one:
a. the level of real GDP that exists when the economy is experiencing only cyclical and
structural unemployment.
b. the level of real GDP that exists when the quantity of labor supplied is equal to the
quantity of labor demanded.
c. the level of real GDP that exists when the actual rate of unemployment is zero.
d. the level of real GDP that exists when the economy is experiencing only frictional and
cyclical unemployment.

A negative relationship between the quantity demanded and price is called the law of ______.
Select one:
a. demand
b. diminishing marginal returns
c. market clearing
d. supply

Economists define economic growth as


Select one:
a. changes in real GDP from year to year that occur as aggregate demand and short-run
aggregate supply change.
b. an increase in the standard of living of a nation.
c. an increase in nominal GDP combined with price stability.
d. the process through which the economy’s potential output is increased.

The government has a balanced budget if


Select one:
a. its total revenues are equal to its total expenditures.
b. its total revenues are less than its total expenditures.
c. its total revenues are greater than its total expenditures.
d. the money supply is less than total expenditures.

The monetary policy tool that involves the buying and selling of government bonds is
Select one:
a. moral suasion.
b. reserve requirements.
c. the discount rate.
d. open-market operations.

According to the textbook, economics is a:


Select one:
a. social science.
b. study of business decisions, not social decisions.
c. part of operations and management science.
d. part of humanities.

John Maynard Keynes argued that _______


Select one:
a. flexibility in wages and prices could block adjustments to full employment.
b. stickiness in wages and prices could block adjustments to full employment.
c. wage and price rigidities were caused by producer and consumer expectations about future
prices.
d. wage and price rigidities could be eliminated by government wage and price setting.

Economics, generally speaking, is primarily concerned with:


Select one:
a. the operation of the bond and stock markets.
b. the issues of income inequality or income equality.
c. how people choose among the alternatives available to them.
d. ceteris paribus, the scientific method, and the margin.

The labor theory of value holds that the value of goods ultimately depends on the:
Select one:
a. demand and supply of labor translated into prices.
b. relative amount of labor used in their production.
c. monopoly prices set for them by monopolists.
d. labor being used in the market place, but value must also be a result of the interaction of
demand and supply in the long run.

In the market for personal computers and in the stock market:


Select one:
a. supply and demand shifts change prices and quantities.
b. persistent shortages and surpluses rarely exist.
c. in response to shifts in demand and supply, equilibrium is restored quickly.
d. all of the above are true.

Which of the following statements is true?


Select one:
a. The lower the price of a bond, relative to its face value, the lower the interest rate.
b. The lower the price of a bond, relative to its maturity, the lower the interest rate.
c. The higher the price of a bond, relative to its face value, the higher the interest rate.
d. The lower the price of a bond, relative to its face value, the higher the interest rate.
A firm owned by one individual is called a:
Select one:
a. corporation.
b. partnership.
c. sole proprietorship.
d. none of the above.

If the Fed purchases federal government bonds on the open market, bank reserves will
Select one:
a. decrease leading to a decrease in the money supply.
b. increase leading to a decrease in the money supply.
c. increase leading to an increase in the money supply.
d. decrease leading to an increase in the money supply.

The bulk of federal receipts come from


Select one:
a. property taxes and personal income tax.
b. personal income tax and from payroll taxes.
c. corporate income taxes and personal income tax.
d. personal income tax and property taxes.

_______ Of the following, which statistic do economists use to measure the business cycle?
Select one:
a. Changes in the inflation rate
b. Changes in real gross domestic product
c. Changes in the value of imports
d. Changes in the implicit price deflator

Suppose a bookstore has 500 copies of a new, unsold Economics textbook. This
Select one:
a. is treated as an increase in the bookstore’s inventories and will decrease the store’s gross
private domestic investment.
b. is treated as an increase in the bookstore’s inventories and will increase the store’s gross
private domestic investment.
c. is treated as an increase in the “intermediate goods” category of gross private domestic
investment.
d. will not affect gross private domestic investment or consumption until the books are sold.
Which of the following is true about low-income countries?
Select one:
a. They face high levels of potential output, largely because of the size of their population.
b. They tend to have low levels of potential output and are producing well below their
potential.
c. They face high levels of potential output, but tend to produce well below their potential
because of high illiteracy rates.
d. They face high levels of potential output, but tend to produce well below their potential
because of political instability.

What is a quota?
Select one:
a. A restriction on exports
b. A unit tax imposed on a product
c. A ceiling on the amount of a good or service that can be exported
d. A ceiling on the amount of a good or service that can be imported

Taxes assessed on firms and employees on wages and salaries earned are called
Select one:
a. dividend taxes.
b. payroll taxes.
c. corporate profits taxes.
d. earned income taxes.

To facilitate an international comparison of standards of living, the World Bank compares


incomes and converts currencies to dollars on the basis of purchasing power. This measure is
reported in
Select one:
a. U.S. dollars.
b. a trade-weighted dollar.
c. international dollars.
d. real U.S. dollars, that is, adjusted for inflation.

