Econ 125 HK2 ALL

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ECON 125 Exam 3
Question: Q33. Each Federal Reserve Bank
Correct Answer: b. is controlled by its own Board of Governors
Given Answer: a. is directly responsible to the U.S. President
Question: Q34. Changing the discount rate
Correct Answer: a. provides a signal that the Fed wants to encourage an expansion or contraction
of the money supply
Given Answer: b. is usually done in large increments in order to have a rapid impact on business
activity
Question: Q38. If planned investment decreases, the multiplier will decrease the equilibrium
income.
Correct Answer: a. true
Given Answer: b. false
Question: Q39. The classical doctrine assumed that the normal equilibrium position for the
economy was at full employment.
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ECON 125 Exam 5
Question: Q38. If the price of 1 peso in dollars is 10 cents, the price of 1 dollar in pesos is
Correct Answer: a. 10 pesos
Given Answer: d. 100 pesos
Question: Q40. Under the gold standard, a country with a trade deficit should expect
Correct Answer: a. gold to flow out of the country to other countries
Given Answer: b. gold to flow into the country to other countries
Question: Q42. If domestic income is rising,
Correct Answer: c. imports will increase

Given Answer: b. demand for foreign currency will fall
Question: Q43. The Bretton Woods system included the idea of fixed exchange rates.
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ECON 125 Midterm Exam
Question: Q19. A change in demand would be illustrated by

Correct Answer: c. a change in people?s preferences that causes them to buy either more or less
than before
Given Answer: a. a drop in price, which causes people to buy more
Question: Q22. An increase in the number of consumers, all else held constant, will shift the
Correct Answer: d. demand curve to the right
Given Answer: b. demand curve leftward
Question: Q26. As units of input are added to the production process, the marginal product
Correct Answer: b. at first increases, then eventually decreases
Given Answer: a. increases throughout
Question: Q27. Which of the following is the best example of variable cost?
Correct Answer: c. wages
Given Answer: b. property taxes
Question: Q37. The individual supply of a monopolist
Correct Answer: d. coincides with the market supply curve
Given Answer: a. coincides with the market demand curve
Question: Q41. The oligopolist?s dilemma is similar to the
Correct Answer: c. prisoner?s dilemma
Given Answer: a. dilemma that firms in perfect competition face in setting price
Question: Q45. Foreign outsourcing refers to the
Correct Answer: a. exporting of domestic jobs
Given Answer: b. exporting of domestic goods

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ECON 125 Final Exam
Question: Q6. Labor market discrimination refers to
Correct Answer: c. differing economic opportunities based on personal characteristics
Given Answer: a. differing economic opportunities offered to persons according to their

productivity
Question: Q27. Suppose that the Consumer Price Index increased from 100 to 120 between 2015
and 2016. Your nominal wages rose during the same period from $200 a week to $260. By how
much did your real income rise?
Correct Answer: c. 8. 33 percent
Given Answer: a. 30 percent
Question: Q30. If the CPI is 150, the value of the dollar now compared to in the base period is
Correct Answer: c. $0. 67
Given Answer: a. $1. 50
Question: Q34. Assume a reserve requirement of 10 percent. A commercial bank has total
reserves of $100,000, excess reserves of $25,000, and total checkable deposits outstanding of
$750,000. If the reserve requirement were increased to 15 percent,
Correct Answer: d. the bank would be $12,500 short of required reserves
Given Answer: b. excess reserves would be decreased to $12,500
Question: Q46. If domestic income is rising,
Correct Answer: c. imports will increase
Given Answer: d. imports will decrease
Question: Q48. Foreign citizens have been increasing their ownership of U. S. assets. This
contributes to a U. S.
Correct Answer: d. surplus on financial account
Given Answer: b. deficit on financial account

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ECON 125 Exam 3
Question: Q12. National income accountants eliminate double counting of intermediate goods by
using only the value of final goods.
Question: Q13. According to the equation of exchange, if total output is 2,000 units, the velocity
of money is 5, and the money supply is $1,000, the average price per transaction will be
Correct Answer: b. $2.50
Given Answer: d. $7.50

Question: Q20. COLA is a form of indexation.
Question: Q26. If the Fed desires to increase checkable deposits, it may lower the reserve
requirement.
Question: Q30. Monetarists argue that the Fed reduces fluctuations in economic activity and the
price level.
Correct Answer: b. false
Given Answer: a. true
Question: Q39. Classical economists believed that
Correct Answer: b. occasional problems of unemployment could occur but would be quickly
eliminated by the system of self-regulating markets
Given Answer: d. the economy had several possible equilibrium output levels
Question: Q42. In the Keynesian model, the 45-degree line consists of the points where
Correct Answer: b. total output is equal to aggregate expenditure
Given Answer: c. total consumption is equal to total expenditure

Question: Q46. The marginal propensity to consume is
Correct Answer: a. the fraction of an increase in income that would be spent on consumer goods
Given Answer: b. the additional desire people have for consumer goods
Question: Q47. In the simplest Keynesian model, planned investment is assumed to be
Correct Answer: c. constant
Given Answer: b. negatively related to income
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ECON 125 Exam 4
Question: Q4. The Full Employment and Balanced Growth Act of 1978
Correct Answer: b. set the goals for the U.S. economy as 4 percent unemployment by 1983 and
zero inflation by 1988
Given Answer: d. is better known as the Kemp-Roth Act
Question: Q18. The New Economy is one of

Correct Answer: c. information
Given Answer: a. durable goods
Question: Q28. The roughly coincident indicators have their upward and downward turning points
prior to the upward and downward turning points of real GDP.
Question: Q37. According to the rational expectations theory,
Correct Answer: c. the expected results of government anticyclical measures are offset by the
actions of businesses and individuals
Given Answer: a. the expected results of government anticyclical measures are intensified by the
actions of businesses and individuals
Question: Q39. In terms of the impact on aggregate expenditure of alternative methods of raising
additional revenue for government spending,
Correct Answer: c. borrowing from banks is more effective than borrowing from the public, which
is more effective than taxation
Given Answer: a. borrowing from banks is more effective than taxation, which is more effective
than borrowing from the public
Question: Q40. A balanced budget always has a neutral effect on the economy.

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ECON 125 Exam 5
Question: Q14. If the government uses the budget as an economic stabilizer, the budget is most
likely to be in deficit during a(n)
Correct Answer: b. trough
Given Answer: d. peak
Question: Q19. If a country engaged in free trade has an unlimited quantity of imports of a good
available at a fixed price, the supply curve for that good is
Correct Answer: d. perfectly elastic
Given Answer: a. upward sloping
Question: Q34. The largest trading partner of the United states is
Correct Answer: b. Canada
Given Answer: c. European Union
Given Answer: b. gold to flow into the country to other countries



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Question: Q1. An example of a macroeconomic model is one that considers
Correct Answer: b. why the size of the total national output depends on the size of total spending
Given Answer: a. how the price of chicken influences the quantity of chicken bought
Question: Q6. The process by which nations limit their productive efforts to a particular activity
instead of trying to produce directly everything that they need is known as
Correct Answer: a. specialization
Given Answer: b. using absolute advantage
Question: Q26. As units of input are added to the production process, the average product
Correct Answer: a. rises and then declines
Given Answer: d. is always greater than the marginal product
Question: Q29. The opportunity cost of using one?s own savings in operating a business can be
determined by using
Correct Answer: b. interest rates
Given Answer: a. wage rates
Question: Q49. Unemployment
Correct Answer: b. usually increases whenever real GDP decreases
Given Answer: c. usually decreases whenever nominal GDP increases

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ECON 125 Final Exam
Question: Q5. The international organization that replaced the General Agreement on Tariffs and
Trade (GATT) is the
Correct Answer: c. World Trade Organization
Given Answer: b. Export-Import Bank
Question: Q11. According to the simple circular flow concept, whenever planned investment is
greater than planned saving during a period of less than full employment, there is a tendency for
Correct Answer: c. employment to increase
Given Answer: b. prices to rise
Question: Q37. A major force leading the U. S. economy to full employment after the Great
Depression was
Correct Answer: c. government spending for World War II
Given Answer: b. higher reserve requirements
Question: Q38. The tax rebate of 2008 is an example of
Correct Answer: d. pump priming
Given Answer: a. expansionary monetary policy
Question: Q45. The federal government?s ability to repay the national debt is limited only by the
Correct Answer: c. total assets of the economy
Given Answer: b. incidence of taxes
Given Answer: b. gold to flow into the country from other countries

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Question: Q1. When the federal government insures large financial institutions against losses, the
problem of arises.
Correct Answer: c. moral hazard
Given Answer: b. fallacy of composition
Question: Q3. One of the areas Macroeconomics deals with is
Correct Answer: d. general price level
Given Answer: c. price of automobiles
Question: Q8. The process of specialization can be carried out by business firms as well as by
regions and nations.
Question: Q23. The law of demand illustrates that as
Correct Answer: d. price decreases, quantity demanded increases

Given Answer: b. price increases, quantity demanded increases
Question: Q28. A production function is
Correct Answer: b. the relationship between resource inputs and product output
Given Answer: d. all of these
Question: Q31. Under conditions of perfect competition, maximum profit or minimum loss occurs
at the point where
Correct Answer: c. MR = MC
Given Answer: d. AVC = ATC
Question: Q41. As more firms enter a monopolistic competitive industry, average revenue will
fall for existing firms.
Question: Q50. Unemployment
Correct Answer: b. usually increases whenever real GDP decreases
Given Answer: c. usually decreases whenever nominal GDP increases
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ECON 125 Final Exam
Question: Q7. According to the U. S. Department of Commerce, a group of two or more persons
living together who are related by birth, marriage, or adoption is known as a
Correct Answer: b. family
Given Answer: a. household
Question: Q8. According to the U. S. Department of Commerce, all persons, unrelated or related,
who occupy a housing unit comprise
Correct Answer: b. a household
Given Answer: c. an extended family unit
Question: Q13. The size of the circular flow
Correct Answer: b. measures the level of income and output
Given Answer: c. increases if there are more planned leakages
Question: Q21. The size of planned consumption is influenced to a considerable extent by
Correct Answer: c. how much income people are receiving
Given Answer: b. whether or not the government is running a deficit
Question: Q25. The aggregate demand curve
Correct Answer: b. shows the amounts of real output that will be demanded at various price levels
Given Answer: a. is identical to the AE curve
Question: Q46. As foreign currency becomes less expensive in terms of the U. S. dollar,
Correct Answer: a. foreign goods become cheaper to U. S. citizens
Given Answer: c. the U. S. demand curve for foreign currency shifts to the left
Question: Q47. As the price of foreign exchange increases in terms of the U. S. dollar, U. S.
products become cheaper for foreigners to buy.


ECON 125 Final Exam
Question: Q7. According to the U. S. Department of Commerce, a group of two or more persons
Correct Answer: b. family
Given Answer: a. household
Question: Q21. The size of planned consumption is influenced to a considerable extent by
Correct Answer: c. how much income people are receiving
Given Answer: b. whether or not the government is running a deficit
Question: Q30. The U. S. money supply measure that consists of currency plus travelers checks
and checkable deposits is referred to as
Correct Answer: a. M1
Given Answer: d. M1 + M2
Question: Q33. The primary function of the Fed?s Board of Governors is to formulate U. S.
monetary policy.

Question: Q43. Raising taxes in order to pay off the U. S. national debt would result in a
significant redistribution of income.
Question: Q45. The U. S. income tax is based on the principle of
Correct Answer: c. ability to pay
Given Answer: d. equality of sacrifice
Question: Q46. Which of the following would cause a credit to the U. S. balance of payments?
Correct Answer: c. Lloyd?s of London makes an insurance payment to a U. S. resident
Given Answer: d. Russia cancels its purchases of U. S. wheat and buys wheat from Argentina
Question: Q50. A debit item on the U. S. balance of payments is any transaction that
Correct Answer: d. makes U. S. dollars available to foreigners
Given Answer: c. makes foreigners use up their holdings of U. S. dollars
Question: Q5. The idea that what?s good for one person may not be good for all people is known
as the
Correct Answer: b. fallacy of composition
Given Answer: a. cause-effect fallacy
Question: Q10. Which of the following is true of scarcity?
Correct Answer: d. it is a basic problem of economics that affects all nations
Given Answer: c. it affects only poor nations
Question: Q30. Under conditions of perfect competition, firms sell identical products.
Question: Q31. Elaine?s firm is in a perfectly competitive industry. Why doesn?t Elaine try to sell
more of her product by lowering its price below the market price?
Correct Answer: d. she can sell all she wants at the market price
Given Answer: b. doing so would be considered unethical price chiseling
Question: Q37. A single-price monopolist
Correct Answer: c. must lower price in order to sell more
Given Answer: b. can sell all it desires at a given price
Question: Q38. A monopolist that charges different prices to different buyers based on their
elasticities of demand is practicing
Correct Answer: c. third degree price discrimination
Given Answer: b. second degree price discrimination

Question: Q46. Most illegal immigrants are found in occupations
Correct Answer: d. that require little formal education
Given Answer: b. that require two years of college
Econ 1101 Chapter 3 40 terms by samantha_cheatwood1
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What quantities of goods and services to produce, which resources to use, and who gets to have
what share of the output (all of the above) Every society faces some basic economic choices such
as

market economy if it relies on self-interested behavior and incentives An economic system is said
to be a

individuals and firms In a market economy, decisions about what to produce are made primarily by

it results in an unequal distribution of property and income A problem with the use of the market
system is that

the market system functions best when the rights of private property are protected The relationship
between the market system and private property is

private property Which one of the f0llowing is a characteristic of capitalism but not of
communism?

consumer demand In a market economy, the use of resources is determined primarily by


intellectual power Which of the following is not considered part of the productive resource, land?

individuals and firms Under the US market system, land and capital goods are owned mainly by

the profit motive In a market economy, businesses are encouraged to produce because of

all costs of production Profit is the excess of revenue over and above payment for

the higher its price The stronger that consumer demand is for a good or service, other things being
equal,

the pricing system The primary means of rationing goods and services in a market system is
through

the pricing system Under a market system, an individual's income is ultimately determined through

consumer demand The high salaries paid to sports superstars in the US are determined by

its contribution to the final product In a market economy, a resource is compensated according to

sole proprietorship The most prevalent form of business enterprise in the US is the

sole proprietorship, corporation, cooperative, and partnership The basic legal forms of business
organization in the US are the

syndicate Which of the following is not one of the basic legal forms of business organization in the
US?

sole proprietorship The form of business organization with the most flexibility of management is
the

False The board of directors has unlimited financial liability for the debts of the corporation.

True A corporation can raise money by selling stock or bonds.

True In a cooperative type of enterprise, a shareholder has only one vote regardless of the number
of shares held.

True In the US, marketing cooperatives are most commonly found in the agriculture industry.

False There are no government-regulated markets in the US economy.

True The US economy is a mixture of perfect and imperfect competition and regulated and non-
regulated industries.

True Self-interest is a major tenet of economic liberalism.

True Laissez-faire is a policy of government nonintervention in the economy.

True Laissez-faire is a policy of no government in

True Government intervention in the US economy includes legislation such as antitrust laws, labor
laws, and safety regulations.

False Full employment is considered to have been achieved only when everybody in the economy
has a job.

False An economic growth rate of 3 percent would be considered unhealthy for the US economy.

True A stable unemployment rate requires that the US economy grow each year in order to absorb
new workers who enter the labor force.

False The former Soviet Union was an example of a traditional economy.

False The US had a surplus balance of trade during most of the 1990s.

True Deciding what to produce and allocating goods and services are functions of all types of
economic systems.

False Socialism combines monopoly, capitalism, private property, and a strong dictatorial central
government.

False A major advantage of a partnership is the legal separation of personal and partnership assets.

True In a corporate form of business enterprise, both profits and dividends are subject to income
tax.

True In determining what and how much to produce, the market economy works in a democratic
manner based on dollar votes.
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Chapter 5 - Basic Economics 40 terms by coralthegreat
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A production function is either a) a technique for determining the most profitable rate of output, b)
the relationship between a combination of inputs and a quantity of output, c) an important factor in
determining the shape of the long-run supply curve, d) all of these B

The marginal product refers to the impact of which unit of a productive resource? A) First. B)
middle. C) last. D) average C

The addition to total output resulting from using one more unit of a productive resource is the: a)
average product, b) marginal input, c) total product, d) marginal product D

As units of input are added to the productive process, the marginal product: a) increases
throughout, b) at first increases and then decreases, c) remains the same, d) declines then rises B

As units of input are added to the production process, the average product: a) rises and then
declines, b) declines and then rises, c) remains the same, d) is always greater than the marginal
product A

When marginal product is less than average product: a) average product falls, b) average product is
zero, c) average product increases, d) average product is unaffected A

If you are a sole proprietor of a firm, the value of the wage you could have earned elsewhere is: a)
an explicit cost, b) an accounting cost, c) an implicit cost, d) not a cost C

The amount of payment necessary to attract a given productive resource away from its best
alternative use is the: a) resource cost, b) opportunity cost, c) overhead cost, d) variable cost B

These costs implied by alternatives given up are: a) explicit costs, b) historical costs, c) outlay
costs, d) implicit or opportunity costs D

The marginal cost curve crosses the average total cost curve at the: a) highest level of average total
cost, b) lowest level of average total cost, c) point where the ATC equals the AVC, d) point where
the ATC equals the AFC B

The principle that pulls down the average cost (ATC), and then, as output continues to expand,
pulls it up, is: a) lower prices and then higher prices, b) rising and then diminishing marginal
returns, c) lower average fixed cost and then higher average fixed cost, d) lower resource prices
and then higher resource prices B

Average product falls any time: a) marginal product is falling, b) marginal product is rising, c)
marginal product is below it, d) total product is rising C

An example of an implicit cost is: a) rent, b) taxes, c) wages, d) forgone interest when investing
one's savings in one's own business D

The principle which states that as more and more units of a variable resource are added to a set of
fixed resources, the resulting additions to output eventually become increasingly smaller, is the
principle of: a) increasing production, b) functioning production, c) diminishing marginal returns,
d) increasing returns to scale C

For the principle of diminishing marginal returns to hold: a) all resources must vary, b) at least one
resource should remain fixed, c) only one resource should vary, d) a minimum of three input
resources is necessary C

The vertical distance between the total cost curve and the total variable cost curve reflects: a) profit
per unit, b) total fixed cost, c) marginal cost, d) the principle of diminishing marginal returns B

The opportunity cost of using one's own savings in operating a business can be determined by
using: a) wage rates, b) interest rates, c) exchange rates, d) rental rates B

Total fixed cost is commonly referred to as: a) overhead, b) depreciation, c) opportunity cost, d)
marginal cost A

As output increases, total fixed cost: a) increases, b) remains constant, c) rises and then falls, d)
falls and then rises B

Which of the following is the best example of a variable cost? A) depreciation on a building. B)
property taxes. C) wages. D) rent paid for one's building C

The marginal product is the increase in output per additional unit of input True

The marginal product decreases, reaches a minimum, and then rises as output increases False

As long as the marginal product is falling, the average product falls False

The average product decreases any time the marginal product is decreased False

The average product can be calculated for any unit of input by dividing the total product by the
marginal product False

If all inputs are increased by 25% and output by 35%, increasing returns to scale exist True

Implicit cost is an opportunity cost of doing business True

Opportunity cost and implicit cost are both explicit costs False

Marginal cost is the change in total cost that results from producing one less or more unit of output
True

As output increases, marginal cost increases, reaching a maximum, and then falls False

So long as marginal cost is rising, average variable cost must rise False

The principle of diminishing marginal returns is applicable only to the use of labor as a productive
resource False

The principle of diminishing marginal returns says that as more and more units of a variable
resource are added to a set of fixed resources, the resulting additions to output will become
increasingly smaller and, eventually larger False

The major factor for accounting for diseconomies of scale is management inefficiency True

In a mature industry, all firms operate with constant returns to scale False

On a cost/output graph, the average fixed cost is constucted as a straight horizontal line False

Marginal cost crosses the average variable cost and the average total cost at their lowest points
True

The average fixed cost remains constant even in the long run False

Marginal cost is related inversely to marginal product True


The difference between ATC and the AVC must represent the AFC True
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Skip navigation links ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) >

EXAMS > REVIEW ASSESSMENT: EXAM 1
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Review Assessment: Exam 1
User Sze Wai Ng
Submitted 5/31/14 11:59 AM
Name Exam 1
Status Completed
Score 94 out of 100 points
Instructions Always pick the single best answer. Blank answers will be scored as incorrect.
Question 1 text Question 1 2 out of 2 points
Correct Government intervention in the U.S. economy includes legislation such as antitrust
laws, labor laws, and safety regulations.
Question 1 answers
Selected Answer: Correct True
Correct Answer: True
Correct An economy in which a central authority makes most of the economic decisions is
known as a
Question 2 answers
Selected Answer: Correct command economy
Correct Answer: Correct command economy
Correct The profit motive is one characteristic of a command economy.
Question 3 answers
Selected Answer: Correct False
Correct Answer: False
Correct According to economic liberalism, the regulating force of the economy is
Question 4 answers
Selected Answer: Correct competition
Correct Answer: Correct competition
Correct Which one of the following is a characteristic of capitalism but not of communism?
Question 5 answers
Selected Answer: Correct private property

Correct Answer: Correct private property
Correct The basic legal forms of business organization in the United States are the
Question 6 answers
Selected Answer: Correct sole proprietorship, corporation, cooperative, and partnership
Correct Answer: Correct sole proprietorship, corporation, cooperative, and partnership
Correct The major advantage of the sole proprietorship is its
Question 7 answers
Selected Answer: Correct flexible management
Correct Answer: Correct flexible management
Correct In a market economy, businesses are encouraged to produce because of
Question 8 answers
Selected Answer: Correct the profit motive
Correct Answer: Correct the profit motive
Correct Laissez-faire is a policy of no government intervention in the economic activities of

individuals and businesses.
Question 9 answers

Incorrect In a market economy, prices serve as a rationing mechanism.
Question 10 answers
Selected Answer: Incorrect False
Correct In a partnership, each partner’s liability is limited to his or her contribution to the
partnership.
Question 11 answers
Correct In a corporate form of business enterprise, both profits and dividends are subject to
income tax.
Question 12 answers
Correct An economic system is said to be a
Question 13 answers
Selected Answer: Correct market economy if it relies on self-interested behavior and

incentives
Correct Answer: Correct market economy if it relies on self-interested behavior and incentives
Correct Consumption is the ultimate end of economic activity.

Question 14 answers
Correct Income is a flow concept whereas wealth is a stock concept.
Question 15 answers
Correct Putting a business venture together is the function of the
Question 16 answers
Selected Answer: Correct entrepreneur
Correct Answer: Correct entrepreneur
Correct Economics is considered a physical science.
Question 17 answers
Correct The study of economics would be less complicated if differences in prudential

judgments did not exist.
Question 18 answers

Incorrect All goods and services produced during the year are added to the total wealth of the
nation.
Question 19 answers
Selected Answer: Incorrect True
Correct The process of allocating the total product among the resources involved is referred to
as
Question 20 answers
Selected Answer: Correct functional distribution
Correct Answer: Correct functional distribution
Correct Labor includes the physical efforts of individuals and groups, but not their mental
efforts.
Question 21 answers
Correct Economic services lack the characteristic of transferability found in economic goods.
Question 22 answers

Correct The relationship between the price of a book and the number of volumes purchased
would be an example of microeconomics.
Question 23 answers
Correct Economies must make choices because resources are limited while wants are unlimited.
Question 24 answers
Correct A bulldozer used by a construction firm is known as a
Question 25 answers
Selected Answer: Correct capital good
Correct Answer: Correct capital good
Correct Technological development can be applied to the improvement of human capital as

well as physical capital.
Question 26 answers
Correct If a firm uses technological development to change its production possibilities curve, it
can move
Question 27 answers
Selected Answer: Correct outward in any direction
Correct Answer: Correct outward in any direction
Correct Suppose that Country A has an absolute advantage over Country B in the production of
both wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in Country A and
3 units of cloth in Country B. It follows that production of both wheat and cloth will be maximized
if
Question 28 answers
Selected Answer: Correct Country A specializes in wheat
Correct Answer: Correct Country A specializes in wheat
Correct Every economic system must decide
Question 29 answers
Selected Answer: Correct all of the above
Correct Answer: Correct all of the above
Correct A nation’s production possibilities curve can be shifted outward by technological

development.
Question 30 answers

Correct When using the principle of comparative advantage, the person with no absolute
advantage should perform the job in which he or she has
Question 31 answers
Selected Answer: Correct a lesser disadvantage
Correct Answer: Correct a lesser disadvantage
Correct When different regions of a country produce different goods,
Question 32 answers
Selected Answer: Correct the country becomes better off if the regions are pursuing their
comparative advantages
Correct Answer: Correct the country becomes better off if the regions are pursuing their
Correct The ability to produce a good or service at a lower opportunity cost than other
producers face is known as comparative advantage.
Question 33 answers
Correct The opportunity cost of a choice is defined as the value of all the alternative choices.
Question 34 answers

Correct Overspecialization and the resulting dependence on one or a few products by a nation
can lead to severe economic fluctuations if demand for those products varies widely.
Question 35 answers
Correct The greatest increase in productivity per capita in the future will probably result from
Question 36 answers
Selected Answer: Correct technological development
Correct Answer: Correct technological development
3 units of cloth in Country B. It follows that
Question 37 answers
Selected Answer: Correct Country A has a comparative advantage in wheat
Correct Answer: Correct Country A has a comparative advantage in wheat
Correct If the market price of gasoline were $4 a gallon and a ceiling price of $1.50 is imposed,
Question 38 answers
Selected Answer: Correct the price of gasoline would fall
Correct Answer: Correct the price of gasoline would fall
Correct According to the total revenue rule, if the coefficient of price elasticity of demand is
less than 1 and if price goes
Question 39 answers
Selected Answer: Correct down, total revenue goes down
Correct Answer: Correct down, total revenue goes down
Correct A typical demand schedule shows higher sales at lower prices.
Question 40 answers
Correct If a good has perfectly inelastic demand,
Question 41 answers
Selected Answer: Correct the same amount would be purchased regardless of price
Correct Answer: Correct the same amount would be purchased regardless of price
Correct If the market price is below the equilibrium price, forces will come into play to
Question 42 answers
Selected Answer: Correct move it to the equilibrium price
Correct Answer: Correct move it to the equilibrium price
Correct It is possible for a change in the price of one commodity to lead to a change in the
demand for another commodity.
Question 43 answers
Correct If demand increases and supply decreases, but supply decreases more than demand
increases,
Question 44 answers
Selected Answer: Correct equilibrium price will fall
Correct Answer: Correct equilibrium price will fall
Correct If the cross-elasticity coefficient is negative, then the two goods must be complements.
Question 45 answers
Correct A change in demand occurs whenever consumers will purchase more because of a
decrease in price.
Question 46 answers
Correct The total quantity of a good that all buyers in the market would buy at various prices at
a given time is known as
Question 47 answers
Selected Answer: Correct market demand

Correct Answer: Correct market demand
Correct On a price/quantity graph, a straight horizontal demand curve
Question 48 answers
Selected Answer: Correct is perfectly elastic
Correct Answer: Correct is perfectly elastic
Incorrect The law of supply states that
Question 49 answers
Selected Answer: Incorrect price changes are always in the same direction as supply changes
Correct Answer: Correct price and quantity supplied are positively or directly related
Correct If the coefficient of elasticity for a commodity is 1.5 and the price of that commodity is
raised, total revenue will decrease.
Question 50 answers
OK
Question 1 0 out of 2 points
An increase in the number of consumers, all else held constant, will shift the
Correct Answer: demand curve to the right

The demand curve for a product slopes downward to the right because more of the
product will be
Correct Answer: purchased as price falls

It is possible for a change in the price of one commodity to lead to a change in the

The measure of elasticity will be the same at any place along a given straight-line,
slanted demand curve.

A supply curve generally
Correct Answer: slopes upward to the right

Along a straight-line, slanted demand curve,
Correct Answer: the price elasticity varies along the line

A typical demand schedule shows higher sales at lower prices.

The point where quantity demanded and quantity supplied are equal is known as the
Correct Answer: equilibrium price

If 1,000 units of a particular good would be purchased at 40 cents per unit but only
750 units would be purchased at 50 cents per unit, the demand for the good is
inelastic.

When talking about demand, price elasticity refers to the
Correct Answer: responsiveness of buyers to price changes

Price ceilings usually create surpluses since supply is increased.

If the cross-elasticity coefficient is negative, then the two goods must be
complements.
If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a
price of $1.50 per unit, then demand is
Correct Answer: unit elastic

One cause for the uneven standard of living throughout the world is the uneven
distribution of resources.

The opportunity cost of a choice is defined as the value of
Selected Answer: [None Given]
Correct Answer: the next best alternative that must be sacrificed

The typical production possibilities frontier curves outward due to
Correct Answer: increasing opportunity costs

Economics can be defined as the study of choices.

The ability of a nation to gain from specialization and exchange is affected by factors
such as shipping costs and exchange rates.
If a nation is producing a combination of goods inside its production possibilities
curve, it is underutilizing its resources.

Productivity per worker has increased in the past primarily through
Correct Answer: technological development

Assume that Country A produces 60 tons of sugar using 6 productive units and that
Country B produces 40 tons of sugar using 6 productive units. Assume further that
Country A produces 120 tons of coffee using 4 units of production and that Country B
produces 90 tons of coffee using 4 units of production. It follows that
Correct Answer: Country A has a comparative advantage over Country B in the
production of sugar

The principle of comparative advantage applies to
Correct Answer: individuals, businesses, and nations

The ability to produce a good or service using fewer resources than other producers
use is known as
Correct Answer: absolute advantage
Overspecialization and the resulting dependence on one or a few products by a nation

An economy’s production possibilities curve could shift outward as a result of a(n)
Correct Answer: increased level of technology

The ability of a good or service to satisfy a want is known as
Correct Answer: utility

Microeconomics is a study of aggregates in the economy.

Which of the following is the study of “what is” rather than “what ought to be”?
Correct Answer: positive economics

Macroeconomic policymakers do not include
Correct Answer: the president of GM

Generally, in economics we study how people
Correct Answer: make choices when resources are scarce

The interactions of producers and consumers in individual markets are part of the
study of
Correct Answer: microeconomics

Profits can be thought of as
Correct Answer: all of the above

Economics can best be defined as the study of how
Correct Answer: society decides to use its scarce resources in an attempt to satisfy
unlimited wants

The difference between a capital good and a consumer good depends on
Correct Answer: the purpose for which it is used

Payment for the use of capital is made in the form of investment.

If a useful good or service exists in such abundance that anyone can readily obtain it
without much effort,
Correct Answer: it is neither scarce nor is it an economic good

Positive economics is concerned with

The primary means of rationing goods and services in a market system is through
Correct Answer: the pricing system

Money that can be used to purchase capital goods is known as
Correct Answer: financial capital

In a market economy, businesses are encouraged to produce because of
Correct Answer: the profit motive

The United States had a surplus balance of trade during most of the 1990s.

The form of business organization with the most flexibility of management is the
Correct Answer: sole proprietorship

Which form of business organization has the advantage of being a legal person in
itself?
Correct Answer: corporation

In the United States, marketing cooperatives are most commonly found in the
agriculture industry.

A major disadvantage of a corporation is
Correct Answer: the double taxation of its profits

In a market system, the government enforces laws ensuring that private enterprises
and conditions of competition will prevail.

An economic system is said to be a
Correct Answer: market economy if it relies on self-interested behavior and
incentives
The vast majority of U.S. businesses have more than 500 employees each.

In a corporate form of business enterprise, both profits and dividends are subject to
income tax.

Privatization results in
Correct Answer: a reduction in government economic functions
User Un Teng Teresa Chao

Name Exam 1
Status Completed
Instructions Always pick the single best answer. Blank answers will be scored as
incorrect.

The quantity supplied and price tend to vary
Selected Answer: directly
Correct Answer: directly

The demand for a fur coat tends to be more price elastic than the demand for
automobile tires.
Selected Answer: True

If the coefficient of elasticity for a commodity is 1.5 and the price of that commodity
is raised, total revenue will decrease.
Selected Answer: False

The demand for a product at a given time is defined as the
Selected Answer: amount that would be bought at various prices
Correct Answer: amount that would be bought at various prices

Which of the following is not a determinant of demand?
Selected Answer: production costs
Correct Answer: production costs

If total revenue decreases when a price is decreased, the demand for the commodity
is elastic.

If demand increases and supply decreases, but supply decreases more than demand
increases,
Selected Answer: equilibrium price will rise
Correct Answer: equilibrium price will fall

In a market with many buyers and sellers, no one individual can influence the market
price.

A change in demand occurs whenever consumers will purchase more because of a
decrease in price.

The quantity supplied is inversely related to price.

Which of the following is assumed to be constant along a demand curve for pet dogs?
Selected Answer: the price of cats
Correct Answer: the price of cats

On a price/quantity graph, a straight horizontal demand curve
Selected Answer: is perfectly elastic
Correct Answer: is perfectly elastic
Price floors can create shortages if price floors are above market prices.

A traditional economy is based on
Selected Answer: both (b) and (c)
Correct Answer: both (b) and (c)

The basic legal forms of business organization in the United States are the
Selected Answer: sole proprietorship, corporation, cooperative, and partnership
Correct Answer: sole proprietorship, corporation, cooperative, and partnership

Profit is the excess of revenue over and above payment for
Selected Answer: all costs of production
Correct Answer: all costs of production

The relationship between the market system and private property is
Selected Answer: the market system functions best when the rights of private
property are protected
Correct Answer: the market system functions best when the rights of private
Deciding what to produce and allocating goods and services are functions of all types
of economic systems.


The major advantage of the sole proprietorship is its
Selected Answer: flexible management
Correct Answer: flexible management

When two or more individuals own a business that does not have a legal existence
separate from that of the individuals, it is known as a
Selected Answer: partnership
Correct Answer: partnership

Which of the following is not a basic tenet of economic liberalism?
Selected Answer: government regulation
Correct Answer: government regulation

In a market economy, the use of resources is determined primarily by
Selected Answer: consumer demand
Correct Answer: consumer demand

In a market economy, decisions about what to produce are made primarily by
Selected Answer: individuals and firms
Correct Answer: individuals and firms

In determining what and how much to produce, the market economy works in a
democratic manner based on dollar votes.

The ability to produce a good or service at a lower opportunity cost than other
A nation’s raw materials and sources of energy are considered part of its capital
resources.

The United States has an abundance of resources and thus does not face the problem
of scarcity.

A production possibilities curve shows the use of resources and the alternative
combinations of goods that a society can produce.

The extent to which a society can engage in specialization and exchange is limited by
the size of the market.

Comparative advantage cannot be applied to activities of individuals.
People must make choices because
Selected Answer: wants are unlimited and resources are scarce
Correct Answer: wants are unlimited and resources are scarce

Japan has a low standard of living because of its shortage of resources.

Which of the following would shift a nation’s entire production possibilities curve
outward?
Selected Answer: all of the above
Correct Answer: developing a more efficient technology

In exercising the principle of comparative advantage, a nation with no absolute
advantage should produce a commodity in which it faces a lower opportunity cost
than its trading partners face.

The basic function of any economic system is to provide the framework for allocating
scarce resources in a way that adequately satisfies unlimited wants.
Selected Answer: individuals, businesses, and nations

A bulldozer used by a construction firm is known as a
Selected Answer: capital good
Correct Answer: capital good

If an economist is trying to figure out, in a certain situation, “what would happen
if…”, then that economist is working in the area of
Selected Answer: normative economics

All economies in the world have identical methods of functional distribution.

Selected Answer: the president of GM
Economists divide productive resources into which of the following four broad
categories?
Selected Answer: land, labor, capital, enterprise
Correct Answer: land, labor, capital, enterprise

A science that studies the behavior and interactions of human beings, individually
and in groups, is known as a(n)
Selected Answer: social science
Correct Answer: social science

An economic good must be
Selected Answer: scarce

Selected Answer: the purpose for which it is used

An example of a macroeconomic model is
Correct Answer: the size of the total national output depends on the size of total
spending
Some economic principles are based on physical phenomena.

To understand the purpose of a given economic policy, it is necessary to understand
the influence of political and social policies.

The rules and principles of economics that serve as a guide for action are known as
Selected Answer: economic theory
Correct Answer: economic theory


product will be







inelastic.



complements.









production of sugar


use is known as








study of


unlimited wants









itself?



incentives

income tax.


An economic growth rate of 3 percent would be considered unhealthy for the U.S.
economy.

In determining what and how much to produce, the market economy works in a
democratic manner based on dollar votes.


A stable unemployment rate requires that the U.S. economy grow each year in order
to absorb new workers who enter the labor force.

A problem with the use of the market system is that
Correct Answer: it results in an unequal distribution of property and income


Competition serves as a regulator in a market economy.

Which of the following is not among the United States’ economic goals?
Correct Answer: equal distribution of income

The U.S. economy is a mixture of perfect and imperfect competition and regulated
and nonregulated industries.

Full employment is considered to have been achieved only when everybody in the
economy has a job.

Every society faces some basic economic choices such as

The shifting or returning of government economic functions to individuals and firms
in the economy is known as
Correct Answer: privatization

Which one of the following is a characteristic of capitalism but not of communism?
Correct Answer: private property

A change in demand would be illustrated by
Correct Answer: a change in people’s preferences that causes them to buy either
more or less than before

Probably the main characteristic of a demand curve is that it slopes upward from left
to right.


The slope of a demand curve is a measure of elasticity.

The price elasticity of demand is defined as
Correct Answer: the percentage change in quantity demanded divided by the
percentage change in price

In the long run, the supply of goods is based on
Correct Answer: the availability of the resources and the costs of production

A price floor will result in
Correct Answer: a decrease in price if the price floor is below the market price

A shift in the supply curve for gasoline in the United States would result if
Correct Answer: the OPEC nations decided to stop sales of crude oil to the United
States

If total revenue decreases when a price is decreased, the demand for the commodity
is elastic.

If income increases and the demand for a product increases, the product is a normal
good.

product will be


According to the total revenue rule, if the coefficient of price elasticity of demand is
less than 1 and if price goes
Correct Answer: down, total revenue goes down

Suppose that Country A has an absolute advantage over Country B in the production
of both wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in
Country A and 3 units of cloth in Country B. It follows that
Correct Answer: Country A has a comparative advantage in wheat

resources.

If a society is producing at a point on its production possibilities curve, it does not
have the problem of scarce resources.

A production possibilities curve shows the use of resources and the alternative
combinations of goods that a society can produce.


use is known as comparative advantage.

outward?
A need to make choices exists because of
Correct Answer: both (a) and (c)

Exercising the principle of comparative advantage between nations primarily
involves
Correct Answer: specialization

of scarcity.

If a firm uses technological development to change its production possibilities curve,
it can move
Correct Answer: outward in any direction

The United States is academically unique in having so many
Correct Answer: business schools

unlimited wants

Income is a flow concept whereas wealth is a stock concept.

spending

Total wealth is a _______concept; total income is a _______ concept.
Correct Answer: stock; flow

Goods directly used by individuals and households are known as capital goods.

A bulldozer used by a construction firm is known as a
Correct Answer: capital good


If you heard someone say that coal miners should be paid more wages to enable them
to adequately support their families, that would be a statement of
Correct Answer: normative economics

Consumption is the ultimate end of economic activity.


Utility as an economic term refers to
Correct Answer: the ability of a good to satisfy a want
ECON125-HK1. ECONOMICS FOR MANAGERS (ECON125-HK1) > CONTROL

PANEL > GRADEBOOK > MODIFY GRADE > GRADE ATTEMPT
Grade Assessment Exam 1 Name Exam 1

User Kwan Lung Dragon Au
Status Completed
Instructions
Clear Attempt Click Clear Attempt to clear this user’s attempt.
Clear Attempt
Comments Modify Comments
Question 1 Multiple Choice out of 2 points

A movement downward toward the right along a typical production possibilities
curve represents
Given Answer: increasing production of one good and decreasing production of the
other
Correct Answer: increasing production of one good and decreasing production of
the other

An example of technological development is to increase output through
Given Answer: using better machines
Correct Answer: using better machines
Given Answer: increasing opportunity costs

When an economic unit limits the scope of its productive efforts instead of trying to
produce everything it needs, it is engaging in
Given Answer: specialization

Individuals are forced to make choices because
Given Answer: wants are unlimited and resources are scarce

A society will be at a point inside its production possibilities curve whenever
Given Answer: some resources are unemployed
Correct Answer: some resources are unemployed

producers incur is known as
Given Answer: comparative advantage
Correct Answer: comparative advantage
If an economy is producing a combination of goods inside its production possibilities
curve, it may mean that the nation
Given Answer: is underutilizing its resources
Correct Answer: is underutilizing its resources

Given Answer: both (a) and (c)

The process by which individuals limit their productive efforts to a particular activity

A production possibilities curve applies
Given Answer: to any two products
Correct Answer: to any two products

Given Answer: Country A has a comparative advantage in wheat
involves

A free good lacks the element of
Given Answer: scarcity
Correct Answer: scarcity

The largest share of the total income of the United States is currently being
distributed in the form of
Given Answer: wages
Correct Answer: wages

An economic service need not be
Given Answer: tangible
Correct Answer: tangible

As economists use the term, capital means
Given Answer: such things as machinery and equipment
Correct Answer: such things as machinery and equipment
study of
Given Answer: microeconomics

Given Answer: society decides to use its scarce resources in an attempt to satisfy
unlimited wants
unlimited wants

Public parks and libraries are examples of
Given Answer: public goods
Correct Answer: public goods

Which of the following areas of study is included in the field of macroeconomics?
Given Answer: general price level
Correct Answer: general price level

The total value of the goods and services produced over a period of time represents
an economy's
Given Answer: total income
Correct Answer: total income
Given Answer: utility

Given Answer: economic theory

An example of a free good is
Given Answer: the water bubbling up from the natural spring in your backyard
Correct Answer: the water bubbling up from the natural spring in your backyard

The sum of all the goods and services produced by an economy over a given time
period is known as its
Given Answer: total product
Correct Answer: total product

Given Answer: the market system functions best when the rights of private
The Gramm-Rudman-Hollings Act calls for the U.S. government to pursue
Given Answer: a balanced budget
Correct Answer: a balanced budget

Corporations have the advantage of
Given Answer: limited liability of the stockholders
Correct Answer: limited liability of the stockholders

Given Answer: both (b) and (c)

Which of the following is considered not part of the productive resource, land?
Given Answer: intellectual power
Correct Answer: intellectual power

A corporation can raise funds by
Given Answer: all of the above

The owner of a sole proprietorship has
Given Answer: unlimited liability: if the firm goes bankrupt, the owner is liable for
all debts
Correct Answer: unlimited liability: if the firm goes bankrupt, the owner is liable for
all debts

Given Answer: government regulation

Which of the following is not among the United States' economic goals?
Given Answer: equal distribution of income

Given Answer: flexible management

An economy in which a central authority makes most of the economic decisions is
known as a
Given Answer: command economy
Correct Answer: command economy

The basic legal forms of business organization in the United States are the
Given Answer: sole proprietorship, corporation, cooperative, and partnership
Correct Answer: sole proprietorship, corporation, cooperative, and partnership

Given Answer: is perfectly elastic

When talking about demand, price elasticity means the
Given Answer: responsiveness of buyers to price changes

In accordance with the law of supply, if the price doubled, the quantity supplied
would generally
Given Answer: rise
Correct Answer: rise

Given Answer: amount that would be bought at various prices

If the market price is below the equilibrium price, forces will come into play to
Given Answer: move it to the equilibrium price
Correct Answer: move it to the equilibrium price

Given Answer: slopes upward to the right

Given Answer: directly

A demand curve generally
Given Answer: slopes downward to the right
Correct Answer: slopes downward to the right

To maintain a price below the equilibrium price,
Given Answer: the government must set a ceiling price
Correct Answer: the government must set a ceiling price

product will be
Given Answer: purchased as price falls
If the market price of gasoline were $2 a gallon and a ceiling price of $1.50 is
imposed
Given Answer: the price of gasoline would fall
Correct Answer: the price of gasoline would fall

A change in demand means that
Given Answer: a changed amount will be bought at the same given prices
Correct Answer: a changed amount will be bought at the same given prices

An economy's production possibilities curve could shift outward as a result of
Given Answer: an increased level of technology
Correct Answer: an increased level of technology

Given Answer: business schools

When different regions of a country produce different goods,
Given Answer: the country becomes better off if the regions are pursuing their
Correct Answer: the country becomes better off if the regions are pursuing their
use is known as
Given Answer: absolute advantage

Country A and 3 units of cloth in Country B. It follows that production of both wheat
and cloth will be maximized if
Given Answer: Country A specializes in wheat
Correct Answer: Country A specializes in wheat

A nation that has done well economically in spite of a lack of material resources is
Given Answer: Japan
Correct Answer: Japan

Given Answer: Country A has a comparative advantage over Country B in the
production of sugar
production of sugar

The process of specialization and exchange allows a producer to become
Given Answer: proficient in one or a few areas of production
Correct Answer: proficient in one or a few areas of production


To solve their basic long-term economic problems, developing countries primarily
need
Given Answer: technical assistance
Correct Answer: technical assistance

In economics, scarcity means that
Given Answer: there are not enough resources for everything that people want
Correct Answer: there are not enough resources for everything that people want
Given Answer: both (a) and (c)

Given Answer: the OPEC nations decided to stop sales of crude oil to the United
States
States

Given Answer: equilibrium price


Given Answer: demand curve to the right
Demand for luxuries tends to be
Given Answer: elastic
Correct Answer: elastic

If quantity demanded is greater than quantity supplied, the market price must be
Given Answer: above cost of production
Correct Answer: below equilibrium

An increase in demand will cause the demand curve to
Given Answer: move to the right
Correct Answer: move to the right

An increase in supply will cause the supply line to
Given Answer: move to the right

Given Answer: the availability of the resources and the costs of production

The price elasticity of demand is defined as
Given Answer: the absolute change in quantity demanded divided by the absolute
change in price
Correct Answer: the percentage change in quantity demanded divided by the

If a price floor of $10 a bottle is imposed on wine from California
Given Answer: the price of some wines will increase
Correct Answer: the price of some wines will increase

Given Answer: a change in people's preferences that causes them to buy either
Correct Answer: a change in people's preferences that causes them to buy either

Which of the following is considered a command economy?

In a cooperative form of business enterprise, a shareholder is entitled to
Given Answer: one vote
Correct Answer: one vote

Given Answer: private property rights interfere with the operation of the market
system

The most prevalent form of business enterprise in the U.S. is the
Given Answer: sole proprietorship

Given Answer: consumer demand


Given Answer: traditional economy if it relies on extensive market trading
incentives.