Demand is best defined as the:


Select one:
a. amount of a commodity that buyers would be willing and able to purchase at a specific
price.
b. price that buyers would be willing and able to pay for a specific quantity of a good.
c. relationship between the price of a good and the quantity people are able to purchase, all
other things unchanged.
d. relationship between the price of a good and the quantity people are willing and able to
purchase, all other things unchanged.

The basic concern of economics is to:


Select one:
a. keep business firms from losing money.
b. prove that capitalism is better than socialism.
c. study the choices people make.
d. use unlimited resources to produce goods and services to satisfy limited wants.

State and local tax receipts are dominated by


Select one:
a. property taxes and state income taxes.
b. state income taxes and sales taxes.
c. property taxes and sales taxes.
d. sales taxes and business taxes.

The gross domestic product of a nation can be measured:


Select one:
a. as the total value of consumer expenditures on goods and services.
b. as the total value of income generated in producing total output.
c. as the total cost of producing of that output excluding profit
d. as the total value of inputs used to produce a nation’s output.

The marginal propensity to consume is the


Select one:
a. slope of the saving function.
b. slope of the consumption function.
c. proportion of disposable personal income used for consumption.
d. change in consumption divided by the change in saving.

Approximately what percentage of families in the U.S. own homes?


Select one:
a. 10%
b. 25%
c. 50%
d. 67%
In the personal computer industry, the reason for the fall in prices and the increase in quantity
after 1980 was:
Select one:
a. mainly a function of resource prices.
b. primarily due to technological change and an increase in the number of sellers.
c. a result of a dramatic decrease in U.S. wages.
d. a result of a dramatic decrease in foreign wages.

Which of the following is an example of a quota?


Select one:
a. Limit on the total number of Hondas that can be imported from Japan
b. Regulation specifying that each imported Honda must meet certain emission exhaust
guidelines
c. Tax of $500 on each Honda imported from Japan
d. Tax of 10% of the value of each Honda imported from Japan

Factors of production are:


Select one:
a. the resources the economy has available to produce goods and services.
b. generally unlimited in modern economies.
c. always employed in modern economies.
d. the knowledge that can be applied to the production of goods and services.

An important distinction between the classical and Keynesian view of the economy is that
Select one:
a. Keynes stressed the supply side of an economy while classical economists stressed the
demand side of the economy.
b. classical economists argued that output gaps were caused by shifts in the long-run
aggregate supply while Keynes’ maintained that output gaps were created by shifts in aggregate
demand.
c. Keynes stressed the demand side of an economy while classical economists stressed the
supply side of the economy.
d. classical economists argued that output gaps were caused by shifts in the long-run
aggregate supply while Keynes’ maintained that output gaps were created by wage and price
rigidities.

The three broad types of factors of production are:


Select one:
a. capital, labor, and natural resources.
b. money, profit, and interest.
c. stocks, bonds, and financial assets.
d. technology, human capital, and comparative advantage.

You spend $20 to buy a used textbook at the college bookstore. What function does money
perform here?
Select one:
a. medium of exchange
b. store of value
c. unit of account
d. standard of deferred payment

To facilitate an international comparison of standards of living, the World Bank


Select one:
a. uses a weighted index of exchange rates to convert local currency.
b. converts currencies to dollars on the basis of purchasing power.
c. assigns more weight to agricultural production than to manufacturing since most low-
income countries tend to be agrarian economies.
d. converts currencies to U.S. dollars using an exchange rate, averaged over a three-year
period in order to smooth out the effects of currency fluctuations,

When economists study the behavior of buyers, they are studying:


Select one:
a. supply.
b. the role of government.
c. demand.
d. psychology.

Which of the following is not included under gross private domestic investment?
Select one:
a. Construction of a new office building
b. Purchase of a new computer by an accounting firm
c. Scientific research undertaken by a biomedical engineering firm
d. Construction of a new private suburban home

The total value of all final goods and services produced in a country during a given period,
adjusted to eliminate the effects of changes in prices is called:
Select one:
a. nominal GDP.
b. current GDP.
c. real GDP.
d. average GDP.

Economic growth is defined as


Select one:
a. growth in nominal gross domestic product over time.
b. the process by which a country’s potential output grows over time.
c. the process by which scarcity is eliminated over time.
d. growth in money supply over time.

Which of the following items is part of gross private domestic investment?


Select one:
a. Non-residential structures such a new shopping mall
b. Furniture purchased by a young couple for their new home
c. Purchase of a used automobile
d. Purchase of Oracle’s stock

According to Marx, surplus value is produced by:


Select one:
a. skilled workers only.
b. unskilled workers only.
c. all workers.
d. capitalists.

When we are forced to make choices we are facing the concept of:
Select one:
a. ceteris paribus.
b. free goods.
c. scarcity.
d. the margin.