Given Answer: which resources to use

The high salaries paid to sports superstars in the United States are determined by

all debts
all debts

Given Answer: private property

An economy that contains both perfect and imperfect competition and both regulated
and nonregulated industries is known as
Given Answer: a market economy
Correct Answer: a mixed economy


study of
Given Answer: microeconomics

and in groups, is known as
Given Answer: a social science
Correct Answer: a social science

An editorial in a newspaper calling for the government to abolish the minimum wage
because it takes advantage of consumers is an example of
Given Answer: a normative economic statement
Correct Answer: a normative economic statement

Determining "what ought to be" in the economy is considered
Given Answer: normative economics

Economists divide productive resources into four broad categories
Given Answer: land, labor, capital, enterprise

Putting a business venture together is the function of the
Given Answer: entrepreneur
Correct Answer: entrepreneur

Given Answer: economic goods


Given Answer: stock; flow

an economy's
Given Answer: scarcity

For the use of their capital in production, owners receive
Given Answer: interest
Correct Answer: interest

Given Answer: intellectual power

Given Answer: the pricing system

Corporations have the advantage of
Given Answer: limited liability of the stockholders
Correct Answer: limited liability of the stockholders

Given Answer: intervention

Given Answer: flexible management

the amount of the investment
all debts

Government intervention becomes necessary when self-interest leads to
Given Answer: the undermining of competition
Correct Answer: the undermining of competition

itself?
Given Answer: corporation
Given Answer: balance-of-payments equilibrium

The use of a central planning board or commission to answer the fundamental
economic questions is typical of what kind of economy?
Given Answer: supply
Correct Answer: command

Rivalry among firms and individuals for sales to consumers
Given Answer: is known as competition
Correct Answer: all of the above are correct

In the United States, marketing cooperatives are most prevalent in
Given Answer: agriculture
Correct Answer: agriculture

Given Answer: how it was produced

Determining "what ought to be" in the economy is considered

Given Answer: utility


without much effort
Given Answer: it is scarce, but it is not an economic good

an economy's

Which of the following is the study of "what is" rather than "what ought to be"?
Given Answer: positive economics

Given Answer: monopolistic pricing

Given Answer: a physical science

study of
Given Answer: monetary economics

Given Answer: the reward for taking a risk and winning

Given Answer: make choices when resources are scarce
Given Answer: interest

When demand for a product increases but the supply of the product remains
unchanged, the equilibrium price of the product will
Given Answer: fall
Correct Answer: rise, and equilibrium quantity will increase

product will be

Which of the following is not a determinant of supply?
Given Answer: an increase in the number of consumers
Correct Answer: an increase in the number of consumers

imposed

The law of demand illustrates that as
Given Answer: price decreases, quantity demanded increases
Correct Answer: price decreases, quantity demanded increases

Given Answer: the availability of the resources and the costs of production

Given Answer: minimum price

Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20
percent more bikes, then demand for bicycles is
Given Answer: elastic, and total revenue will increase
Correct Answer: elastic, and total revenue will increase
would generally
Given Answer: fall

Given Answer: demand curve leftward

Given Answer: adaptability of suppliers to price changes

Given Answer: Country A has a comparative advantage over Country B in the
production of sugar
production of sugar


involves


Given Answer: Japan


need
Given Answer: technical assistance

use is known as

Given Answer: business firms only

Every economic system must decide
Given Answer: how to produce.


curve represents
Given Answer: increasing production of both goods under consideration
the other

Given Answer: we can never feed every person in the country

Given Answer: [None Given]

Given Answer: public goods

In economics, the entrepreneur is the person who
Given Answer: puts together land, labor, and capital and tries to make a profit
Correct Answer: puts together land, labor, and capital and tries to make a profit

If an economist is trying to figure out, in a certain situation, "what would happen
if…", then that economist is working in the area of

For the use of the employee's participation in production, an employee receives
Given Answer: wages

Given Answer: a normative economic statement



Given Answer: wages

The stock of labor talents and skills is known as
Given Answer: human capital
Correct Answer: human capital




Given Answer: directly


imposed

If both demand and supply increase, but demand increases more than supply,
Given Answer: equilibrium price will rise
Correct Answer: equilibrium price will rise

would generally
Given Answer: rise

Given Answer: equilibrium price

Given Answer: move it above the equilibrium price


If quantity demanded is greater than quantity supplied, the market price must be
Correct Answer: below equilibrium
Given Answer: demand curve to the right

all debts

According to economic liberalism, the regulating force of the economy is
Given Answer: competition
Correct Answer: competition





Given Answer: a mixed economy

Full employment describes the condition in which
Given Answer: 95 to 96 percent of the civilian labor force is employed
Correct Answer: 95 to 96 percent of the civilian labor force is employed

Given Answer: market economy if it relies on self-interested behavior and
incentives.
incentives.


Profit is the excess of revenue over and above payment for
Given Answer: all costs of production
Correct Answer: all costs of production


use is known as
Given Answer: absolute specialization



Which of the following would shift a nation's entire production possibilities curve
outward?
Given Answer: Developing a more efficient technology.
Correct Answer: Developing a more efficient technology.

Annual total production in the United States is
Given Answer: more than $10 trillion
Correct Answer: more than $10 trillion


Given Answer: wants are unlimited and resources are scarce

Given Answer: an increased level of technology

it can move
Given Answer: outward in any direction



Given Answer: technological development

Given Answer: the ability of a good to satisfy a want

Given Answer: society decides to use its scarce resources in an attempt to satisfy
unlimited wants
unlimited wants

An economic service need not be
Given Answer: useful
Correct Answer: tangible

Economics can be classified best as
Which of the following is the study of "what is" rather than "what ought to be"?

without much effort
Given Answer: it is not scarce, but it is an economic good

Given Answer: a positive economic statement


Given Answer: is a shrewd business executive who works as a consultant to other
businesses to show d. them more profitable methods of operation is a visiting
diplomat from France
Given Answer: electricians' wage rates

Given Answer: such things as machinery and equipment


Given Answer: individuals and firms

known as a
Given Answer: command economy

Given Answer: a mixed economy


Given Answer: financial capital

Which of the following is not one of the basic legal forms of business organization in
the United States?
Given Answer: syndicate
Correct Answer: syndicate

Given Answer: laissez-faire

Under the U.S. market system, land and capital goods are owned mainly by
Given Answer: individuals and firms

Given Answer: the market system functions best when the rights of private

Given Answer: demand curve leftward

If a good has perfectly inelastic demand,
Given Answer: any price change is matched by an equal percentage change in
quantity demanded
Correct Answer: the same amount would be purchased regardless of price

To maintain a price below the equilibrium price,
Given Answer: demand must increase
Correct Answer: the government must set a ceiling price

Given Answer: the price of gasoline increased
States

If a price floor of $10 a bottle is imposed on wine from California
Given Answer: the price of some wines will increase


Given Answer: production costs

Which of the following types of goods tend toward elastic demand?

Given Answer: equilibrium price will rise

Given Answer: increase the supply

Given Answer: elastic, and total revenue will increase

product will be


use is known as
Given Answer: absolute advantage

Given Answer: only to food and shelter


Given Answer: technological development

need
Given Answer: food

Given Answer: how to distribute goods and services to the population

Given Answer: increasing opportunity costs



Given Answer: proficient in all areas of production

Specialization
Given Answer: can increase total output without an increase in resources
Correct Answer: All three alternative answers are correct


Selected Answer: a social science

Selected Answer: scarcity

Selected Answer: a normative economic statement



Selected Answer: total product

Selected Answer: make choices when resources are scarce



an economy's
Selected Answer: total income

Selected Answer: the ability of a good to satisfy a want
Selected Answer: general price level

Selected Answer: puts together land, labor, and capital and tries to make a profit

Selected Answer: responsiveness of buyers to price changes

Selected Answer: elastic, and total revenue will increase

imposed
Selected Answer: the price of gasoline would fall
Selected Answer: an increase in the number of consumers

Selected Answer: equilibrium price

Selected Answer: slopes upward to the right

A surplus quantity will occur when
Selected Answer: price is above equilibrium
Correct Answer: price is above equilibrium

Selected Answer: price decreases, quantity demanded increases

Selected Answer: the OPEC nations decided to stop sales of crude oil to the United
States
States

would generally
Selected Answer: rise


Selected Answer: rise, and equilibrium quantity will increase

Selected Answer: proficient in one or a few areas of production

Selected Answer: technological development


Selected Answer: absolute advantage

Selected Answer: Country A has a comparative advantage over Country B in the
production of sugar
production of sugar

curve represents
Selected Answer: increasing production of one good and decreasing production of
the other
the other



Selected Answer: to any two products

When using the principle of comparative advantage, the person with no absolute
Selected Answer: a lesser disadvantage
Correct Answer: a lesser disadvantage

Selected Answer: Japan
Selected Answer: an increased level of technology

outward?
Selected Answer: Developing a more efficient technology.

Selected Answer: a mixed economy

Selected Answer: the accounting profession

Selected Answer: communism
Which of the following economic systems abolishes all private property?
Correct Answer: communism

Selected Answer: traditional economy if it relies on extensive market trading
incentives.


Selected Answer: intellectual power

Selected Answer: financial capital
Selected Answer: all of the above are correct


Selected Answer: competition


Selected Answer: a social science


Selected Answer: a normative economic statement






an economy's

Selected Answer: the ability of a good to satisfy a want


Selected Answer: responsiveness of buyers to price changes


imposed

Selected Answer: an increase in the number of consumers



Selected Answer: price decreases, quantity demanded increases

Selected Answer: the OPEC nations decided to stop sales of crude oil to the United
States
States

would generally
Selected Answer: rise



Selected Answer: proficient in one or a few areas of production




production of sugar
production of sugar

curve represents
Selected Answer: increasing production of one good and decreasing production of
the other
the other




When using the principle of comparative advantage, the person with no absolute
Selected Answer: a lesser disadvantage
Correct Answer: a lesser disadvantage


Selected Answer: an increased level of technology
outward?
Selected Answer: Developing a more efficient technology.

Selected Answer: a mixed economy

Selected Answer: the accounting profession


Selected Answer: traditional economy if it relies on extensive market trading
incentives.




Selected Answer: all of the above are correct





product will be






inelastic.


complements.









production of sugar


use is known as







study of

unlimited wants









itself?
Question 44
Question 45 A major disadvantage of a corporation is
Question 46
Question 47
incentives


income tax.

Selling at unreasonably low prices in order to destroy competing firms is known as
Correct Answer: predatory pricing

A market structure in which only one seller of a product exists is known as
Correct Answer: a monopoly

A bilateral monopoly is a circumstance where only one seller and only one buyer
exist in a market.

If a firm in monopolistic competition is neither making a profit nor suffering a loss,
its AR curve is
Correct Answer: touching its ATC curve

A firm that is a price maker can
Correct Answer: limit output and raise prices

Which of the following is always true of monopolists?
Correct Answer: they charge a price higher than marginal cost
Oligopoly is a market structure in which
Correct Answer: there are relatively few producers

The best example of monopolistic competition in the United States is the steel
industry.

The demand curve for a monopolist’s product is also the monopolist’s
Correct Answer: average revenue curve

A kinked demand curve is associated with
Correct Answer: an oligopoly

Monopsony is a market condition in which there is only one seller.

Perfect competition always provides a lower price than monopolistic competition or
an oligopoly.
Correct Answer: all producers are selling identical or similar products

If all firms adhere to the conditions of perfect competition, short-run losses are
avoided.

As long as economic profits are being made, new firms will enter a perfectly
competitive industry.

Under conditions of perfect competition, maximum profit or minimum loss occurs at
the point where
Correct Answer: AR = MC

If new firms enter a perfectly competitive industry, the market price of the finished
product will rise.

The entry and exit of firms drive economic profits to zero in the long run in a
perfectly competitive industry.

Under conditions of perfect competition, an individual producer
Correct Answer: operates where MR equals MC

The more that firms advertise, the closer they get to perfect competition.

Under conditions of perfect competition, if a firm is suffering a loss but AR is above
AFC, the firm should always continue to operate.

If a firm in perfect competition is suffering a loss, it should continue to operate in the
short run as long as
Correct Answer: AR exceeds AVC

Perfect competition does not assume that
Correct Answer: all firms operate at the same cost

If a firm is producing an output level for which the market price exceeds the firm’s
marginal cost,
Correct Answer: consumers would be willing to pay a price greater than what it
costs the firm to produce another unit
Question 25
In the long run, under conditions of perfect competition, the buyer will eventually be
able to buy the product at a
Correct Answer: price equal to the lowest point on the ATC curve at the optimal
scale of operation
Question 26 s
The amount of payment necessary to attract a given productive resource away from
its best alternative use is the
Correct Answer: opportunity cost
Question 27 0
As units of input are added to the productive process, the marginal product
Correct Answer: decreases
Question 28
The principle of diminishing marginal returns says that as more and more units of a
variable resource are added to a set of fixed resources, the resulting additions to
output will become increasingly smaller and, eventually, larger.

If output changes in fixed proportion to a change in all of a firm’s productive
resources, the firm has
Correct Answer: constant returns to scale

If the accounting profit equals $200,000 and implicit costs equal $40,000, the
economic profit equals
Correct Answer: $160,000

In the long run,
Correct Answer: all the firm’s resources are variable

As units of input are added to the productive process, the average product
Correct Answer: rises and then declines

The vertical distance between the total cost curve and the total variable cost curve
reflects
Correct Answer: total fixed cost

The production function relates outputs to inputs.

As output increases, total fixed cost
Correct Answer: remains constant

The difference between the ATC and the AVC must represent the AFC.

The opportunity cost of using one’s own savings in operating a business can be
determined by using
Correct Answer: interest rates

A decrease in investment can cause a decrease in the price level without affecting
total output.

The circular flow can be affected by changes in

A stable economy results whenever planned injections equals planned leakages.

A balanced federal budget tends to have a neutral effect on the economy.

According to the simple circular flow concept, whenever planned investment is less
than planned saving
Correct Answer: total output and/or prices fall

In the simple circular flow of income, whenever planned investment is equal to
planned saving,
Correct Answer: prices and total output tend to be stable

In the circular flow, services rendered by the resource owners are compensated
through payments of wages, rent, interest, and profits.

Spending on capital goods is referred to as investment.

A balanced budget will tend to have which one of the following effects on the
circular flow of business activity?
Correct Answer: have a neutral effect
Taxes are a leakage from the circular flow.

If the economy is at less than full employment and exports exceed imports (while
other planned injections equal other planned leakages), the economy
Correct Answer: expands

In the circular flow, savings specifically represents
Correct Answer: total income minus consumption spending

The level of total output and the price level can be affected by changes in
consumption.

Double coincidence of wants is associated with a barter economy.

Funds that earn a fixed rate of interest and must be held for a stipulated period of
time are known as
Correct Answer: time deposits
Assume the following: M = $500; V = 10; and P = $10. If the money supply then
increases by 50 percent while total transactions triple, the new value of the price level
will be:
Correct Answer: $5

The multiple expansion of the money supply is made possible because money
withdrawn from one bank finds its way into other banks.

A decrease in reserve requirements immediately increases the money supply.

Indexation is a good means of reducing inflation.

The GDP Implicit Price Deflator is the broadest index of price changes.

If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio
is 10 percent, the banking system can increase the money supply by a maximum of
The higher the reserve requirement,
Correct Answer: the less the money supply can expand

If a bank has legal reserves of $1 million, a reserve requirement of 10 percent, and
checkable deposits of $6 million, it can extend its checkable deposits by
Correct Answer: $4 million

The ease with which an asset can be converted into the medium of exchange is called
Correct Answer: liquidity

The Treasury issues all paper currency today.

If real GDP grew by 5 percent during one year and population also grew by 5
percent, then
Correct Answer: real GDP per capital did not change

Transfer payments are added to NI in the process of determining personal income.
The GDP in the United States is reported quarterly in terms of
Correct Answer: annual rates

Which of the following is not a reason for publishing quarterly reports on the GDP?
Correct Answer: a full year’s statistics are not useful to economists

Which of the following constitutes the largest component of NI in the United States?
Correct Answer: compensation of employees

Which of the following would not be entered in the GDP?
Correct Answer: cleaning your own house

Disposable personal income is equal to
Correct Answer: PI minus personal taxes

A factor not indicated by the GDP measurement that would tend to raise the standard
of living for the same GDP is a(n)
Correct Answer: shift toward production of consumer-oriented goods and services
The total earnings arising from the production of the GDP is known as
Correct Answer: national income

Gross domestic product measures the value of all final goods and services produced
within a country by
Correct Answer: both domestic and foreign resources

The goods and services included in GDP are allocated to which of the following four
major sectors?
Correct Answer: consumption, investment, government purchases, and net exports

The GDP is reported on a monthly basis by the Department of Commerce.

If the MPC is five-sixths, the size of the multiplier is 6.

The condition required for equilibrium to exist according to Keynesian analysis is
that
Correct Answer: total planned injections must be equal to total planned leakages
According to the Keynesian consumption function, if disposable income
Correct Answer: increases, both planned saving and planned consumption will
increase

In the classical model, a self-regulating market would
Correct Answer: eliminate shortages or surpluses through price changes

According to the Keynesian analysis, equilibrium will occur where planned injections
equal planned leakages.

Along the composite aggregate supply curve,

If the economy is in equilibrium and suddenly the level of planned investment
increases by $2 billion, national income will increase by
Correct Answer: more than $2 billion because of MPC

Which of the following is an example of supply-side economics?
Correct Answer: reducing marginal income tax rates

Factors that help determine the level of planned investment include

As the economy expands, it requires less and less investment.

Classical economists believed that
Correct Answer: the economy naturally tended toward full employment

Critics of supply-side economics claim that it
Correct Answer: increases federal debt

The multiplier is equal to
Correct Answer: the reciprocal of MPS

If the Fed sells securities on the open market, this will
Correct Answer: decrease banks’ excess reserves
Reserve requirements on nonpersonal time deposits cannot exceed 9 percent.

The Federal Reserve System is completely independent of the government.

In terms of the dollar value of payment, which of the following comprises the largest
share?
Correct Answer: personal checks

All members of the Board of Governors are members of the Fed’s Open Market
Committee.

When the Fed conducts open-market operations, it primarily uses
Correct Answer: Treasury bills

If depositors withdraw their funds and create a shortage of reserves, bankers
Correct Answer: can borrow reserves from the Fed
Share draft accounts at credit unions are a type of transaction account.

The Federal Reserve System was established in
Correct Answer: 1913

More than 50 percent of commercial banks in the United States belong to the Federal
Reserve System.

The Depository Institutions Deregulation and Monetary Control Act of 1980 did not
Correct Answer: require all commercial banks to join the Federal Reserve System

Each Federal Reserve Bank can issue Federal Reserve notes.

One problem associated with the National Banking System was
Correct Answer: the perverse elasticity of the money supply


product will be







inelastic.



complements.









production of sugar


use is known as







study of


unlimited wants









itself?



incentives


income tax.


Selected Answer: using better machines

Selected Answer: Country A specializes in wheat

use is known as

Selected Answer: Country A has a comparative advantage in wheat
Government regulations which affect entrepreneurial activities within a nation also
affect total output and the standard of living.

Selected Answer: business schools


it can move
Selected Answer: outward in any direction

Selected Answer: the United States

The opportunity cost of a choice is defined as the value of all the alternative choices.

outward?
Selected Answer: developing a more efficient technology

Selected Answer: move to the right

The total quantity of a good that all buyers in the market would buy at various prices
at a given time is known as
Selected Answer: market demand
Correct Answer: market demand

If a price floor of $10 a bottle is imposed on wine from California,
Selected Answer: the price of some wines will increase


price.

Selected Answer: elastic

Whenever the supply of a product decreases and the demand for the product
increases,

Which of the following would not lead to a change in demand for coffee?
Selected Answer: a change in the price of tea
Correct Answer: a change in the price of coffee

Selected Answer: a change in people’s preferences that causes them to buy either

Selected Answer: the availability of the resources and the costs of production

automobile tires.



Economics is considered a physical science.

Selected Answer: subjective economics


Determining “what ought to be” in the economy is considered

and in groups, is known as a(n)
Selected Answer: social science
Correct Answer: social science


Selected Answer: entrepreneur



Selected Answer: wages

Economic theory and economic policy are synonymous.


If the United States produces the same level of output each year, instead of increasing
it,
Selected Answer: the unemployment rate will rise
Correct Answer: the unemployment rate will rise


In a cooperative type of enterprise, a shareholder has only one vote regardless of the
number of shares held.
economy.

Selected Answer: the double taxation of its profits

Selected Answer: a balanced budget

Selected Answer: it results in an unequal distribution of property and income




U.S. prices are considered stable only when the Consumer Price Index
Selected Answer: remains unchanged
Correct Answer: moves 2 percent or less in a year’s time

use is known as comparative advantage.

use is known as

Suppose that Country A has an absolute advantage over country B in the production
Country A and 3 units of cloth in Country B. If each country specializes in producing
the good in which it is relatively more efficient and then trades for the other good, it
follows that
Selected Answer: each country will experience half the resulting gains in
consumption
Correct Answer: the allocation of the resulting consumption gains will be
determined by bargaining between the two countries.

Because of the high level of output in the United States, there is little need for
choosing among alternative output combinations.
If a society is producing at a point on its production possibilities curve, it does not
have the problem of scarce resources.

To exercise the law of comparative advantage, a nation
Selected Answer: does not have to produce any goods using fewer resources than
its trading partner
Correct Answer: does not have to produce any goods using fewer resources than its
trading partner

Selected Answer: using better machines

outward?

If a nation has an absolute advantage over another nation in the production of all
commodities, it is not feasible to take advantage of the principle of comparative
advantage.


Selected Answer: a balanced budget

The former Soviet Union was an example of a traditional economy.

Which of the following is not one of the basic legal forms of business organization in
the United States?
Selected Answer: syndicate
Correct Answer: syndicate

Selected Answer: equal distribution of income


In a partnership, each partner’s liability is limited to his or her contribution to the
partnership.

economy has a job.

In a market economy, a resource is compensated according to
Selected Answer: its contribution to the final product
Correct Answer: its contribution to the final product

Selected Answer: a return to economic liberalism


and nonregulated industries is known as a
Selected Answer: mixed economy
Correct Answer: mixed economy
An increase in demand causes price to rise and quantity sold to fall.

Selected Answer: slopes downward to the right

Selected Answer: an increase in price if the price floor is above the market price

price.

imposed,
Which of the following types of goods tend toward elastic demand?


Selected Answer: a change in the price of tea

Over the long run, the supply curve becomes
Selected Answer: unit elastic
Correct Answer: more elastic

inelastic.

There is a difference between demand and quantity demanded.

Whenever the supply of a product decreases and the demand for the product
increases,

Goods used to produce other goods and services are known as capital.



Selected Answer: positive economics

Selected Answer: it is neither scarce nor is it an economic good




Economies must make choices because resources are limited while wants are
unlimited.

The study of economics is primarily theoretical and has very little practical
application.

Selected Answer: such things as machinery and equipment



Economic services lack the characteristic of transferability found in economic goods.

Goods directly used by individuals and households are known as capital goods.

The resource most directly associated with profits is
Selected Answer: capital
Correct Answer: enterprise

The largest part of U.S. national income takes the form of profits.

Selected Answer: economic goods

Selected Answer: the water bubbling up from the natural spring in your backyard



spending



Use of the principle of comparative advantage involves
Selected Answer: both specialization and exchange
Correct Answer: both specialization and exchange

Japan has a low standard of living because of its shortage of resources.
it can move
Selected Answer: outward in any direction

Selected Answer: specialization

The greatest increase in productivity per capita in the future will probably result from

Selected Answer: Country B has a comparative advantage in wheat

A nation’s production possibilities curve can be shifted outward by technological
development.
The opportunity cost of a choice is defined as the value of all the alternative choices.

need
Selected Answer: technical assistance

The basic function of any economic system is to provide the framework for allocating

Selected Answer: inelastic

complements.



If a good has negative income elasticity, then it is an inferior good.

An increase in demand tends to increase both the equilibrium price and the amount of
a commodity exchanged.

decrease in price.

Demand is a list of needs or wants, regardless of purchasing power.


Whenever the supply of a product increases and the demand for the product
decreases,
Selected Answer: equilibrium price will fall

price.
Probably the main characteristic of a demand curve is that it slopes upward from left
to right.



In a cooperative type of enterprise, a shareholder has only one vote regardless of the
number of shares held.

The U.S. economy is a mixture of perfect and imperfect competition and regulated
and nonregulated industries.


The board of directors has unlimited financial liability for the debts of the
corporation.

partnership.

Selected Answer: privatization


Selected Answer: the pricing system

Laissez-faire is a policy of government nonintervention in the economy.


known as a
Selected Answer: command economy

The total quantity of a good offered for sale is unaffected by estimates by sellers of
the probable costs of producing the good in the future.
Any time the market price moves away from its equilibrium position to a lower price,
market action will tend to force it further away from its original equilibrium position.

If a price ceiling of $3 is imposed on gasoline and the market price is $2,
Selected Answer: the price of gasoline will remain unchanged
Correct Answer: the price of gasoline will remain unchanged

The effect of a change in the quantity sold of product A resulting from a change in the
price of product B is measured by
Selected Answer: cross elasticity of demand
Correct Answer: cross elasticity of demand

If supply increases more than demand, equilibrium price will fall.

The standard of living in most countries in the past has risen primarily as a result of a
more skilled workforce and better machinery and equipment.


In the long run, a nation cannot overcome a shortage of labor or land.

Your decision to attend college was a microeconomic choice.

Selected Answer: interest

An economy’s wealth consists of a multitude of consumer and capital goods.

A production possibilities curve will shift outward when additional resources are
found.

As price is lowered from a point higher than the equilibrium price, it will bring about
Selected Answer: an increase in quantity demanded
Correct Answer: an increase in quantity demanded
When the supply of a product increases but the demand for the product remains
Selected Answer: first rise and then return to the original price level
Correct Answer: fall, and equilibrium quantity will increase

A considerable degree of government control of production and distribution exists in
a command economy.

A positive economic statement is always true.

Economics is an isolated science since it has no relation to other sciences.

an economy’s

Positive economics deals with “what is” as opposed to “what ought to be.”

Production is the creation or addition of utility.
Name Exam 1
Status Completed
incorrect.


The total quantity of a good offered for sale is unaffected by estimates by sellers of
the probable costs of producing the good in the future.


automobile tires.



The effect of a change in the quantity sold of product A resulting from a change in the
price of product B is measured by
Selected Answer: cross elasticity of demand
Correct Answer: cross elasticity of demand


Selected Answer: a change in the price of coffee


If demand increases and supply decreases, but supply decreases more than demand
increases,

Selected Answer: the next best alternative that must be sacrificed


of scarcity.

need

involves

The standard of living in most countries in the past has risen primarily as a result of a


In the long run, a nation cannot overcome a shortage of labor or land.



Selected Answer: private property


Selected Answer: command
it,



known as a

economy.



The most prevalent form of business enterprise in the U.S. is the
Selected Answer: sole proprietorship

because it takes advantage of consumers is an example of a(n)
Selected Answer: normative economic statement
Correct Answer: normative economic statement


The largest part of U.S. national income takes the form of profits.

Your decision to attend college was a microeconomic choice.


An economy’s wealth consists of a multitude of consumer and capital goods.


Selected Answer: positive economics

study of
Selected Answer: microeconomics

Consumption is the ultimate end of economic activity.


Name Exam 1
Status Completed
incorrect.

Selected Answer: the country becomes better off if the regions are pursuing their


use is known as

Selected Answer: business schools

need

A production possibilities curve will shift outward when additional resources are
found.



Selected Answer: comparative advantage

A nation’s production possibilities curve can be shifted outward by technological
development.

Selected Answer: increasing opportunity costs


As price is lowered from a point higher than the equilibrium price, it will bring about
Selected Answer: an increase in quantity demanded
Correct Answer: an increase in quantity demanded

An increase in demand tends to increase both the equilibrium price and the amount of
a commodity exchanged.




When the supply of a product increases but the demand for the product remains
Selected Answer: first rise and then return to the original price level
Correct Answer: fall, and equilibrium quantity will increase




would generally
Selected Answer: fall


Selected Answer: the undermining of competition

U.S. prices are considered stable only when the Consumer Price Index
Selected Answer: moves 2 percent or less in a year’s time
Correct Answer: moves 2 percent or less in a year’s time

known as a
Selected Answer: agriculture

A considerable degree of government control of production and distribution exists in
a command economy.



Selected Answer: command

Selected Answer: mixed economy
Correct Answer: mixed economy


it,





an economy’s

unlimited.


Selected Answer: society decides to use its scarce resources in an attempt to satisfy
unlimited wants
unlimited wants

Production is the creation or addition of utility.
Name Exam 1
Status Completed
incorrect.

use is known as

Selected Answer: nations only

resources.


Technological development can be applied to the improvement of human capital as

Selected Answer: the country becomes better off if the regions are pursuing their

Selected Answer: some resources are unemployed

production of sugar
production of sugar


outward?


of scarcity.

Functional distribution has to do with the allocation of total production among the
resources.

unlimited.



Wealth is a flow concept, whereas income is a stock concept.

Selected Answer: society decides to use its scarce resources in an attempt to satisfy
unlimited wants
unlimited wants





For a good to be scarce, it must be something that
Selected Answer: is available only in limited quantities




If a good has perfectly inelastic demand,
Selected Answer: the same amount would be purchased regardless of price
Correct Answer: the same amount would be purchased regardless of price


Selected Answer: a decrease in price if the price floor is below the market price

The more substitutes for a good, the more elastic its demand tends to be.




Over the long run, the supply curve becomes
Selected Answer: more elastic
Correct Answer: more elastic

The quantity supplied is inversely related to price.


Selected Answer: market economy if it relies on self-interested behavior and
incentives
incentives

A major advantage of a partnership is the legal separation of personal and partnership
assets.


The most common type of business in the United States is the corporation.

itself?
Selected Answer: corporation



The board of directors has unlimited financial liability for the debts of the
corporation.


Self-interest is a major tenet of economic liberalism.


Which of the following is true of scarcity?
Selected Answer: it is a basic problem of economics that affects all nations
Correct Answer: it affects only poor nations

Specialization
Selected Answer: All three alternative answers are correct
Correct Answer: All three alternative answers are correct

In exercising the principle of comparative advantage, a nation with no absolute
advantage should produce a commodity in which it faces a lower opportunity cost
than its trading partners face.

need

Annual total production in the United States is
Selected Answer: more than $10 trillion
Correct Answer: more than $10 trillion


Technological development can be applied to the improvement of human capital as
Selected Answer: there are not enough resources for everything that people want


The application of the principle of comparative advantage requires each of two
trading partners to have an absolute advantage over the other in the production of
some particular commodity.


Selected Answer: agriculture


Laissez-faire is a policy of government nonintervention in the economy.


Selected Answer: the undermining of competition
A major advantage of a partnership is the legal separation of personal and partnership
assets.

Selected Answer: unlimited liability: if the firm goes bankrupt, the owner is liable
for all debts
all debts


Selected Answer: the pricing system

economy has a job.
The stronger that consumer demand is for a good or service, other things being equal,
Selected Answer: the higher its price
Correct Answer: the higher its price

All goods and services produced during the year are added to the total wealth of the
nation.

Wealth is a flow concept, whereas income is a stock concept.

Selected Answer: utility




Economists divide productive resources into which of the following four broad
categories?



The process of allocating the total product among the resources involved is referred
to as
Selected Answer: marketing distribution
Correct Answer: functional distribution





Whenever the supply of a product increases and the demand for the product
decreases,


Selected Answer: a decrease in price if the price floor is below the market price

Selected Answer: the availability of the resources and the costs of production

The more substitutes for a good, the more elastic its demand tends to be.
decrease in price.

Selected Answer: move it to the equilibrium price

Selected Answer: production costs


If a 2 percent change in price is followed by a 10 percent change in quantity sold, the
coefficient of price elasticity is
Selected Answer: 8.0
Correct Answer: 5.0
User Wai Hung Poon
Submitted 11/29/12 8:50 PM
Name Exam 1
Status Completed
Correct The price elasticity of demand is defined as
Question 1 answers
Selected Answer: Correct the percentage change in quantity demanded divided by the
Correct Answer: Correct the percentage change in quantity demanded divided by the percentage
change in price
Correct Price elasticity of demand is a measure of consumer responsiveness to a change in

price.
Question 2 answers

Incorrect To maintain a price above the equilibrium price,
Question 3 answers
Selected Answer: Incorrect supply must increase
Correct Answer: Correct price must be regulated
Correct If the coefficient of elasticity for a commodity is 1.5 and the price of that commodity is
raised, total revenue will decrease.
Question 4 answers
Correct Over the long run, the supply curve becomes
Question 5 answers
Selected Answer: Correct more elastic
Correct Answer: Correct more elastic
Correct If a good has negative income elasticity, then it is an inferior good.

Question 6 answers
Correct If both demand and supply increase, but demand increases more than supply,
Question 7 answers
Selected Answer: Correct equilibrium price will rise
Correct Answer: Correct equilibrium price will rise
Correct If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a
Question 8 answers
Selected Answer: Correct unit elastic
Correct Answer: Correct unit elastic
Correct The demand for a product at a given time is defined as the
Question 9 answers
Selected Answer: Correct amount that would be bought at various prices
Correct Answer: Correct amount that would be bought at various prices

Correct The total quantity of a good offered for sale is unaffected by estimates by sellers of the
probable costs of producing the good in the future.
Question 10 answers
Correct When the supply of a product increases but the demand for the product remains
Question 11 answers
Selected Answer: Correct fall, and equilibrium quantity will increase
Correct Answer: Correct fall, and equilibrium quantity will increase
Correct The demand for necessities and goods that require a small expenditure tends to be price
inelastic.
Question 12 answers
Correct In a market with many buyers and sellers, no one individual can influence the market
price.
Question 13 answers
Correct A stable unemployment rate requires that the U.S. economy grow each year in order to
absorb new workers who enter the labor force.
Question 14 answers
Incorrect Laissez-faire is a policy of no government intervention in the economic activities of

individuals and businesses.
Question 15 answers
Correct The most common type of business in the United States is the corporation.
Question 16 answers

Correct Government intervention becomes necessary when self-interest leads to
Question 17 answers
Selected Answer: Correct the undermining of competition
Correct Answer: Correct the undermining of competition
Correct If the United States produces the same level of output each year, instead of increasing
it,
Question 18 answers
Selected Answer: Correct the unemployment rate will rise
Correct Answer: Correct the unemployment rate will rise
Correct The major advantage of the sole proprietorship is its
Question 19 answers
Selected Answer: Correct flexible management
Correct Answer: Correct flexible management
Correct The relationship between the market system and private property is
Question 20 answers
Selected Answer: Correct the market system functions best when the rights of private
Correct Answer: Correct the market system functions best when the rights of private property are
protected
Correct A major disadvantage of a corporation is
Question 21 answers
Selected Answer: Correct the double taxation of its profits
Correct Answer: Correct the double taxation of its profits
Correct A corporation can raise money by selling stock or bonds.
Question 22 answers
Correct Rivalry among firms and individuals for sales to consumers
Question 23 answers
Correct The stronger that consumer demand is for a good or service, other things being equal,
Question 24 answers
Selected Answer: Correct the higher its price
Correct Answer: Correct the higher its price
Correct Which of the following economic systems abolishes all private property?
Question 25 answers
Selected Answer: Correct communism
Correct Answer: Correct communism
Correct The board of directors has unlimited financial liability for the debts of the corporation.
Question 26 answers
Correct Economic theory and economic policy are synonymous.
Question 27 answers

Correct For the use of their capital in production, owners receive
Question 28 answers
Selected Answer: Correct interest
Correct Answer: Correct interest
Correct A free good lacks the element of
Question 29 answers
Selected Answer: Correct scarcity
Correct Answer: Correct scarcity
Correct The sum of all the goods and services produced by an economy over a given time
Question 30 answers
Selected Answer: Correct total product
Correct Answer: Correct total product
Correct Income is a flow concept whereas wealth is a stock concept.
Question 31 answers

Correct Goods directly used by individuals and households are known as capital goods.
Question 32 answers
Correct The largest part of U.S. national income takes the form of profits.
Question 33 answers
Correct If an economist is trying to figure out, in a certain situation, “what would happen
Question 34 answers
Selected Answer: Correct positive economics
Correct Answer: Correct positive economics
Correct Generally, in economics we study how people
Question 35 answers
Selected Answer: Correct make choices when resources are scarce
Correct Answer: Correct make choices when resources are scarce
Correct The interactions of producers and consumers in individual markets are part of the study
of
Question 36 answers
Selected Answer: Correct microeconomics
Correct Answer: Correct microeconomics
Correct An editorial in a newspaper calling for the government to abolish the minimum wage
because it takes advantage of consumers is an example of a(n)
Question 37 answers
Selected Answer: Correct normative economic statement
Correct Answer: Correct normative economic statement
Correct An economic good must be
Question 38 answers

Correct Productivity per worker has increased in the past primarily through
Question 39 answers
Selected Answer: Correct technological development
Correct Answer: Correct technological development
Correct Overspecialization and the resulting dependence on one or a few products by a nation
Question 40 answers
Correct The opportunity cost of a choice is defined as the value of
Question 41 answers
Selected Answer: Correct the next best alternative that must be sacrificed
Correct Answer: Correct the next best alternative that must be sacrificed
Correct If a firm uses technological development to change its production possibilities curve, it
can move
Question 42 answers
Selected Answer: Correct outward in any direction
Correct Answer: Correct outward in any direction

Correct A nation’s raw materials and sources of energy are considered part of its capital
resources.
Question 43 answers
Correct If a society is producing at a point on its production possibilities curve, it does not have
the problem of scarce resources.
Question 44 answers
Correct Because of the high level of output in the United States, there is little need for choosing
among alternative output combinations.
Question 45 answers
Correct One cause for the uneven standard of living throughout the world is the uneven
Question 46 answers
Correct Use of the principle of comparative advantage involves
Question 47 answers
Selected Answer: Correct both specialization and exchange
Correct Answer: Correct both specialization and exchange
Correct To solve their basic long-term economic problems, developing countries primarily need
Question 48 answers
Selected Answer: Correct technical assistance
Correct Answer: Correct technical assistance
Question 49 answers

3 units of cloth in Country B. It follows that
Question 50 answers
Selected Answer: Correct Country A has a comparative advantage in wheat
Correct Answer: Correct Country A has a comparative advantage in wheat
OK
ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > EXAMS > REVIEW

ASSESSMENT: EXAM 1
User Sin Keung Chiu
Name Exam 1
Status Completed
If demand increases and supply decreases, but supply decreases more than demand increases,

Selected Answer: slopes downward to the right
Selected Answer: move it to the equilibrium price
If demand and supply increase by the same amount, equilibrium price will rise.
Demand is a list of needs or wants, regardless of purchasing power.

Price elasticity of demand tends to be greater for substitute items than for complementary
goods.
The demand curve for a product slopes downward to the right because more of the product
will be
Selected Answer: purchased as price falls

Price floors can create shortages if price floors are above market prices.
If the market price of gasoline were $4 a gallon and a ceiling price of $1.50 is imposed,
In a market with many buyers and sellers, no one individual can influence the market price.
Selected Answer: the market system functions best when the rights of private property are
protected
Correct Answer: the market system functions best when the rights of private property are
protected

In a market economy, resources are allocated by the government.
There are no government-regulated markets in the U.S. economy.

Selected Answer: sole proprietorship
Self-interest is a major tenet of economic liberalism.
The profit motive is one characteristic of a command economy.

partnership.
Assume that Country A produces 60 tons of sugar using 6 productive units and that Country
B produces 40 tons of sugar using 6 productive units. Assume further that Country A produces 120
tons of coffee using 4 units of production and that Country B produces 90 tons of coffee using 4
units of production. It follows that
Selected Answer: Country A has a comparative advantage over Country B in the production
of sugar
Correct Answer: Country A has a comparative advantage over Country B in the production of
sugar

Suppose that Country A has an absolute advantage over Country B in the production of both
wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in Country A and 3
units of cloth in Country B. It follows that production of both wheat and cloth will be maximized if
The standard of living in most countries in the past has risen primarily as a result of a more
skilled workforce and better machinery and equipment.
The application of the principle of comparative advantage requires each of two trading
partners to have an absolute advantage over the other in the production of some particular
commodity.
The ability to produce a good or service at a lower opportunity cost than other producers face
is known as comparative advantage.
When the entire production possibilities curve shifts inward, the economy is growing.
To solve their basic long-term economic problems, developing countries primarily need
Which of the following is true of scarcity?
Selected Answer: it affects only poor nations
Correct Answer: it affects only poor nations
Selected Answer: there are not enough resources for everything that people want
If a useful good or service exists in such abundance that anyone can readily obtain it without
much effort,
Selected Answer: it is neither scarce nor is it an economic good


Selected Answer: stock; flow
Selected Answer: the water bubbling up from the natural spring in your backyard

The interactions of producers and consumers in individual markets are part of the study of
Selected Answer: microeconomics

User Yuen Ling Carol Lam
Name Exam 1
Status Completed
Correct An economy that contains both perfect and imperfect competition and both regulated
Question 1 answers
Selected Answer: Correct mixed economy
Correct Answer: Correct mixed economy
Correct According to economic liberalism, the regulating force of the economy is
Question 2 answers
Selected Answer: Correct competition
Correct Answer: Correct competition
Correct Privatization results in
Question 3 answers
Selected Answer: Correct a reduction in government economic functions
Correct Answer: Correct a reduction in government economic functions
Correct In a market economy, decisions about what to produce are made primarily by
Question 4 answers
Selected Answer: Correct individuals and firms
Correct Answer: Correct individuals and firms
Correct If the United States produces the same level of output each year, instead of increasing
it,
Question 5 answers
Selected Answer: Correct the unemployment rate will rise
Correct Answer: Correct the unemployment rate will rise
Correct An economy in which a central authority makes most of the economic decisions is
known as a
Question 6 answers
Selected Answer: Correct command economy
Correct Answer: Correct command economy

Correct The relationship between the market system and private property is
Question 7 answers
Selected Answer: Correct the market system functions best when the rights of private
Correct Answer: Correct the market system functions best when the rights of private property are
protected
Correct Which of the following is considered a command economy?
Question 8 answers
Incorrect Socialism combines monopoly, capitalism, private property, and a strong dictatorial
central government.
Question 9 answers
Correct In a cooperative form of business enterprise, a shareholder is entitled to
Question 10 answers
Selected Answer: Correct one vote
Correct Answer: Correct one vote

Correct Corporations have the advantage of
Question 11 answers
Selected Answer: Correct limited liability of the stockholders
Correct Answer: Correct limited liability of the stockholders
Correct Full employment is considered to have been achieved only when everybody in the
economy has a job.
Question 12 answers
Correct Self-interest is a major tenet of economic liberalism.
Question 13 answers
Correct In the long run, the supply of goods is based on
Question 14 answers
Selected Answer: Correct the availability of the resources and the costs of production
Correct Answer: Correct the availability of the resources and the costs of production
Correct An increase in demand tends to increase both the equilibrium price and the amount of a
commodity exchanged.
Question 15 answers
Correct Whenever the supply of a product increases and the demand for the product decreases,
Question 16 answers
Correct A supply curve generally
Question 17 answers
Selected Answer: Correct slopes upward to the right
Correct Answer: Correct slopes upward to the right
Correct A change in demand means that
Question 18 answers
Selected Answer: Correct a changed amount will be bought at the same given prices
Correct Answer: Correct a changed amount will be bought at the same given prices
Correct Probably the main characteristic of a demand curve is that it slopes upward from left to
right.
Question 19 answers

Correct If 1,000 units of a particular good would be purchased at 40 cents per unit but only 750
units would be purchased at 50 cents per unit, the demand for the good is inelastic.
Question 20 answers
Correct If demand increases and supply decreases, but supply decreases more than demand
increases,
Question 21 answers
Correct If a good has perfectly inelastic demand,
Question 22 answers
Selected Answer: Correct the same amount would be purchased regardless of price
Correct Answer: Correct the same amount would be purchased regardless of price
Correct The point where quantity demanded and quantity supplied are equal is known as the
Question 23 answers
Selected Answer: Correct equilibrium price
Correct Answer: Correct equilibrium price
Incorrect The responsiveness of quantity demanded to a change in income is measured by the

Question 24 answers
Selected Answer: Incorrect cross elasticity of demand
Correct Answer: Correct income elasticity of demand
Correct The slope of a demand curve is a measure of elasticity.
Question 25 answers
Correct A shift in the supply curve for gasoline in the United States would result if
Question 26 answers
Selected Answer: Correct the OPEC nations decided to stop sales of crude oil to the United
States
Correct Answer: Correct the OPEC nations decided to stop sales of crude oil to the United States
Correct Concern with the level of employment in the economy is a macroeconomic issue.
Question 27 answers
Correct A science that studies the behavior and interactions of human beings, individually and
in groups, is known as a(n)
Question 28 answers
Selected Answer: Correct social science

Correct Answer: Correct social science
Correct For the use of the employee’s participation in production, an employee receives
Question 29 answers
Selected Answer: Correct wages
Correct Answer: Correct wages
Correct Positive economics deals with “what is” as opposed to “what ought to be.”
Question 30 answers
Correct For a good to be scarce, it must be something that
Question 31 answers
Correct To understand the purpose of a given economic policy, it is necessary to understand the
influence of political and social policies.
Question 32 answers

Correct In economics, the entrepreneur is the person who
Question 33 answers
Selected Answer: Correct puts together land, labor, and capital and tries to make a profit
Correct Answer: Correct puts together land, labor, and capital and tries to make a profit
Correct All economies in the world have identical methods of functional distribution.
Question 34 answers
Correct Utility as an economic term refers to
Question 35 answers
Selected Answer: Correct the ability of a good to satisfy a want
Correct Answer: Correct the ability of a good to satisfy a want
Correct Microeconomics is a study of aggregates in the economy.
Question 36 answers
Correct The largest part of U.S. national income takes the form of profits.
Question 37 answers

Correct If you heard someone say that coal miners should be paid more wages to enable them
Question 38 answers
Selected Answer: Correct normative economics
Correct Answer: Correct normative economics
Correct Comparative advantage cannot be applied to activities of individuals.
Question 39 answers
Correct The typical production possibilities frontier curves outward due to
Question 40 answers
Selected Answer: Correct increasing opportunity costs
Correct Answer: Correct increasing opportunity costs
Correct Total annual production in the United States is in excess of $10 trillion.
Question 41 answers

Correct If a society is producing at a point on its production possibilities curve, it does not have
the problem of scarce resources.
Question 42 answers
Question 43 answers
Correct A nation that has done well economically in spite of a lack of material resources is
Question 44 answers
Selected Answer: Correct Japan
Correct Answer: Correct Japan
3 units of cloth in Country B. It follows that production of both wheat and cloth will be maximized
if
Question 45 answers
Selected Answer: Correct Country A specializes in wheat
Correct Answer: Correct Country A specializes in wheat

Correct The standard of living in most countries in the past has risen primarily as a result of a
Question 46 answers
Correct A nation’s production possibilities curve can be shifted outward by technological

development.
Question 47 answers
Correct If a nation is producing a combination of goods inside its production possibilities curve,
it is underutilizing its resources.
Question 48 answers
Correct The basic function of any economic system is to provide the framework for allocating
Question 49 answers

Correct Because of the high level of output in the United States, there is little need for choosing
among alternative output combinations.
Question 50 answers
OK
ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > EXAMS > REVIEW

ASSESSMENT: EXAM 2
User Siu Wan Luk
Name Exam 2
Status Completed
In the circular flow, services rendered by the resource owners are compensated through
payments of wages, rent, interest, and profits.

A nation that imports more than it exports has a surplus balance of trade.
The circular flow represents the total level of output and income.
The expansionary effect of a high government budget deficit can be offset by the
contractionary effect of a surplus in the nation’s balance of trade.
If the government obtains all the money it uses for spending from taxation, it will tend to
cause the economy to
Selected Answer: remain stable
Correct Answer: remain stable
Unexpected inventory accumulations represents unplanned investment.

To have an increase in investment, consumption must decrease.
The total payment of resource income in the economy is equal to
Selected Answer: the total value or cost of the output
Correct Answer: the total value or cost of the output
During times of full employment, the only way a firm can obtain additional resources is to
bid the resources away from other firms.
The total payment of resource income in the economy is equal to the total value of the
output.

If total spending is less than the total production of goods and service, all the goods produced
can be cleared from the market by
Selected Answer: lowering prices
Correct Answer: lowering prices
If planned investment exceeds planned savings, the economy always expands.
It is true that a stable economy occurs when
Selected Answer: total planned leakages from the circular flow are exactly equal to total
planned injections into the circular flow
Correct Answer: total planned leakages from the circular flow are exactly equal to total planned
injections into the circular flow
A kinked demand curve results when one firm’s price changes are followed downward but
not upward by competing firms.

Under monopolistic competition, a firm’s marginal revenue curve is
Selected Answer: below the average revenue curve
Correct Answer: below the average revenue curve
The best example of an oligopolistic industry in the United States is
Selected Answer: automobile production
Correct Answer: automobile production
Selected Answer: there are relatively few producers
The rule of reason states that monopolies that behave well are still illegal.
A cartel is
Selected Answer: a type of formal collusion
Correct Answer: a type of formal collusion
The demand curve for the output of an individual firm in monopolistic competition is
Selected Answer: perfectly elastic
Correct Answer: more elastic than the market demand curve
Which of the following is the best example of a monopoly in the United States?
Selected Answer: a government-regulated public utility
Correct Answer: a government-regulated public utility
Selected Answer: limit output and raise prices
Perfect competition always provides a lower price than monopolistic competition or an

oligopoly.

The closer monopolistic competition gets to perfect competition,
Selected Answer: the more horizontal the AR curve
Correct Answer: the more horizontal the AR curve
The best example of monopolistic competition in the United States is the steel industry.
A firm is making a profit under conditions of monopolistic competition if, at the equilibrium
output,
Selected Answer: AR is above ATC
Correct Answer: AR is above ATC
If a firm adds one more worker and total output increases from 100 to 120, the marginal
product of labor equals
Selected Answer: 20
Correct Answer: 20

The ATC rises whenever the
Selected Answer: upward pull of the AVC is greater than the downward pull of the AFC
Correct Answer: upward pull of the AVC is greater than the downward pull of the AFC
The opportunity cost of using one’s own savings in operating a business can be determined
by using
Selected Answer: interest rates
Average revenue times total output equals total profit.
Total profit is equal to
Selected Answer: total revenue minus total cost
Correct Answer: total revenue minus total cost
If all inputs are increased by 25 percent and output by 35 percent, increasing returns to scale
exist.
To arrive at a logical determination of a firm’s optimum output, economists assume that the
firm seeks to
Selected Answer: maximize profit or minimize loss
Correct Answer: maximize profit or minimize loss
The principle of diminishing marginal returns is applicable only to the use of labor as a
productive resource.
The marginal product decreases, reaches a minimum, and then rises as output increases.

So long as marginal cost is rising, average variable cost must rise.
The increase in total revenue that results from the sale of one additional unit of output is
known as
Selected Answer: marginal revenue
Correct Answer: marginal revenue
Perfect competition assumes that a producer is interested in maximizing profit.
Under conditions of perfect competition, if a profitable firm pushes its output beyond the
point where MR equals MC,
Selected Answer: profits increase
Correct Answer: profits diminish
Consumer surplus occurs whenever the consumer pays a price

Selected Answer: less than the consumer is willing to pay
Correct Answer: less than the consumer is willing to pay
If a perfectly competitive firm is producing an output level for which MR equals $5, MC
equals $6, and ATC equals $4, the firm
Selected Answer: is earning a profit but should reduce output
Correct Answer: is earning a profit but should reduce output
An increase in market demand for a product can raise the MR for a firm in perfect
competition.
If new firms enter a perfectly competitive industry, the market price of the finished product
will rise.
If MC equals MR at a point greater than ATC, the perfectly competitive firm will
Selected Answer: make an economic profit
Correct Answer: make an economic profit
Under perfect competition, market price is determined by market demand and supply.
Perfectly competitive firms are price takers.
In a perfectly competitive industry, if TR exceeds TC, then in the long run
Selected Answer: new firms will enter the industry
Correct Answer: new firms will enter the industry
A large number of buyers is an assumption of perfect competition.

Under conditions of perfect competition, if a firm is suffering a loss but AR is above AFC,
the firm should always continue to operate.

User Wai Hung Poon
Name Exam 2
Status Completed
Correct An increase in planned savings, all else held constant, will always result in
Question 1 answers
Selected Answer: Correct a slowdown in the circular flow of income
Correct Answer: Correct a slowdown in the circular flow of income
Correct Which of the following are injections into the circular flow of income?
Question 2 answers
Selected Answer: Correct investment, government spending, and exports
Correct Answer: Correct investment, government spending, and exports
Correct In the circular flow, investment refers to spending on
Question 3 answers
Selected Answer: Correct capital goods
Correct Answer: Correct capital goods
Correct In the circular flow, nonprofit institutions are
Question 4 answers
Selected Answer: Correct counted as businesses
Correct Answer: Correct counted as businesses
Correct If planned investment exceeds planned savings, a deficit budget exists, and the
economy is in a state of less than full employment, the most likely result is
Question 5 answers
Selected Answer: Correct an increase in total income and output
Correct Answer: Correct an increase in total income and output

Correct The circular flow of income does not take into consideration nonprofit institutions.
Question 6 answers
Correct The production of goods and services generates income.
Question 7 answers
Correct To have an increase in investment, consumption must decrease.
Question 8 answers
Correct A surplus budget will tend to have which one of the following effects on the circular
flow of business activity?
Question 9 answers
Selected Answer: Correct decrease total output and/or prices

Correct Answer: Correct decrease total output and/or prices
Correct If exports exceed imports during a period of full employment (while other planned
injections equal other planned leakages), the economy
Question 10 answers
Selected Answer: Correct experiences rising prices
Correct Answer: Correct experiences rising prices
Correct In the simple circular flow of income, whenever planned investment is equal to planned
saving,
Question 11 answers
Selected Answer: Correct prices and total output tend to be stable
Correct Answer: Correct prices and total output tend to be stable
Correct Spending on capital goods is referred to as investment.
Question 12 answers
Correct If the government obtains all the money it uses for spending from taxation, it will tend
to cause the economy to
Question 13 answers
Selected Answer: Correct remain stable
Correct Answer: Correct remain stable
Correct The first act to declare monopolies illegal in the United States was the
Question 14 answers
Selected Answer: Correct Sherman Antitrust Act
Correct Answer: Correct Sherman Antitrust Act
Correct In monopolistic competition, there is no need for advertising.
Question 15 answers
Correct The demand for the product of a monopolist is perfectly inelastic.
Question 16 answers

Correct Which of the following is always true of monopolists?
Question 17 answers
Selected Answer: Correct they charge a price higher than marginal cost
Correct Answer: Correct they charge a price higher than marginal cost
Correct Which of the following will cause a cartel to be unstable?
Question 18 answers
Selected Answer: Correct sharply differentiated products
Correct Answer: Correct sharply differentiated products
Correct Under conditions of monopolistic competition, a firm maximizes profits where
Question 19 answers
Selected Answer: Correct MR equals MC
Correct Answer: Correct MR equals MC
Correct The closer monopolistic competition gets to perfect competition,
Question 20 answers
Selected Answer: Correct the more horizontal the AR curve
Correct Answer: Correct the more horizontal the AR curve

Correct Under which type of market structure is the firm’s pricing decision the most difficult?
Question 21 answers
Selected Answer: Correct oligopoly
Correct Answer: Correct oligopoly
Correct The marginal revenue curve of a monopolist is
Question 22 answers
Selected Answer: Correct below the AR line
Correct Answer: Correct below the AR line
Correct Under monopolistic competition, a firm’s marginal revenue curve is
Question 23 answers
Selected Answer: Correct below the average revenue curve
Correct Answer: Correct below the average revenue curve
Correct Under oligopoly, collusive practices to fix prices are more likely to take place if
Question 24 answers
Selected Answer: Correct market demand is highly inelastic

Correct Answer: Correct market demand is highly inelastic
Correct The Federal Trade Commission
Question 25 answers
Selected Answer: Correct polices deceptive advertising
Correct Answer: Correct polices deceptive advertising
Incorrect A market structure in which a single buyer exists on one side of the market and only
one seller exists on the other side is known as
Question 26 answers
Selected Answer: Incorrect a Wheeler-Lea market
Correct Answer: Correct a bilateral monopoly
Correct The opportunity cost of using one’s own savings in operating a business can be
determined by using
Question 27 answers
Selected Answer: Correct interest rates
Correct Answer: Correct interest rates
Correct As units of input are added to the productive process, the marginal product
Question 28 answers
Selected Answer: Correct decreases
Correct Answer: Correct decreases
Correct When at least one productive resource is fixed, the firm is producing
Question 29 answers
Selected Answer: Correct in the short run
Correct Answer: Correct in the short run
Correct On a cost/output graph, the average fixed cost is constructed as a straight horizontal
line.
Question 30 answers
Correct Wages paid are an example of an explicit cost of doing business.
Question 31 answers

Correct The production function relates outputs to inputs.
Question 32 answers
Correct The addition to total output resulting from using one more unit of a productive resource
is the
Question 33 answers
Selected Answer: Correct marginal product
Correct Answer: Correct marginal product
Correct Under perfectly competitive conditions, marginal revenue is
Question 34 answers
Selected Answer: Correct equal to average revenue
Correct Answer: Correct equal to average revenue
Incorrect It may be beneficial for a firm that is suffering a loss to continue to operate in the short
run as long as it is recovering its fixed cost.
Question 35 answers

Correct If a firm is in the short run,
Question 36 answers
Selected Answer: Correct at least one of the firm’s resources cannot be varied
Correct Answer: Correct at least one of the firm’s resources cannot be varied
Correct Marginal product can never fall below zero.
Question 37 answers
Correct Unlike a firm in pure competition, a monopolist may be able to
Question 38 answers
Selected Answer: Correct both (a) and (b)
Correct Answer: Correct both (a) and (b)
Correct If the entry of new firms in a perfectly competitive industry substantially increases the
market demand for resources,
Question 39 answers
Selected Answer: Correct this raises the market price of resources
Correct Answer: Correct this raises the market price of resources
Incorrect If price equals marginal cost at the long-run equilibrium, this means that economic
efficiency is being achieved.
Question 40 answers
Correct In a perfectly competitive industry, if TR exceeds TC, then in the long run
Question 41 answers
Selected Answer: Correct new firms will enter the industry
Correct Answer: Correct new firms will enter the industry
Correct In the short run, each firm is free to vary its maximum capacity.
Question 42 answers

Correct Under conditions of perfect competition, firms offer roughly similar products for sale.
Question 43 answers
Correct Consider a perfectly competitive firm for which MC equals ATC at the $10 level, and
MC equals AVC at the $8 level. If the market price is $7,
Question 44 answers
Selected Answer: Correct the firm should shut down in the short run
Correct Answer: Correct the firm should shut down in the short run
Incorrect Producer surplus is the difference between the price the firm is willing to sell its goods
and the price it actually receives.
Question 45 answers
Correct Suppose that the development of a new, improved seed allows all corn farmers in the
United States to increase their yields per acre. Since the demand for corn is relatively inelastic, the
price of corn in a perfectly competitive market is likely to
Question 46 answers
Selected Answer: Correct decrease, and farm revenues will fall
Correct Answer: Correct decrease, and farm revenues will fall
Correct Under conditions of perfect competition, AR always equals MR.
Question 47 answers
Incorrect Economic efficiency occurs when firms are producing the goods consumers most want
and consumers pay a price equal to marginal cost.
Question 48 answers
Correct Under perfect competition, each firm can sell its entire supply at the market price.
Question 49 answers

Incorrect In the short run, each perfectly competitive firm is free to
Question 50 answers
Selected Answer: Incorrect all of the above
Correct Answer: Correct increase its volume of output up to its maximum existing capacity
OK



exist in a market.

its AR curve is



industry.



an oligopoly.


avoided.


the point where
product will rise.







marginal cost,

scale of operation





In the long run,


reflects




determined by using

total output.




than planned saving

planned saving,






consumption.
The difference between the price firms would be willing to accept for their goods and
the price they actually receive is called
Selected Answer: consumer surplus
Correct Answer: producer surplus

Selected Answer: all firms operate at the same cost

The long-run average cost curve indicates
Selected Answer: the lowest average costs of production for each plant size
Correct Answer: the lowest average costs of production at each level of output

Under conditions of perfect competition, if profits are being made,
Selected Answer: new firms are attracted into the industry
Correct Answer: new firms are attracted into the industry

Under conditions of perfect competition, profits can get squeezed out because of a
Selected Answer: higher MR curve
Correct Answer: rising ATC curve

Under conditions of perfect competition, firms offer roughly similar products for
sale.


If a firm in a perfectly competitive industry is producing at a point where TR equals
TC and the market demand increases, then the firm will be making
Selected Answer: economic profits; it will expand output
Correct Answer: economic profits; it will expand output

Forces that cause long-run average cost to fall as output expands are known as
Selected Answer: economies of scale
Correct Answer: economies of scale

The lowest possible ATC curve is attained at the optimal scale of output.

product will rise.

Under conditions of perfect competition, no individual seller or buyer can influence
price.

Agreement between firms in an industry to set a certain price or to share a market is
Selected Answer: a collusive practice
Correct Answer: a collusive practice

In the long run, economic profits tend to be eliminated under conditions of
monopolistic competition.

Public utilities are often referred to as
Selected Answer: oligopolistic monopolies
Correct Answer: natural monopolies

Forms of imperfect competition include monopoly, oligopoly, and monopolistic
competition.

The Federal Trade Commission
Selected Answer: polices deceptive advertising
Correct Answer: polices deceptive advertising

The Clayton Act brought labor unions under the jurisdiction of the antitrust laws.

Possible barriers to entry of new firms into an industry

Public utilities are often called natural monopolies.

A kinked demand curve results when one firm’s price changes are followed
downward but not upward by competing firms.

A monopoly or oligopoly showing no economic profit or loss has
Selected Answer: an AR curve tangent to the lowest point of its ATC curve
Correct Answer: an AR curve tangent to its ATC curve to the left of the lowest point

Which of the following is not a condition of monopolistic competition?
Selected Answer: each firm charges the same price for its output
Correct Answer: each firm charges the same price for its output

Selected Answer: there are many sellers with differentiated products

The marginal revenue curve of a monopolist is
Selected Answer: below the AR line
Correct Answer: below the AR line

As output increases, the ATC
Selected Answer: remains constant
Correct Answer: falls and then rises
If the firm produces one more unit of output and total cost rises from $1,000 to
$1,050, marginal cost is
Selected Answer: $50
Correct Answer: $50

To arrive at a logical determination of a firm’s optimum output, economists assume
that the firm seeks to
Selected Answer: maximize profit or minimize loss

Marginal cost can be determined best by observing changes in
Selected Answer: total cost/marginal product
Correct Answer: total variable cost

In a mature industry, all firms operate with constant returns to scale.

Implicit cost is an opportunity cost of doing business.

The average fixed cost remains constant even in the long run.

Total fixed cost is frequently referred to as
Selected Answer: overhead
Correct Answer: overhead

Marginal cost is the
Selected Answer: change in total cost resulting from producing one more unit of
output
Correct Answer: change in total cost resulting from producing one more unit of
output

Opportunity cost and implicit cost are both explicit costs.


A balanced federal budget may affect the composition of total output by replacing
private spending with government spending.

The level of employment or unemployment helps determine whether or not price
increases will result from an increase in spending.

A deficit federal budget always raises prices.

The production of goods and services generates income.


The size of the circular flow
Selected Answer: measures the level of income and output
Correct Answer: measures the level of income and output

Whenever planned injections exceed planned leakages, total spending is less than
total output.

The circular flow is unaffected by changes in the money supply or interest rates.

Selected Answer: expands

If the government obtains all the money it uses for spending from taxation, it will
tend to cause the economy to
Selected Answer: remain stable

than planned saving
Selected Answer: employment increases
Correct Answer: inventories accumulate

Consider an economy that is operating at less than full employment. Suppose that
total resource income equals $400,000 of which $350,000 is used for consumption
spending and $50,000 is saved. If planned investment is $25,000, which of the
following is most likely to occur?
Selected Answer: income will rise
Correct Answer: inventories will accumulate

The demand curve for the output of a perfectly competitive firm is
Correct Answer: perfectly elastic


Suppose that the development of a new, improved seed allows all corn farmers in the
United States to increase their yields per acre. Since the demand for corn is relatively
inelastic, the price of corn in a perfectly competitive market is likely to
Correct Answer: decrease, and farm revenues will fall

product will rise.

On a graph of average cost curves, the space between ATC and AVC represents AFC.
In the long run, perfect competition results in firms producing
Correct Answer: at the minimum point of their long-run average cost curves, which
indicates economic efficiency

Under perfect competition, each firm can sell its entire supply at the market price.

There are no brand names in perfect competition.


Under perfect competition in the short run,
Correct Answer: more efficient firms can earn higher profits than less efficient firms




Which of the following are injections into the circular flow of income?
Correct Answer: investment, government spending, and exports

Whenever exports exceed imports (and other planned injections equal other planned
leakages), the economy

If the government finances its spending through taxes which absorb idle funds that
were not going to be spent by the private sector, a balanced budget can have an
expansionary effect.


total resource income equals $400,000 of which $350,000 is used for consumption
Correct Answer: inventories will accumulate


If exports exceed imports during a period of full employment (while other planned
Correct Answer: experiences rising prices

planned saving,


Normal profit is considered an opportunity cost of operating a business.
Marginal cost can be determined best by observing changes in
Correct Answer: total variable cost

Marginal revenue is the increase in total revenue per additional unit of input.

The concept of minimizing the number of physical units of the inputs needed for a
given amount of output is known as
Correct Answer: technical efficiency

As output increases, the AVC


The return to the entrepreneur for organizing, producing, and risk-taking in the
operation of the business is
Correct Answer: total profit

If a firm is in the short run,
Correct Answer: at least one of the firm’s resources cannot be varied

For the principle of diminishing marginal returns to hold,
Correct Answer: only one resource should vary

The major factor accounting for diseconomies of scale is management inefficiency.


Total cost is equal to
Correct Answer: TFC + TVC

Compared to perfect competition, a monopoly usually does not result in
Correct Answer: less profit

No U.S. firm has ever obtained sufficient control over raw materials to develop a
monopoly or near monopoly on that basis.

Predatory pricing involves charging different customers different prices for the same
good.

If a monopolist lowers its price from $45 to $42 in order to increase its sales volume,
marginal revenue
Correct Answer: is less than $42
An administered price is a price
Correct Answer: established by a seller

A firm is making a profit under conditions of monopolistic competition if, at the
equilibrium output,


Under conditions of monopolistic competition, a firm maximizes profits where
Correct Answer: MR equals MC

A monopoly can sell all that it desires at any given price.
The demand for the product of a monopolist is perfectly inelastic.

When one firm lowers its price, its gain in sales at the expense of other firms is
known as
Correct Answer: the substitution effect



Status Completed
Instructions
Clear Attempt

Added expenditures in the circular flow that are not paid for out of domestic resource
income are known as
Given Answer: injections
Correct Answer: injections

Given Answer: remains stable

Which of the following statements concerning the circular flow model is (are)
correct?
Given Answer: planned investment spending is an injection into the circular flow
Correct Answer: planned investment spending is an injection into the circular flow

A balanced federal budget
Given Answer: may alter the composition of total output by substituting
government spending for private spending
Correct Answer: may alter the composition of total output by substituting

The operation of the total economy can best be demonstrated by a
Given Answer: circular flow
Correct Answer: circular flow
Given Answer: have a neutral effect

Given Answer: measures the level of income and output

planned saving,
Given Answer: prices and total output tend to be stable

In the circular flow, business owners receive
Given Answer: profits
Correct Answer: profits

than planned saving
Given Answer: inventories accumulate
Correct Answer: inventories accumulate
Whenever exports equal imports (and other planned injections equal other planned
Correct Answer: remains stable

If planned investment exceeds planned savings, a deficit budget exists, and the
Given Answer: an increase in total income and output
Correct Answer: an increase in total income and output

Given Answer: all firms operate at the same cost

Under conditions of perfect competition, average fixed cost
Given Answer: falls as output increases
Correct Answer: falls as output increases

Under conditions of perfect competition, if losses occur in an industry, market forces
may come into play to
Given Answer: reduce supply
Correct Answer: reduce supply
Given Answer: AR exceeds AVC

Given Answer: economic profits; it will expand output

In the short run, a perfectly competitive firm determines its profit-maximizing or
loss-minimizing output by
Given Answer: equating marginal revenue and marginal cost
Correct Answer: equating marginal revenue and marginal cost

Given Answer: make an economic profit

Elaine's firm is in a perfectly competitive industry. Why doesn't Elaine try to sell
Given Answer: she can sell all she wants at the market price
Correct Answer: she can sell all she wants at the market price
Given Answer: economies of scale

Under conditions of perfect competition, AR and MR
Given Answer: are represented by a straight horizontal line
Correct Answer: are represented by a straight horizontal line

Allocative efficiency requires that
Given Answer: MC equals P
Correct Answer: MC equals P

Which of the following is not assumed in perfect competition?
Given Answer: all firms are equally efficient in the short run
Correct Answer: all firms are equally efficient in the short run

Given Answer: new firms will enter the industry

Given Answer: there are relatively few producers

A cartel is
Given Answer: a type of formal collusion

The closer monopolistic competition gets to perfect competition
Given Answer: the more horizontal the AR curve

Given Answer: limit output and raise prices

One reason firms in monopolistic competition can charge different prices is that their
products are
Given Answer: differentiated
Correct Answer: differentiated

equilibrium output,
Given Answer: MR is above AR

Given Answer: polices deceptive advertising

For identical cost conditions, the long-run equilibrium price under any form of
imperfect competition is ___________ than the long-run equilibrium price in perfect
competition because of __________.
Given Answer: higher; less than perfectly elastic demand in imperfect competition
Correct Answer: higher; less than perfectly elastic demand in imperfect competition

known as
Given Answer: the substitution effect

Given Answer: predatory pricing

A kinked demand curve is most likely to occur when other firms
Given Answer: follow a downward change in price but not an upward change by a
rival firm
Correct Answer: follow a downward change in price but not an upward change by a
rival firm

Which of the following is not a potential source of monopoly?
Given Answer: civil rights
Correct Answer: civil rights

A graph of total fixed cost
Given Answer: is a straight horizontal line
Correct Answer: is a straight horizontal line

The marginal cost curve crosses the average total cost curve at the
Given Answer: lowest level of average total cost
Correct Answer: lowest level of average total cost

Unlike a firm in pure competition, a monopolist may be able to
Given Answer: both (a) and (b)
Correct Answer: both (a) and (b)

When marginal product is less than average product
Given Answer: average product falls
Correct Answer: average product falls
Given Answer: rises and then declines

Given Answer: change in total cost resulting from producing one more unit of
output
output

To arrive at a logical determination of a firm's optimum output, economists assume
that the firm seeks to
Given Answer: minimize cost

The increase in total revenue that results from the sale of one additional unit of output
is known as
Given Answer: marginal revenue

In the long run,
Given Answer: all the firm's resources are variable
Correct Answer: all the firm's resources are variable

Given Answer: remains constant

Average product falls any time
Given Answer: marginal product is below it
Correct Answer: marginal product is below it

If a firm did not have any fixed costs at all, then the ATC curve would be
Given Answer: the same as the AVC curve
Correct Answer: the same as the AVC curve

Average total cost is equal to
Given Answer: AFC + AVC
Correct Answer: AFC + AVC

Given Answer: average product falls
By looking at the marginal cost and marginal revenue curves, you can find out
Given Answer: at what output the firm would maximize profits or minimize losses
Correct Answer: at what output the firm would maximize profits or minimize losses

Given Answer: $160,000

The increase in total revenue that results from the sale of one additional unit of output
is known as
Given Answer: marginal revenue

If the AVC is $12, the AFC is $4, the AR is $20, and output is 6,000 units, the total
profit is

If output changes in fixed proportion to a change in all of a firm's productive
Given Answer: constant returns to scale
If a firm adds one more worker and total output increases from 100 to 120, the
marginal product of labor equals
Given Answer: 120
Correct Answer: 20

Given Answer: decreases

The principle which states that as more and more units of a variable resource are
added to a set of fixed resources, the resulting additions to output eventually become
increasingly smaller, is the principle of
Given Answer: increasing returns to scale
Correct Answer: diminishing marginal returns

If a firm is in the short run,
Given Answer: all its resources are variable
Correct Answer: at least one of the firm's resources cannot be varied

Given Answer: total revenue minus total cost
The opportunity cost of using one's own savings in operating a business can be
determined by using
Given Answer: wage rates

The addition to total output resulting from using one more unit of a productive
resource is the
Given Answer: marginal product
Correct Answer: marginal product


Given Answer: measures the level of income and output

Given Answer: contracts

correct?
Given Answer: an increase in planned savings always generates an increase in
planned investment spending

Which of the following defines flows out of the circular flow that occur when
resource income is received and not spent directly on purchases from domestic firms?
Given Answer: leakages
Correct Answer: leakages

According to the simple circular flow concept, whenever planned investment is
greater than planned saving during periods of full employment, there is a tendency for
Given Answer: prices to rise
Correct Answer: prices to rise

Given Answer: increase total output and/or prices

Given Answer: investment, government spending, and exports

planned saving,

Given Answer: total income minus consumption spending

Given Answer: may alter the composition of total output by substituting

Given Answer: less than the consumer is willing to pay

A high degree of competition is not always feasible in the production of
Given Answer: cosmetics
Correct Answer: public utilities

Given Answer: equating marginal revenue and marginal cost

In perfect competition, no individual producer can influence price because
Given Answer: it is set by monopolists
Correct Answer: each contributes an insignificant amount to total supply

Among the distinguishing characteristics of different types of markets are

If marginal cost is less than marginal revenue, a firm should
Given Answer: expand output
Correct Answer: expand output
If a perfectly competitive firm is producing an output level for which MR equals $5,
MC equals $6, and ATC equals $4, the firm
Given Answer: is suffering a loss but should increase output

Diseconomies of scale occur
Given Answer: at the optimal scale of operation
Correct Answer: after the optimal scale is reached


Consider a perfectly competitive firm for which MC equals ATC at the $10 level. If
the market price is $10,
Given Answer: the firm will suffer an economic loss but should operate in the
short run
Correct Answer: the best firm can do is to break even

Given Answer: normal profits; output will expand
Given Answer: her demand curve is not elastic


Requiring the buyer of one good to purchase another good as well is termed
Given Answer: tying contracts
Correct Answer: tying contracts

Given Answer: the U.S. Postal Service

Given Answer: advertising may exist
The best example of an oligopolistic industry in the United States is
Given Answer: automobile production
Correct Answer: automobile production

Given Answer: monopoly
Correct Answer: monopoly

Given Answer: natural monopolies

One company that retained its monopoly position for years through control of raw
materials was
Given Answer: Aluminum Company of America (ALCOA)
Correct Answer: Aluminum Company of America (ALCOA)


Given Answer: patents

Given Answer: established by a seller

The demand curve for the product of a monopolist is
Given Answer: identical to the market demand curve
Correct Answer: identical to the market demand curve


If economies of scale are present, a firm can enhance its profits by
Given Answer: operating beyond the optimal scale
Correct Answer: operating at any larger scale up to the optimal scale

Given Answer: the ability of any or all firms in an industry to influence market
price
Given Answer: is suffering a loss and should reduce output

Given Answer: endeavors to undercut the market price
Correct Answer: accepts the market price

Given Answer: public utilities

Under conditions of perfect competition, if any one producer increases output,
Given Answer: market price falls
Correct Answer: market price does not change

Under conditions of perfect competition, marginal revenue
Given Answer: equals average revenue
Correct Answer: equals average revenue
Given Answer: perfectly elastic

Given Answer: make an economic profit

Given Answer: at the optimal scale of operation

Given Answer: all firms operate at the same cost

Given Answer: producer surplus

Given Answer: no advertising exists

In the long run,

Given Answer: change in total cost resulting from producing one more unit of
output
output

When at least one productive resource is fixed, the firm is producing
Given Answer: in the short run
Correct Answer: in the short run

An example of an implicit cost is
Given Answer: rent
Correct Answer: forgone interest when investing one's savings in one's own
business

Marginal cost crosses the
Given Answer: ATC curve at the lowest point of the ATC curve
Correct Answer: ATC curve at the lowest point of the ATC curve

The amount of profit necessary to keep the entrepreneur operating is known as
Given Answer: normal profit
Correct Answer: normal profit

Given Answer: none of the above

Given Answer: total profit

If a small plant is more efficient than either a medium-sized or a large plant, the
situation must be one of
Given Answer: decreasing returns to scale
Correct Answer: decreasing returns to scale

resource is the
Given Answer: marginal product

Which of the following is the best example of variable cost?
Given Answer: depreciation on a building

The marginal product refers to the impact of which unit of a productive resource?
Given Answer: first
Correct Answer: last

Correct Answer: $50

Given Answer: profits

In the circular flow, investment refers to spending on
Given Answer: capital goods
Correct Answer: capital goods


If exports are less than imports (while other planned injections equal other planned
Correct Answer: contracts

During a period of unemployment, a deficit budget will most likely have which of the
following effects on business activity?
Given Answer: increase total output
Correct Answer: increase total output

Given Answer: expands



planned saving,

In the simple circular flow model, if planned I exceeds planned S, then
Given Answer: if the economy is at full employment, then prices will rise

Given Answer: investment, government spending, and exports

A surplus budget will tend to have which one of the following effects on the circular
Given Answer: decrease total output and/or prices
Correct Answer: decrease total output and/or prices

Under which type of market structure is the firm's pricing decision the most difficult?
Given Answer: monopolistic competition
Correct Answer: oligopoly

Regarding U.S. antitrust activity, the rule of reason was expressed in the
Given Answer: Clayton Act
Correct Answer: Standard Oil case

Given Answer: follow any change in price by a rival firm
rival firm

The demand curve for a monopolist's product is also the monopolist's
Given Answer: average revenue curve

Given Answer: there are relatively few producers
Given Answer: a government-regulated public utility



products are
Given Answer: differentiated

In a market of monopolistic competition, there will be
Given Answer: a substantial substitution effect whenever any one firm changes its
price
Correct Answer: product differentiation
Under oligopolistic market conditions,
Given Answer: the pricing actions of any one firm have a significant effect on the
others
Correct Answer: the pricing actions of any one firm have a significant effect on the
others

In conditions of monopolistic competition,
Given Answer: products are identical
Correct Answer: there are many firms

At the point of maximum profit, marginal revenue equals
Given Answer: average total cost
Correct Answer: marginal cost

Given Answer: AVC curve at the highest point of the AVC curve

In the long run,

profit is

Given Answer: falls and then rises

When at least one productive resource is fixed, the firm is producing
Given Answer: in the short run
Correct Answer: in the short run

Given Answer: average product increases

Given Answer: upward pull of the AVC is greater than the downward pull of the
AFC
Correct Answer: upward pull of the AVC is greater than the downward pull of the
AFC

resource is the
Given Answer: average product

Given Answer: TFC + TVC

Given Answer: remains constant

Given Answer: lowest level of average total cost

Given Answer: decreasing returns to scale

Given Answer: increase total output

income are known as
Given Answer: injections

Given Answer: decrease total output and/or prices

planned saving,

In the circular flow, if government spending is greater than taxes, (while other
planned injections equal other planned leakages) then
Given Answer: the size of the income flow will increase
Correct Answer: the size of the income flow will increase
Given Answer: saving, investment, exports, and taxes

greater than planned saving during a period of less than full employment, there is a
tendency for
Given Answer: prices to rise
Correct Answer: employment to increase

An example of unplanned investment is
Correct Answer: none of the above



If total spending is less than the total production of goods and service, all the goods
produced can be cleared from the market by
Given Answer: raising prices
Correct Answer: lowering prices

Given Answer: accepts the market price

Under perfect competition in the short run,
Given Answer: more efficient firms can earn higher profits than less efficient firms
Correct Answer: more efficient firms can earn higher profits than less efficient firms

Given Answer: new firms will enter the industry


Given Answer: economic profits; it will expand output

Given Answer: after the optimal scale is reached

Given Answer: MC equals MR


Given Answer: perfectly elastic
Given Answer: market price does not change

Given Answer: less than the consumer is willing to pay

Given Answer: all firms are equally efficient in the short run


Agreement between firms in an industry to set a certain price or to share a market is
Given Answer: a collusive practice
Correct Answer: a collusive practice
In monopolistic competition, the number of firms
Given Answer: is so large that the actions of any one firm have little effect on the
others
Correct Answer: is so large that the actions of any one firm have little effect on the
others

An effective way in which patents allow manufacturers to prevent the entry of new
firms into the industry is through
Given Answer: threats of infringement suits
Correct Answer: threats of infringement suits


Each time the monopolist sells another unit of output, the total revenue increases by
Given Answer: less than the price of the last unit sold
Correct Answer: less than the price of the last unit sold

If firms in monopolistic competition are earning short-run profits
Given Answer: the entry of new firms will eliminate the profits in the long run
Correct Answer: the entry of new firms will eliminate the profits in the long run
Which of the following will cause a cartel to be unstable?
Given Answer: sharply differentiated products
Correct Answer: sharply differentiated products

Given Answer: higher; less than perfectly elastic demand in imperfect competition


equilibrium output,
Given Answer: AR is above AVC

Given Answer: natural monopolies
Given Answer: established by a seller

Selected Answer: change in total cost resulting from producing one more unit of
output
output

Selected Answer: total profit

reflects
Selected Answer: total fixed cost

Selected Answer: both (a) and (b)
profit is
Selected Answer: $24,000

Selected Answer: rises and then declines

The marginal product refers to the impact of which unit of a productive resource?
Selected Answer: last
Correct Answer: last

Average total cost is equal to
Selected Answer: AFC + AVC
Correct Answer: AFC + AVC

Selected Answer: marginal product is below it

Selected Answer: AVC is equal to the AFC
Correct Answer: upward pull of the AVC is greater than the downward pull of the
AFC

By looking at the marginal cost and marginal revenue curves, you can find out
Selected Answer: at what output the firm would maximize profits or minimize
losses
Correct Answer: at what output the firm would maximize profits or minimize losses

In the short run, if a firm is suffering a loss, it should
Selected Answer: continue to operate if marginal cost is below average total cost
Correct Answer: continue to operate as long as it can recover variable cost



Selected Answer: she can sell all she wants at the market price

Selected Answer: accepts the market price


Selected Answer: market price does not change


Selected Answer: the best firm can do is to break even
Correct Answer: the best firm can do is to break even

Selected Answer: MC equals P

Selected Answer: public utilities


Selected Answer: operating at any larger scale up to the optimal scale

If one firm in a perfectly competitive industry is somehow able to produce at a lower
cost than competing firms in the short run,
Selected Answer: the competing firms will earn higher profits than the more
efficient firm in the short run
Correct Answer: the competing firms will adopt similar production techniques in the
long run

Which of the following is not a type of leakage from the circular flow of income?
Selected Answer: investment
Correct Answer: investment

Selected Answer: have a neutral effect


Selected Answer: an increase in total income and output

correct?
Selected Answer: planned investment spending is an injection into the circular flow

Selected Answer: increase total output

Selected Answer: prices to rise

Selected Answer: may alter the composition of total output by substituting
Selected Answer: remains stable

If the government obtains all the money it uses for spending from taxation, it will
tend to cause the economy to
Selected Answer: inflate

Selected Answer: remains stable

In the circular flow, investment refers to spending on
Selected Answer: capital goods
Correct Answer: capital goods

Selected Answer: established by a seller

In oligopoly, following a rival's decrease in price tends to eliminate the
Selected Answer: substitution effect
Correct Answer: substitution effect

Selected Answer: monopolistic competition
Correct Answer: oligopoly

A monopoly or oligopoly showing no economic profit or loss has
Selected Answer: an MR curve above its AR curve
Correct Answer: an AR curve tangent to its ATC curve to the left of the lowest point

The maximum profit of a monopolist occurs
Selected Answer: where MR equals MC
Correct Answer: where MR equals MC

Selected Answer: less than the price of the last unit sold

Selected Answer: follow a downward change in price but not an upward change by
a rival firm
rival firm

known as
Selected Answer: the substitution effect

Selected Answer: civil rights

A cartel is

Selected Answer: polices deceptive advertising



exist in a market.

its AR curve is



industry.




an oligopoly.


avoided.


the point where

product will rise.







marginal cost,

scale of operation





In the long run,


reflects



determined by using

total output.



than planned saving

planned saving,






consumption.


exist in a market.

its AR curve is



industry.




an oligopoly.

avoided.


the point where

product will rise.






marginal cost,

scale of operation





In the long run,


reflects



determined by using

total output.




than planned saving

planned saving,






consumption.
Selected Answer: falls as output increases

Under conditions of perfect competition, if a profitable firm pushes its output beyond
the point where MR equals MC,
Selected Answer: profits increase
Selected Answer: MC equals P



competition.

Under conditions of perfect competition, AR always equals MR.

Selected Answer: AR exceeds AVC

Selected Answer: are represented by a straight horizontal line


In perfect competition, if the market price is at the same level as the minimum point
of the firm’s average total cost curve, the best the firm can hope for is to break even.

Selected Answer: make an economic profit

Wages paid are an example of an explicit cost of doing business.


Correct Answer: $50

Selected Answer: is a straight horizontal line

If you are a sole proprietor of a firm, the value of the wage you could have earned
elsewhere is
Selected Answer: an implicit cost
Correct Answer: an implicit cost

Selected Answer: the same as the AVC curve


Selected Answer: earn economic profits in the short run

Average revenue (AR) is equal to
Selected Answer: total revenue/output

Marginal cost is
Selected Answer: both (a) and (c)
Selected Answer: decreases

Planned investment may differ from actual investment.

total resource income equals $400,000, of which $350,000 is used for consumption
Selected Answer: prices will fall
Correct Answer: income will rise

A situation where exports exceed imports can cause total output to increase.

Unexpected inventory accumulations represents unplanned investment.

Selected Answer: total income minus consumption spending



than planned saving
Selected Answer: total output and/or prices fall
The total payment of resource income in the economy is equal to the total value of
the output.

Selected Answer: total planned leakages from the circular flow are exactly equal to
total planned injections into the circular flow
Correct Answer: total planned leakages from the circular flow are exactly equal to

In the circular flow, nonprofit institutions are
Selected Answer: treated separately
Correct Answer: counted as businesses

During times of full employment, the only way a firm can obtain additional resources
is to bid the resources away from other firms.

A cartel is
A monopoly
Selected Answer: has absolute control over price
Correct Answer: must lower price in order to sell more

Selected Answer: is so large that the actions of any one firm have little effect on the
others
others

In an oligopoly, following a rival’s decrease in price tends to eliminate the
Selected Answer: substitution effect

Selected Answer: average revenue curve

In monopolistic competition, there is no need for advertising.
Firms in monopolistic competition sell a similar but differentiated product.

known as

Selected Answer: there are only two producers


The AR and MR curves of a monopoly are identical.


A monopolist must produce a good for which there are no close substitutes.


the output.

Selected Answer: leakages


Total output and the price level may decline simultaneously.


Selected Answer: the size of the income flow will increase

total resource income equals $400,000, of which $350,000 is used for consumption
Selected Answer: income will rise
Correct Answer: income will rise
income are known as
Selected Answer: injections




Selected Answer: equating marginal revenue and marginal cost

In the long run, perfect competition results in firms producing
Selected Answer: at the minimum point of their long-run average cost curves,
which indicates economic efficiency
Correct Answer: at the minimum point of their long-run average cost curves, which
indicates economic efficiency

Selected Answer: higher MR curve





Suppose that the development of a new, improved seed allows all corn farmers in the
United States to increase their yields per acre. Since the demand for corn is relatively
inelastic, the price of corn in a perfectly competitive market is likely to
Selected Answer: decrease, and farm revenues will fall
Correct Answer: decrease, and farm revenues will fall

sale.
If the entry of new firms in a perfectly competitive industry substantially increases
the market demand for resources,
Selected Answer: this raises the market price of resources
Correct Answer: this raises the market price of resources

In the short run, each perfectly competitive firm is free to
Correct Answer: increase its volume of output up to its maximum existing capacity

If you are a sole proprietor of a firm, the value of the wage you could have earned
elsewhere is
Selected Answer: not a cost
Correct Answer: an implicit cost

Normal profit is considered an opportunity cost of operating a business.

resource is the
Selected Answer: marginal product
The principle that pulls down the average cost (ATC), and then, as output continues
to expand, pulls it up, is
Selected Answer: rising and then diminishing marginal returns
Correct Answer: rising and then diminishing marginal returns

A firm’s break-even point occurs where
Selected Answer: total revenue equals total cost
Correct Answer: total revenue equals total cost

As output increases, marginal cost increases, reaches a maximum, and then falls.

Selected Answer: ATC curve at the lowest point of the ATC curve


Average revenue is synonymous with price.

Average total cost is equal to total cost divided by marginal product.

Selected Answer: falls and then rises

Average revenue (AR) is equal to
Selected Answer: total revenue/output

A four-firm concentration ratio indicates the number of firms in the industry.

Oligopolies always produce differentiated products.
its AR curve is
Selected Answer: horizontal


Monopsonistic competition is a market in which there are only a few sellers but each
offers different conditions to sellers.

The individual supply of a monopolist
Selected Answer: coincides with the market supply curve
Correct Answer: coincides with the market supply curve

The degree of control over its output price that any seller has is limited by
Selected Answer: the elasticity of the demand for the product

Price stability is common in oligopolies.



Which of the following will cause a cartel to be unstable?
Selected Answer: sharply differentiated products
Correct Answer: sharply differentiated products

Selected Answer: established by a seller

than planned saving


In the circular flow, nonprofit institutions are
Selected Answer: counted as households
Correct Answer: counted as businesses





Selected Answer: profits

Selected Answer: contracts

If the federal government spends less than it receives from taxes,
Selected Answer: it has a surplus budget with leakages exceeding injections
Correct Answer: it has a surplus budget with leakages exceeding injections

Accumulation and depletion of inventories affect the circular flow of income.


total output.

Selected Answer: there are many firms

The first act to declare monopolies illegal in the United States was the
Selected Answer: Sherman Antitrust Act
Correct Answer: Sherman Antitrust Act


Regarding U.S. antitrust activity, the rule of reason was expressed in the
Selected Answer: Standard Oil case
Correct Answer: Standard Oil case

Oligopolies always produce differentiated products.


Oligopsony refers to a market in which there are a few buyers.
Selected Answer: less than the price of the last unit sold

equilibrium output,

Under monopolistic competition, a firm’s marginal revenue curve is
Selected Answer: above the average revenue curve
Correct Answer: below the average revenue curve

A monopoly
Selected Answer: always has an elastic demand

In an oligopoly, following a rival’s decrease in price tends to eliminate the
Selected Answer: multiplier effect

Selected Answer: predatory pricing

resource is the
Selected Answer: marginal product

When marginal product is less than average product,
Selected Answer: average product falls



Under perfectly competitive conditions, marginal revenue is equal to the price at
which a good is sold.

The principle of diminishing marginal returns is applicable only to the use of labor as
a productive resource.


On a cost/output graph, the average fixed cost is constructed as a straight horizontal
line.

Wages paid are an example of an explicit cost of doing business.


profit is

The marginal product is the increase in output per additional unit of input.

Selected Answer: operating at any larger scale up to the optimal scale

Selected Answer: producer surplus

sale.

Perfect competition assumes that all products are identical and that no advertising
exists.

Selected Answer: reduce supply

Any time market price is below AVC for all output levels, the firm can reduce its
losses by shutting down.

Which of the following is correct when the perfectly competitive firm is producing its
long-run equilibrium output level?



Selected Answer: price equal to the lowest point on the ATC curve at the optimal
scale of operation
scale of operation

Under perfect competition, if a firm is suffering a loss,
Selected Answer: AR is less than ATC
Correct Answer: AR is less than ATC

Under conditions of perfect competition, short-run equilibrium does not necessarily
exist where
Selected Answer: MR = MC
Correct Answer: MR = ATC

In the long run, under conditions of perfect competition, economic profits are
eventually eliminated.

If the entry of new firms substantially raises demand for resources, two forces tend to
eliminate economic profit in the long run: upward pressure on cost and downward
pressure on price.

As more firms enter a monopolistic competitive industry, average revenue will fall
for exiting firms.

Selected Answer: higher; less than perfectly elastic demand in imperfect
competition
A major characteristic of a monopoly is the ability of the monopolist to influence
price.


A monopoly cannot suffer a loss.




Marginal cost is related inversely to the marginal product.

At any given time,
Selected Answer: planned saving equals actual saving
Correct Answer: actual investment equals actual saving


equilibrium output,



In monopolistic competition, overall demand and supply may set a market price, but
firms can deviate from that price within a small range without substantially affecting
their sales.

The Clayton Act prohibits price discrimination.

Selected Answer: all producers are selling identical or similar products
Market demand and the firm’s demand curve coincide in a monopoly.

In an oligopoly, the pricing policy of each firm is independent of that of other firms.

Selected Answer: the more horizontal the AR curve

The first act to declare monopolies illegal in the United States was the
Selected Answer: Sherman Antitrust Act
Correct Answer: Sherman Antitrust Act

Under oligopoly, collusive practices to fix prices are more likely to take place if
Selected Answer: market demand is highly elastic
Correct Answer: market demand is highly inelastic


Opportunity cost and implicit cost are both explicit costs.

Selected Answer: TFC + TVC


As long as the marginal product is falling, the average product falls.

determined by using


reflects
Selected Answer: total fixed cost

Marginal cost is the change in total cost that results from producing one less or one
more unit of output.

Those costs implied by alternatives given up are
Selected Answer: implicit or opportunity costs
Correct Answer: implicit or opportunity costs

Selected Answer: lowest level of average total cost

A prime example of perfect competition is the U.S. auto industry.


In the long run, under conditions of perfect competition, market forces come into
play to
Selected Answer: increase demand
Correct Answer: eliminate profits
Selected Answer: rising ATC curve



Consumer surplus is the area above the demand curve and below the equilibrium
price.

competition.
Consider a perfectly competitive firm for which MC equals ATC at the $10 level, and
MC equals AVC at the $8 level. If the market price is $7,
Selected Answer: the firm will suffer an economic loss but should operate in the
short run
Correct Answer: the firm should shut down in the short run

Perfect competition assumes that all products are identical and that no advertising
exists.



Selected Answer: the size of the income flow will increase

Selected Answer: none of the above



than planned saving
Selected Answer: decrease total output and/or prices


Inventory accumulation occurs whenever
Selected Answer: output exceeds spending
Correct Answer: output exceeds spending


A surplus federal budget always results in a decrease in total output.

Selected Answer: contracts


If the selling price of a product is $10, the average total cost is $8, and total sales are
5,000 units, the total profit will be

Under perfectly competitive conditions, marginal revenue is
Selected Answer: equal to average revenue
Correct Answer: equal to average revenue
Name Exam 2
Status Completed
incorrect.

Under conditions of perfect competition, short-run equilibrium does not necessarily
exist where
Selected Answer: MR = MC
Correct Answer: MR = ATC
In the long run, under conditions of perfect competition, economic profits are
eventually eliminated.

Selected Answer: rising ATC curve

Selected Answer: public utilities



The lowest possible ATC curve is attained at the optimal scale of output.

Selected Answer: are represented by a straight horizontal line

Selected Answer: after the optimal scale is reached

If the entry of new firms substantially raises demand for resources, two forces tend to
eliminate economic profit in the long run: upward pressure on cost and downward
pressure on price.

the point where
Selected Answer: AR = MC


an oligopoly.

Public utilities are often called natural monopolies.

A four-firm concentration ratio indicates the number of firms in the industry.


A monopoly
Selected Answer: must lower price in order to sell more

Predatory pricing involves charging different customers different prices for the same
good.

Oligopsony refers to a market in which there are a few buyers.

As more firms enter a monopolistic competitive industry, average revenue will fall
for exiting firms.

Selected Answer: higher; less than perfectly elastic demand in imperfect
competition

price.


A monopoly cannot suffer a loss.




Marginal cost is related inversely to the marginal product.

For the principle of diminishing marginal returns to hold,
Selected Answer: only one resource should vary
Correct Answer: only one resource should vary

The principle that pulls down the average cost (ATC), and then, as output continues
to expand, pulls it up, is
Selected Answer: rising and then diminishing marginal returns
Correct Answer: rising and then diminishing marginal returns

Selected Answer: falls and then rises

Which of the following is the best example of variable cost?

Selected Answer: marginal cost

determined by using



At any given time,
Selected Answer: planned saving equals actual saving
Correct Answer: actual investment equals actual saving


consumption.

Accumulation and depletion of inventories affect the circular flow of income.



planned saving,
Selected Answer: prices and total output tend to be stable

the output.
Selected Answer: total planned leakages from the circular flow are exactly equal to
Correct Answer: total planned leakages from the circular flow are exactly equal to


Selected Answer: if the economy is at full employment, then prices will rise
User Kin Yip Suen

Name Exam 2
Status Completed
incorrect.

The major characteristic of a monopoly is
Selected Answer: its price elasticity of demand
Correct Answer: the degree of control over price it can exercise

known as

If faced with the same cost conditions as a perfectly competitive firm, a monopoly
will
Selected Answer: charge the same price as the perfectly competitive firm
Correct Answer: charge a higher price than the perfectly competitive firm


price.


equilibrium output,

U.S. patents grant a lifetime monopoly on an invention.

The Clayton Act brought labor unions under the jurisdiction of the antitrust laws.

products are
Selected Answer: differentiated

The Herfindahl Index is calculated by summing the squares of the market shares of
each firm in the industry.

Selected Answer: is so large that the actions of any one firm have little effect on the
others
others

Selected Answer: they charge a price higher than marginal cost


If a firm cannot make a profit under conditions of perfect competition, it should shut
down as soon as possible.

marginal cost,
Selected Answer: consumers would be willing to pay a price greater than what it

Selected Answer: is earning a profit but should reduce output

product will rise.

The long-run average cost curve indicates
Selected Answer: the lowest average costs of production at each level of output
Correct Answer: the lowest average costs of production at each level of output

Selected Answer: the best the firm can do is to break even
Correct Answer: the best the firm can do is to break even



Under conditions of perfect competition, if MR is below ATC at equilibrium output,
the firm is suffering a loss.




Whenever planned injections exceed planned leakages, total spending is less than
total output.


A balanced federal budget may affect the composition of total output by replacing

Selected Answer: experiences rising prices


A nation that imports more than it exports has a surplus balance of trade.

Selected Answer: profits



Selected Answer: leakages

Marginal product can never fall below zero.

resource is the
Selected Answer: marginal input


Selected Answer: rises and then declines

Total fixed cost is frequently referred to as
Selected Answer: overhead
Correct Answer: overhead

Selected Answer: the same as the AVC curve

Selected Answer: remains constant

Selected Answer: is a straight horizontal line

A production function is
Selected Answer: an important factor in determining the shape of the long-run
supply curve
Correct Answer: the relationship between a combination of inputs and a quantity of
output

Selected Answer: decreasing returns to scale

User Ho Ming Chan

Name Exam 2
Status Completed
incorrect.

Under conditions of perfect competition, if MR is below ATC at equilibrium output,
the firm is suffering a loss.

Under conditions of perfect competition, if a profitable firm pushes its output beyond
Selected Answer: profits diminish


Under conditions of perfect competition, AR always equals MR.

Perfectly competitive firms are price takers.

Under conditions of perfect competition, no individual seller or buyer can influence
price.


Selected Answer: all firms are equally efficient in the short run


Selected Answer: expand output

Under perfect competition in the short run, profits among firms can differ if some
firms use their resources more efficiently.


One company that retained its monopoly position for years through control of raw
materials was
Selected Answer: Aluminum Company of America (ALCOA)
Correct Answer: Aluminum Company of America (ALCOA)


The demand for the product of a monopolist is perfectly inelastic.
Firms in monopolistic competition sell a similar but differentiated product.


In a purely competitive market, the Herfindahl Index would have a value approaching
Selected Answer: infinity
Correct Answer: 0

Selected Answer: natural monopolies

Selected Answer: a monopoly
The Herfindahl Index is calculated by summing the squares of the market shares of
each firm in the industry.

Requiring the buyer of one good to purchase another good as well is termed
Selected Answer: tying contracts
Correct Answer: tying contracts

All firms in monopolistic competition must sell at the same price.


The major characteristic of a monopoly is
Selected Answer: the degree of control over price it can exercise
Correct Answer: the degree of control over price it can exercise




Which of the following is not a type of leakage from the circular flow of income?
Selected Answer: investment
Correct Answer: investment


Selected Answer: total income minus consumption spending





To have an increase in investment, consumption must decrease.
greater than planned saving during a period of less than full employment, there is a
tendency for
Selected Answer: employment to increase
Correct Answer: employment to increase


Selected Answer: marginal cost


When marginal product is less than average product,
Selected Answer: average product falls

Under perfectly competitive conditions, marginal revenue is
Selected Answer: equal to average revenue
Correct Answer: equal to average revenue

The major factor accounting for diseconomies of scale is management inefficiency.


As long as the marginal product is falling, the average product falls.


The break-even point on a break-even chart is equivalent to the point where MR =
MC on a cost/output graph.

As output increases, average fixed cost

The industry most closely associated with perfect competition is
Selected Answer: mining
Correct Answer: farming

Whenever marginal revenue exceeds marginal cost
Selected Answer: losses increase if output increases
Correct Answer: profit increases if output increases

A kinked demand curve
Selected Answer: is a basic characteristic of monopolistic competition markets
Correct Answer: tends to be inelastic for price decreases and elastic for price
increases

An increase in planned savings, all else held constant, will always result in
Selected Answer: an increase in planned investment spending
Correct Answer: a slowdown in the circular flow of income

User Yuen Ling Carol Lam
Name Exam 2
Status Completed
Correct Unexpected inventory accumulations represents unplanned investment.
Question 1 answers

Correct A decrease in investment can cause a decrease in the price level without affecting total
output.
Question 2 answers
Correct Which of the following defines flows out of the circular flow that occur when resource
income is received and not spent directly on purchases from domestic firms?
Question 3 answers
Selected Answer: Correct leakages
Correct Answer: Correct leakages
Correct Which of the following is not a type of leakage from the circular flow of income?
Question 4 answers
Selected Answer: Correct investment
Correct Answer: Correct investment
Correct A balanced federal budget may affect the composition of total output by replacing
Question 5 answers
Correct In the simple circular flow of income, whenever planned investment is equal to planned
saving,
Question 6 answers
Selected Answer: Correct prices and total output tend to be stable
Correct Answer: Correct prices and total output tend to be stable
Correct The level of employment or unemployment helps determine whether or not price
Question 7 answers
Correct If inventories are accumulating, income must be greater than spending.
Question 8 answers
Correct It is true that a stable economy occurs when
Question 9 answers
Selected Answer: Correct total planned leakages from the circular flow are exactly equal to
Correct Answer: Correct total planned leakages from the circular flow are exactly equal to total
planned injections into the circular flow
Correct A nation that imports more than it exports has a surplus balance of trade.
Question 10 answers
Correct In the circular flow, business owners receive
Question 11 answers
Selected Answer: Correct profits
Correct Answer: Correct profits
Correct If the economy is at less than full employment and exports exceed imports (while other
planned injections equal other planned leakages), the economy
Question 12 answers
Selected Answer: Correct expands
Correct Answer: Correct expands
Correct In the circular flow, investment refers to spending on
Question 13 answers
Selected Answer: Correct capital goods
Correct Answer: Correct capital goods
Correct The major characteristic of a monopoly is
Question 14 answers
Selected Answer: Correct the degree of control over price it can exercise
Correct Answer: Correct the degree of control over price it can exercise
Correct The maximum profit of a monopolist occurs
Question 15 answers
Selected Answer: Correct where MR equals MC
Correct Answer: Correct where MR equals MC
Correct An administered price is a price
Question 16 answers
Selected Answer: Correct established by a seller
Correct Answer: Correct established by a seller
Correct In conditions of monopolistic competition,
Question 17 answers
Selected Answer: Correct there are many firms
Correct Answer: Correct there are many firms
Correct A kinked demand curve is associated with
Question 18 answers
Selected Answer: Correct an oligopoly
Correct Answer: Correct an oligopoly
Correct The demand curve for a monopolist’s product is also the monopolist’s
Question 19 answers
Selected Answer: Correct average revenue curve
Correct Answer: Correct average revenue curve
Correct Which of the following is always true of monopolists?
Question 20 answers
Selected Answer: Correct they charge a price higher than marginal cost
Correct Answer: Correct they charge a price higher than marginal cost
Incorrect The demand curve for the output of an individual firm in monopolistic competition is
Question 21 answers
Selected Answer: Incorrect perfectly elastic
Correct Answer: Correct more elastic than the market demand curve
Correct A kinked demand curve results when one firm’s price changes are followed
downward but not upward by competing firms.
Question 22 answers
Correct Which of the following is the best example of a monopoly in the United States?
Question 23 answers
Selected Answer: Correct a government-regulated public utility

Correct Answer: Correct a government-regulated public utility
Correct The Federal Trade Commission
Question 24 answers
Selected Answer: Correct polices deceptive advertising
Correct Answer: Correct polices deceptive advertising
Correct All firms in monopolistic competition must sell at the same price.
Question 25 answers
Correct The first act to declare monopolies illegal in the United States was the
Question 26 answers
Selected Answer: Correct Sherman Antitrust Act
Correct Answer: Correct Sherman Antitrust Act
Correct In perfect competition, no individual producer can influence price because
Question 27 answers
Selected Answer: Correct each contributes an insignificant amount to total supply
Correct Answer: Correct each contributes an insignificant amount to total supply
Correct Under conditions of perfect competition, average fixed cost

Question 28 answers
Selected Answer: Correct falls as output increases
Correct Answer: Correct falls as output increases
Correct The output level that yields maximum profit under perfect competition is where MR
equals MC.
Question 29 answers
Correct Perfectly competitive firms are price takers.
Question 30 answers
Correct An increase in market demand for a product can raise the MR for a firm in perfect
competition.
Question 31 answers
Correct Under conditions of perfect competition, if a profitable firm pushes its output beyond
Question 32 answers
Selected Answer: Correct profits diminish
Correct Answer: Correct profits diminish
Correct Under conditions of perfect competition, no individual seller or buyer can influence
price.
Question 33 answers
Correct Under conditions of perfect competition, if losses occur in an industry, market forces
Question 34 answers
Selected Answer: Correct reduce supply
Correct Answer: Correct reduce supply
Correct If marginal cost is less than marginal revenue, a firm should
Question 35 answers
Selected Answer: Correct expand output
Correct Answer: Correct expand output
Correct Under conditions of perfect competition, if any one producer increases output,
Question 36 answers
Selected Answer: Correct market price does not change
Correct Answer: Correct market price does not change

Correct Under conditions of perfect competition, profits can get squeezed out because of a
Question 37 answers
Selected Answer: Correct rising ATC curve
Correct Answer: Correct rising ATC curve
Correct If new firms enter a perfectly competitive industry, the market price of the finished
product will rise.
Question 38 answers
Correct The increase in total revenue that results from the sale of one additional unit of output
is known as
Question 39 answers
Selected Answer: Correct marginal revenue
Correct Answer: Correct marginal revenue
Correct An example of an implicit cost is
Question 40 answers
Selected Answer: Correct forgone interest when investing one’s savings in one’s own
business
Correct Answer: Correct forgone interest when investing one’s savings in one’s own business

Correct Total profit is equal to
Question 41 answers
Selected Answer: Correct total revenue minus total cost
Correct Answer: Correct total revenue minus total cost
Correct When marginal product is less than average product,
Question 42 answers
Selected Answer: Correct average product falls
Correct Answer: Correct average product falls
Correct Average total cost is equal to total cost divided by marginal product.
Question 43 answers
Correct The break-even point on a break-even chart is equivalent to the point where MR = MC
on a cost/output graph.
Question 44 answers
Correct Marginal cost can be determined best by observing changes in
Question 45 answers
Selected Answer: Correct total variable cost
Correct Answer: Correct total variable cost
Correct Those costs implied by alternatives given up are
Question 46 answers
Selected Answer: Correct implicit or opportunity costs
Correct Answer: Correct implicit or opportunity costs
Correct Marginal cost is
Question 47 answers
Selected Answer: Correct both (a) and (c)
Correct Answer: Correct both (a) and (c)
Correct The opportunity cost of using one’s own savings in operating a business can be
determined by using
Question 48 answers
Selected Answer: Correct interest rates
Correct Answer: Correct interest rates
Correct Whenever marginal revenue exceeds marginal cost,
Question 49 answers
Selected Answer: Correct profit increases if output increases
Correct Answer: Correct profit increases if output increases

Correct Total fixed cost is frequently referred to as
Question 50 answers
Selected Answer: Correct overhead
Correct Answer: Correct overhead
OK
ECON 125 Exam 3
Question: Q3. The goods and services included in GDP are allocated to which of the following
four major sectors?
Correct Answer: d. consumption, investment, government purchases, and net exports
Given Answer: a. consumption, investment, government purchases, and transfer payments
Question: Q10. If nominal GDP is reported at $10,000 billion and the GDP implicit price deflator
is 150, the GDP in constant dollars is
Correct Answer: a. $6,667 billion
Given Answer: c. $5,650 billion
Question: Q16. According to the equation of exchange, if total output is 2,000 units, the velocity
of money is 5, and the money supply is $1,000, the average price per transaction will be
Correct Answer: b. $2.50
Given Answer: d. $7.50
Question: Q19. The effect of a change in the money supply on economic activity may be offset
by a change in velocity.
Question: Q28. Each Federal Reserve Bank has its own board of directors.
Question: Q31. It is possible for the economy to still experience an increase in the money supply
when the Fed increases the reserve requirement.
Question: Q35. If the Federal Reserve System wanted to tighten the money supply, the most
powerful combination of actions would be to
Correct Answer: d. raise reserve requirement, raise the discount rate, and sell government
securities
Given Answer: c. lower reserve requirements, raise the discount rate, and buy government
securities
Question: Q36. The interest rate at which depository institutions borrow reserves from the Federal
Reserve is known as the
Correct Answer: c. discount rate
Given Answer: a. prime rate

User Wai Hung Poon
Name Exam 3
Status Completed
Correct A lower price level causes
Question 1 answers
Selected Answer: Correct both (a) and (c)
Correct Answer: Correct both (a) and (c)
Incorrect In the simple Keynesian model, if aggregate expenditures exceed current output,
inventories will ________ and businesses will ___________ output.
Question 2 answers
Selected Answer: Incorrect decrease; decrease
Correct Answer: Correct decrease; increase

Correct According to the Keynesian analysis, as income increases, the marginal propensity to
consume will rise.
Question 3 answers
Correct Along the composite aggregate supply curve,
Question 4 answers
Correct In a measure of aggregate expenditures for the national economy, net exports
Question 5 answers
Selected Answer: Correct may be either positive or negative
Correct Answer: Correct may be either positive or negative
Correct Higher prices reduce the purchasing power of financial assets owned by households.
Question 6 answers

Correct The consumption function shows the relationship between the income received by the
economy’s households and the
Question 7 answers
Selected Answer: Correct amount they plan to spend on currently produced final output
Correct Answer: Correct amount they plan to spend on currently produced final output
Correct The aggregate demand curve is the sum of individual demand curves in the economy.
Question 8 answers
Incorrect The monetarist school is more similar to the Keynesian school than the classical school.
Question 9 answers
Correct According to the Keynesian analysis, equilibrium will occur where planned injections
Question 10 answers
Correct If the aggregate supply curve is horizontal,
Question 11 answers
Correct Higher price levels are associated with lower aggregate expenditure at every level of
income.
Question 12 answers
Correct Which of the following is not one of the four major sectors of the economy to which
GDP is allocated?
Question 13 answers
Selected Answer: Correct agriculture
Correct Answer: Correct agriculture

Incorrect Checkable deposits are counted as part of the U.S. money supply.
Question 14 answers
Correct The GDP Implicit Price Deflator is the broadest index of price changes.
Question 15 answers
Incorrect A transfer of money from a NOW account to a money market fund causes
Question 16 answers
Selected Answer: Incorrect both (a) and (b)
Correct Answer: Correct M1 to fall
Correct The value or purchasing power of the dollar can be obtained by dividing $1 by the CPI.
Question 17 answers

Correct Savings deposits are not counted as part of the M1 measure of the U.S. money supply.
Question 18 answers
Correct The U.S. money supply measure that consists of currency plus travelers checks and
checkable deposits is referred to as
Question 19 answers
Selected Answer: Correct M1
Correct Answer: Correct M1
Correct COLA is a form of indexation.
Question 20 answers
Correct The amount of money a bank can lend
Question 21 answers
Selected Answer: Correct is inversely related to its reserve requirements
Correct Answer: Correct is inversely related to its reserve requirements
Correct A decrease in the level of required reserves will decrease a bank’s ability to extend
loans.
Question 22 answers
Correct The bulk of the M1 money supply is made up of
Question 23 answers
Selected Answer: Correct checkable deposits
Correct Answer: Correct checkable deposits
Correct Double coincidence of wants is associated with a barter economy.
Question 24 answers

Correct The formula for finding a price index for a fixed basket of goods in the current year is
Question 25 answers
Selected Answer: Correct price of basket in current year/price of basket in base year
Correct Answer: Correct price of basket in current year/price of basket in base year
Correct Assume total reserves are $1 million, checkable deposits are $5 million, and the reserve
requirement is 10 percent. What are the excess reserves?
Question 26 answers
Selected Answer: Correct $500,000
Correct Answer: Correct $500,000
Incorrect The most frequently used tool of U.S. monetary policy is
Question 27 answers
Selected Answer: Incorrect moral suasion
Correct Answer: Correct open-market operations
Correct The functions carried out by the Federal Reserve Banks include
Question 28 answers

Correct The Federal Reserve System was established by the National Banking Act of 1864.
Question 29 answers
Correct The discount rate is
Question 30 answers
Selected Answer: Correct set by the Federal Reserve Bank
Correct Answer: Correct set by the Federal Reserve Bank
Correct The interest rate at which depository institutions borrow reserves from the Federal
Question 31 answers
Selected Answer: Correct discount rate
Correct Answer: Correct discount rate
Correct The Board of Governors of the Federal Reserve System is
Question 32 answers
Selected Answer: Correct independent within the U.S. government
Correct Answer: Correct independent within the U.S. government
Correct The Financial Services Modernization Act
Question 33 answers
Selected Answer: Correct eliminated barriers between banks, brokerage houses, and
insurance companies
Correct Answer: Correct eliminated barriers between banks, brokerage houses, and insurance
companies
Correct The Board of Governors of the Federal Reserve System has
Question 34 answers
Selected Answer: Correct 7 members
Correct Answer: Correct 7 members
Correct The First Bank of the United States was chartered by
Question 35 answers
Selected Answer: Correct the federal government
Correct Answer: Correct the federal government

Correct The Federal Reserve System is completely independent of the government.
Question 36 answers
Correct Cash transactions account for about 20 percent of the value of transactions.
Question 37 answers
Correct The Federal Reserve currently exercises credit control over
Question 38 answers
Selected Answer: Correct stock market purchases
Correct Answer: Correct stock market purchases
Correct Constant-dollar GDP can be converted into current-dollar GDP by multiplying the real
GDP by the implicit price deflators
Question 39 answers

Correct The GDP excludes the production of services for which no monetary transaction takes
place.
Question 40 answers
Correct National income is equivalent to total earnings in the form of wages, rent, interest, and
profits.
Question 41 answers
Correct Which of the following represents a transfer payment?
Question 42 answers
Selected Answer: Correct a Social Security benefit payment
Correct Answer: Correct a Social Security benefit payment
Correct Purchasing power parity shows how many units of currency are needed in one country
Question 43 answers
Selected Answer: Correct to buy the same amount of output that one unit of currency buys in
another country
Correct Answer: Correct to buy the same amount of output that one unit of currency buys in
another country
Incorrect A transfer payment is a payment of money in return for which no current goods or
services are produced.
Question 44 answers
Correct Which of the following is not a reason for publishing quarterly reports on the GDP?
Question 45 answers
Selected Answer: Correct a full year’s statistics are not useful to economists
Correct Answer: Correct a full year’s statistics are not useful to economists
Incorrect The existence of undistributed corporate profits tends to cause
Question 46 answers
Selected Answer: Incorrect personal income to be larger than disposable personal income
Correct Answer: Correct national income to be larger than personal income

Correct The GDP counts durable goods only during their year of production.
Question 47 answers
Incorrect Net national product is equal to
Question 48 answers
Selected Answer: Incorrect GNP plus corporate profits
Correct Answer: Correct GNP minus capital consumption allowances
Incorrect If real GDP grew by 5 percent during one year and population also grew by 5 percent,
then
Question 49 answers
Selected Answer: Incorrect nominal GDP did not change
Correct Answer: Correct real GDP per capital did not change
Incorrect Disposable personal income is equal to
Question 50 answers
Selected Answer: Incorrect NI plus personal taxes

Correct Answer: Correct PI minus personal taxes
OK


time are known as

will be:
Correct Answer: $5








percent, then








within a country by

major sectors?


that

increase












share?
Committee.





Reserve System.



The Financial Services Modernization Act
Selected Answer: eliminated barriers between banks, brokerage houses, and
insurance companies
Correct Answer: eliminated barriers between banks, brokerage houses, and
insurance companies

If the Federal Open Market Committee desired to tighten credit, it would
Selected Answer: lower the discount rate
Correct Answer: sell securities in the open market

In setting reserve requirements, the Fed divides deposits into which of the following
two broad categories?
Selected Answer: transaction accounts and nonpersonal time accounts
Correct Answer: transaction accounts and nonpersonal time accounts

The official term of office of the chairman of the Fed is
Selected Answer: 4 years
Correct Answer: 4 years

The members of the Board of Governors of the Federal Reserve System are
appointed by the U. S. President.

According to monetarists, the money supply ought to be changed
Selected Answer: at the discretion of the President
Correct Answer: at a constant annual rate, regardless of economic conditions

If member banks need to borrow reserves, they must do so through the discount
window.

The Financial Services Modernization Act of 1999 is likely to result in fewer
financial institutions.

A major weakness of the National Banking System was the perverse elasticity of the
money supply.

By buying government securities, the Federal Open Market Committee adds to
member banks’ reserves.

The First Bank of the United States was chartered by
Selected Answer: the federal government
Correct Answer: the federal government

In terms of the total number of payments, which of the following comprises the
largest share?
Selected Answer: credit cards
Correct Answer: cash

Changes in reserve requirements are made within legal limits by
Selected Answer: the Board of Governors
Correct Answer: the Board of Governors

If M equals $40, V equals 16, and Q equals 16, then P equals $40.

The transactions approach to the equation of exchange can be expressed as MV = PQ.

Which of the following categories of goods and services is included in the CPI?

COLA clauses are usually based on the
Selected Answer: CPI
Correct Answer: CPI

When a person takes cash to the bank and deposits it in a checking account,
Selected Answer: that act directly and immediately changes one kind of money into
another kind of money
Correct Answer: that act directly and immediately changes one kind of money into
In the past 10 years or so, average real wages of U.S. workers in nonagricultural
industries have
Selected Answer: increased about 40 percent
Correct Answer: increased slightly

An increase in the money supply is more likely to be inflationary when
Selected Answer: the economy is at full employment
Correct Answer: the economy is at full employment

Money is defined as
Selected Answer: anything that is commonly accepted in exchange for other goods
and services
Correct Answer: anything that is commonly accepted in exchange for other goods
and services

The current base year for the CPI is 1985.

The CPI does not necessarily make adjustments for improvement in the quality of
goods and services in the market basket.

If a worker’s nominal wage moves from $180 per week in a base period to $300 per
week subsequently, but the real wage rises to only $240, we can conclude that
Selected Answer: the price level has increased by 25 percent
Correct Answer: the price level has increased by 25 percent

A formula for determining how much a bank can extend loans through the creation of
checkable deposits is
Selected Answer: excess reserves + the reserve requirement
Correct Answer: excess reserves/the reserve requirement

The classical economists held that the rate of interest would equate planned
investment and planned saving, so that all saving would eventually be invested.

The value of the marginal propensity to consume
Selected Answer: is always between 0 and 1
Correct Answer: is always between 0 and 1

Aggregate expenditure in the U.S. economy includes spending for U.S. output by
Selected Answer: households, businesses, and governments, both domestic and
foreign
Correct Answer: households, businesses, and governments, both domestic and
foreign

Selected Answer: the economy naturally tended toward full employment

The Keynesian AS curve is
Selected Answer: upward sloping
Correct Answer: flat because of unemployed resources

Which of the following explains the downward slope of the aggregate demand curve?
Selected Answer: higher prices reduce the household’s real wealth
Correct Answer: higher prices reduce the household’s real wealth

According to the classical economists, unemployment was a temporary deviation
from equilibrium, and certain forces in the economy would return it to full
employment. Such forces did not include
Selected Answer: discretionary government spending
Correct Answer: discretionary government spending

If planned construction investment increases by $30 billion and the MPC is two-
thirds, total output will increase by
Selected Answer: $45 billion
Correct Answer: $90 billion

According to the Keynesian model, the economy will be in equilibrium when
Selected Answer: the government’s budget is balanced
Correct Answer: planned leakages equal planned injections


The slope of the consumption function equals the
Selected Answer: marginal propensity to consume
Correct Answer: marginal propensity to consume

If household incomes go up and almost all the increases are spent on consumer
goods,
Selected Answer: the marginal propensity to consume is high
Correct Answer: the marginal propensity to consume is high

The aggregate supply curve is
Selected Answer: a curve showing the quantities of total output that will be offered
for sale at various price levels
Correct Answer: a curve showing the quantities of total output that will be offered

To reduce personal income to disposable personal income,
Selected Answer: personal taxes are deducted
Correct Answer: personal taxes are deducted

If real GDP increased and nominal GDP decreased during the same year, we could
conclude that
Selected Answer: the general price level fell during the year
Correct Answer: the general price level fell during the year

Because of the value of things produced in households,
Selected Answer: GDP is probably somewhat smaller than true total output
Correct Answer: GDP is probably somewhat smaller than true total output

Excluding criminal activities, the underground economy in the United States is
equivalent in value to approximately what percentage of the GDP?
Selected Answer: 10 to 15 percent
Correct Answer: 10 to 15 percent

Selected Answer: shift toward production of consumer-oriented goods and services

In national income accounting, machine depreciation is treated as a cost of
production, but damage to a region’s air quality is not.

In the United States, leisure is a significant element in developing an accurate
measure of
Selected Answer: the standard of living
Correct Answer: the standard of living

percent, then
Selected Answer: real GDP per capital did not change

In national income accounting, grain fed to a hog at a commercial hog farm is
considered a(n)
Selected Answer: intermediate good
Correct Answer: intermediate good
The GDP implicit price deflators take into account price changes, as well as some
changes in the quality of various products.

The GDP does not include raw materials used up in the productive process.

The best measure of a change in the standard of living is the change in
Selected Answer: real per capita disposable income
Correct Answer: real per capita disposable income


time are known as

will be:
Correct Answer: $5










percent, then








within a country by

major sectors?


that

increase












share?

Committee.




Reserve System.



According to the equation of exchange, if total output and velocity are constant, a 20
percent increase in the money supply leads to
Correct Answer: a 20 percent increase in price level

An increase in the money supply always causes an increase in the price level.

In a price index, the quantity of goods and services being measured between two
periods
Correct Answer: must be held constant

A standard of deferred payment is most essential in a
Correct Answer: credit economy

time are known as

When money enables us to convert excess goods into money and retain the money, it
is acting as a
Correct Answer: store of value

An increase in the velocity of money can have an effect similar to that of an increase
in the money supply.


If M triples, V remains the same, and Q doubles, then P rises.
Assume the following: M = $500; V = 10; and Q = 500. From the equation of
exchange, the value of P is
Correct Answer: $10

The higher the reserve requirements, the
Correct Answer: less the possible expansion of the money supply

COLA is a form of indexation.

The GDP is the current market value of final goods and services produced by the
nation’s economy over a period of time.

Personal consumption expenditures account for approximately two-thirds of the GDP
in the United States.
Current disposable income can be adjusted for price changes and population changes
to yield real per capita disposable income.

Gross national product measures the current market value of final output produced
within a country by both domestic and foreign resources.


Discharges of chemicals from a paper plant that pollute a nearby river represent an
example of
Correct Answer: social costs

The unregulated portion of the economy involving goods and services that are
produced and exchanged without monetary transactions is known as
Correct Answer: the underground economy
Constant-dollar GDP and real GDP are the same thing.

An increase in business inventories would be included in the investment component
of GDP.

Constant-dollar GDP can be converted into current-dollar GDP by multiplying the
real GDP by the implicit price deflators

In national income accounting, machine depreciation is treated as a cost of
production, but damage to a region’s air quality is not.

The receipt of a Social Security benefit check would be considered part of
Correct Answer: PI
Instead of having one central bank, the Federal Reserve in effect has 12 district
banks, each with some amount of autonomy.

The interest rate at which banks borrow excess reserves from each other is known as
the
Correct Answer: federal funds rate

The Federal Reserve System is built around
Correct Answer: 12 district banks

Legislation has been introduced in Congress that would have required the Fed to
reduce inflation to zero percent.

Any bank reserves over and above the level of required reserves are known as
Correct Answer: excess reserves
share?

The Federal Reserve Banks are owned by
Correct Answer: their member banks

Cash transactions account for about 20 percent of the value of transactions.

The Fed Chairman appears before Congress semi-annually to present the Monetary
Policy Report.

If a Federal Reserve Bank wanted to tighten the money supply, it would
Correct Answer: raise the discount rate
Within certain limits, the reserve requirement for checkable deposits are established
by

The range of reserve requirements that the Board of Governors can set for net
transaction accounts is


In the simple Keynesian model, if output exceeds aggregate expenditures,
Correct Answer: inventories will increase and businesses will decrease output

Various estimates of the multiplier for the U.S. economy place it between 2 and 3,
depending on the level of employment.
The multiplier is the reciprocal of the marginal propensity to consume.

The higher the propensity to save, the larger the size of the multiplier.


If the marginal propensity to consume were two-thirds, the multiplier would be
Correct Answer: 3

In the Keynesian income-expenditure graph, total savings at each level of national
income is indicated by
Correct Answer: the vertical distance between the consumption function and the 45-
degree line
The relationship between the marginal propensity to consume and the marginal
propensity to save is such that
Correct Answer: MPC + MPS = 1


If planned investment increases by $20 billion, other things remaining the same,
planned saving eventually will increase by $20 billion, regardless of the size of the
multiplier.

The purpose of the Keynesian analysis is to explain what determines the
Correct Answer: levels of national income, output, and employment

Total planned consumption
Correct Answer: exceeds total income at very low levels of output
The aggregate demand curve
Correct Answer: shows the amounts of real output that will be demanded at various
price levels


User Siu Ying Mandy Chan
Status Completed
Instructions
Clear Attempt

Changes in reserve requirements are initiated by the
Given Answer: Board of Governors
Correct Answer: Board of Governors

Given Answer: can borrow reserves from the Fed

Given Answer: their member banks

Given Answer: 4 years

Which of the following is not a correct statement?
Given Answer: the U.S. Senate must approve any major change in Fed policy
Correct Answer: the U.S. Senate must approve any major change in Fed policy

The present membership in the Federal Reserve System includes
Given Answer: less than half of the commercial banks in the nation
Correct Answer: less than half of the commercial banks in the nation

The chair of the Board of Governors of the Federal Reserve is
Given Answer: appointed by the U.S. President
Correct Answer: appointed by the U.S. President

Given Answer: 1913
The Board of Governors of the Federal Reserve System is
Given Answer: independent within the U.S. government
Correct Answer: independent within the U.S. government

Changes in the discount rate are initiated by
Given Answer: Federal Reserve Banks
Correct Answer: Federal Reserve Banks

Given Answer: the perverse elasticity of the money supply

One reason the Federal Reserve System was set up was to

The portion of the GDP that takes the form of consumer goods and services is
approximately
Given Answer: two-thirds
Correct Answer: two-thirds

Which of the following represents a transfer payment?
Given Answer: a Social Security benefit payment
Correct Answer: a Social Security benefit payment

The GDP does not measure
Given Answer: external costs
Correct Answer: external costs

When final sales are larger than GDP,
Given Answer: a net decrease in inventories took place
Correct Answer: a net decrease in inventories took place

Excluded from the GDP are
Given Answer: nonmonetary transactions
Correct Answer: nonmonetary transactions

The current-dollar GDP can be converted into a constant-dollar GDP by
Given Answer: dividing by a price index
Correct Answer: dividing by a price index

The measurements of business cycles tend to be exaggerated as a result of the GDP
treatment of
Given Answer: durable goods
Correct Answer: durable goods

conclude that
Given Answer: the general price level fell during the year

The difference between the cost of raw materials and the price of the final good is
known as
Given Answer: value added
Correct Answer: value added

The GDP and NI figures are not equal because
Given Answer: depreciation and indirect taxes are included in GDP but not in NI
Correct Answer: depreciation and indirect taxes are included in GDP but not in NI

Given Answer: personal taxes are deducted

The GDP does not include
Given Answer: intermediate goods
Correct Answer: intermediate goods
The national income accounts for the United States are prepared by the
Given Answer: U.S. Department of Commerce
Correct Answer: U.S. Department of Commerce

If a bank has $60,000 in legal reserves and is subject to a 10 percent reserve
requirement, it could have outstanding checkable deposits to the extent of

In the monetary equation of exchange, MV=PQ, P stands for
Given Answer: average price
Correct Answer: average price

Anything that would cause people to want to hold more of their money as cash and
less in the form of checkable deposits would
Given Answer: reduce the multiple expansion of the money supply
Correct Answer: reduce the multiple expansion of the money supply

Assume the following: M=$500; V=10; and Q=500. From the equation of exchange,
the value of P is
Given Answer: $10
Correct Answer: $10
The bulk of the M1 money supply is made up of
Given Answer: checkable deposits
Correct Answer: checkable deposits

According to the equation of exchange, an increase in either velocity or the money
supply will
Given Answer: cause PQ to rise
Correct Answer: cause PQ to rise

Trading in a barter economy requires
Given Answer: a double coincidence of wants
Correct Answer: a double coincidence of wants

The amount of money a bank can lend
Given Answer: is inversely related to its reserve requirements
Correct Answer: is inversely related to its reserve requirements

The quantity theory of money assumes that
Given Answer: the national economy tends to operate at full employment
Correct Answer: the national economy tends to operate at full employment
periods
Given Answer: must be held constant


If you want to deflate the current price of something to eliminate the effect of
inflation,
Given Answer: divide the number by the price index
Correct Answer: divide the number by the price index

Given Answer: credit economy

Prior to Keynes, the prevailing viewpoint concerning equilibrium in the economy
was that of
Given Answer: classical economics
Correct Answer: classical economics
According to the Keynesian theory, inflation
Given Answer: can occur when aggregate expenditure exceeds output at full
employment
Correct Answer: can occur when aggregate expenditure exceeds output at full
employment

Given Answer: the reciprocal of MPS

In the Keynesian analysis, government spending
Given Answer: refers to spending by federal, state, and local governments
Correct Answer: refers to spending by federal, state, and local governments

In the Keynesian model, if planned saving is greater than planned investment,
Given Answer: unemployment will rise
Correct Answer: unemployment will rise

In a measure of aggregate expenditures for the national economy, net exports
Given Answer: may be either positive or negative
Correct Answer: may be either positive or negative
Income earned by the productive resources does not include
Given Answer: transfer of payments
Correct Answer: transfer of payments

According to the Keynesian model, increased foreign spending for U.S. goods is
likely to
Given Answer: increase total output in the United States
Correct Answer: increase total output in the United States

goods,
Given Answer: the marginal propensity to consume is high

Given Answer: levels of national income, output, and employment

The classical economic doctrine held that the normal equilibrium position of the
economy was one of
Given Answer: full employment
Correct Answer: full employment
One major difference between Keynesian analysis and classical theory is that the
classical theory assumes
Given Answer: full employment as a norm
Correct Answer: full employment as a norm

of living for the same GDP
Given Answer: a shift toward production of consumer-oriented goods and services
Correct Answer: a shift toward production of consumer-oriented goods and services

approximately
Given Answer: two-thirds

In dollar value, the nominal GDP in the United States is in the vicinity of
Given Answer: between 10 and 12 trillion
Correct Answer: between 10 and 12 trillion

Given Answer: multiplying by a price index


Given Answer: military costs

Given Answer: PI minus personal taxes

Purchasing power parity shows how many units of currency are needed in one
country
Given Answer: to buy the same amount of output that one unit of currency buys in
another country
Correct Answer: to buy the same amount of output that one unit of currency buys in
another country
Given Answer: the underground economy

In national income accounting, grain fed to a hog at a commercial hog farm is
considered
Given Answer: a capital consumption allowance
Correct Answer: an intermediate good

The measure of income received by persons from all sources is known as
Given Answer: personal income
Correct Answer: personal income

Personal income does not include
Given Answer: undistributed corporate profits
Correct Answer: undistributed corporate profits

During the so-called wildcat banking period in the United States,
Given Answer: both (a) and (b)


Given Answer: 0 to 9 percent

Changes in the discount rate are initiated by
Given Answer: Federal Reserve Banks
Correct Answer: Federal Reserve Banks

The Board of Governors of the Federal Reserve System is
Given Answer: independent within the U.S. government
Correct Answer: independent within the U.S. government

The interest rate at which depository institutions borrow reserves from the Federal
Given Answer: discount rate
Correct Answer: discount rate

Given Answer: Treasury bills

Given Answer: the Board of Governors

Membership in the Federal Reserve System is
Given Answer: required of national banks and open to state banks
Correct Answer: required of national banks and open to state banks


Members of the Board of Governors are
Given Answer: selected by the U.S. President
Correct Answer: selected by the U.S. President

goods,

According to the Keynesian analysis, the point of equilibrium income
Given Answer: must correspond to the full-employment level
Correct Answer: can be anywhere along the 45-degree line

The size of planned consumption is influence to a considerable extent by
Given Answer: how much income people are receiving
Correct Answer: how much income people are receiving

Given Answer: levels of national income, output, and employment

The classical theory states that
Given Answer: supply creates its own demand
Correct Answer: supply creates its own demand
Which of the following is not one of the four major sectors of the economy to which
GDP is allocated?

Given Answer: price competition

Given Answer: households, businesses, and all governments except foreign ones
foreign

The higher the marginal propensity to consume, the
Given Answer: larger the size of the multiplier
Correct Answer: larger the size of the multiplier

Given Answer: transfer of payments

According to the classical approach, if planned savings increases,
Given Answer: the rate of interest will fall
Correct Answer: the rate of interest will fall

In the equation of exchange MV = PQ, V stands for
Given Answer: average rate of turnover of the money supply
Correct Answer: average rate of turnover of the money supply

Given Answer: the less the money supply can expand

Excess reserves are the amount of money a bank
Given Answer: has in excess of its required reserves
Correct Answer: has in excess of its required reserves

In the monetary equation of exchange, MV=PQ, P stands for
Given Answer: the Producer Price Index

Given Answer: is inversely related to its reserve requirements

Given Answer: the velocity of money varies with changes in interest rates

Given Answer: that act directly and immediately changes one kind of money into

In a period of full employment, if M increases and V remains constant, the most
likely result is
Given Answer: an increase in the value of P
Correct Answer: an increase in the value of P

Given Answer: barter economy

Assume the following: M=$500; V=10; and P=$10. If the money supply then
will be:
Given Answer: $5
Correct Answer: $5

According to modern economists, the velocity of money is affected by
Given Answer: interest rates and expected price changes
Correct Answer: interest rates and expected price changes

inflation,
Given Answer: divide the number by the price index

If a bank has $60,000 in legal reserves and is subject to a 10 percent reserve
requirement, it could have outstanding checkable deposits to the extent of
Given Answer: $6 million

Given Answer: that act directly and immediately changes one kind of money into

The value of money is based on
Given Answer: the goods and services that a given amount of money will buy
Correct Answer: the goods and services that a given amount of money will buy

Trading in a barter economy requires
Given Answer: a double coincidence of wants
Correct Answer: a double coincidence of wants

In the equation of exchange MV = PQ, V stands for
Given Answer: total transactions in the economy
Correct Answer: average rate of turnover of the money supply

inflation,
Given Answer: multiply the number by the price index

likely result is
Given Answer: an increase in the value of P

The higher the reserve requirements, the
Given Answer: less the possible expansion of the money supply
Correct Answer: less the possible expansion of the money supply

The Producer Price Index (PPI) measures
Given Answer: changes in the prices received by producers
Correct Answer: changes in the prices received by producers

The current base period for the CPI is
Given Answer: 1982-1984
Correct Answer: 1982-1984

In calculating a price index, the period to which prices in all other periods are
compared is known as the
Given Answer: base period
Correct Answer: base period

A bank can actually create money by
Given Answer: lending its excess reserves
Correct Answer: lending its excess reserves

Given Answer: the less the money supply can expand

The formula for finding a price index for a fixed basket of goods in the current year is
Given Answer: price of basket in current year/price of basket in base year
Correct Answer: price of basket in current year/price of basket in base year

The interest rate at which depository institutions borrow reserves from the Federal
Given Answer: discount rate
Correct Answer: discount rate

Given Answer: selected by the U.S. President

Each Federal Reserve Bank
Given Answer: is controlled by its own Board of Directors
Correct Answer: is controlled by its own Board of Directors

The Federal Reserve System is built around
Given Answer: 12 district banks
Correct Answer: 12 district banks

Given Answer: abusive banking practices were prevalent

Given Answer: 3 to 14 percent

Given Answer: the federal government

Given Answer: 4 years

by
Given Answer: the Board of Governors

The Board of Governors of the Federal Reserve System has
Given Answer: 7 members
Correct Answer: 7 members

Planned consumption and planned investment are
Given Answer: two important components of aggregate expenditure
Correct Answer: two important components of aggregate expenditure

Given Answer: price level

goods,

that
Given Answer: total planned injections must be equal to total planned leakages

Given Answer: full employment as a norm

Given Answer: may be either positive or negative

In the Keynesian model, if planned saving is greater than planned investment,
Given Answer: unemployment will rise
Correct Answer: unemployment will rise

Which of the following is not one of the four major sectors of the economy to which
GDP is allocated?

Given Answer: the rate of interest will fall


The classical economic doctrine held that the normal equilibrium position of the
economy was one of
Given Answer: rising prices
Correct Answer: full employment

According to the Keynesian model, increased foreign spending for U.S. goods is
likely to
Given Answer: reduce total output in the United States
Correct Answer: increase total output in the United States

Given Answer: gross domestic product

The existence of undistributed corporate profits tends to cause
Given Answer: national income to be smaller than NNP
Correct Answer: national income to be larger than personal income

measure of
Given Answer: the standard of living

example of
Given Answer: social costs


Net national product is equal to
Given Answer: GNP plus corporate profits
Correct Answer: GNP minus capital consumption allowances

Real GDP refers to nominal GDP adjusted for
Given Answer: price changes
Correct Answer: price changes

The difference between GDP and final sales equals
Given Answer: net inventory change
Correct Answer: net inventory change

of living for the same GDP
Given Answer: a shift toward production of consumer-oriented goods and services
Correct Answer: a shift toward production of consumer-oriented goods and services

within a country
Given Answer: by both domestic and foreign resources
Correct Answer: by both domestic and foreign resources
Given Answer: dividing by a price index

If total production of goods and services for a given quarter is $2,000 billion
(seasonally adjusted), the GDP will be reported at an annual rate of
Given Answer: $8,000 billion
Correct Answer: $8,000 billion

If real GDP increases by 5 percent and the population increases by 10 percent during
the same period, real per capital income
Given Answer: decreases


Which of the following is not a correct statement?
Selected Answer: the U.S. Senate must approve any major change in Fed policy
Correct Answer: the U.S. Senate must approve any major change in Fed policy

Selected Answer: Board of Governors

Selected Answer: Treasury bills

Selected Answer: less than half of the commercial banks in the nation

Selected Answer: selected by the U.S. President

Selected Answer: 7 members

Selected Answer: can borrow reserves from the Fed

If a bank has excess reserves,
Selected Answer: its reserves are greater than its liabilities
Correct Answer: it can make a loan if it wishes

by

The usual term of office of members of the Board of Governors is

Selected Answer: depreciation and indirect taxes are included in GDP but not in NI

Selected Answer: personal income

In terms of purchasing power parity, the nation with the highest per capita GDP is
Selected Answer: Norway
Correct Answer: United States

Selected Answer: cleaning your own house

The GDP measures the value of
Selected Answer: final goods and services
Correct Answer: final goods and services

Selected Answer: a Social Security benefit payment
example of
Selected Answer: social costs

U.S. gross domestic product is converted to U.S. gross national product by
Selected Answer: subtracting the value of output produced by U.S.-owned
resources in foreign countries

Social costs are associated with
Selected Answer: government programs for the disadvantaged
Correct Answer: deterioration of the natural environment

The receipt of a Social Security benefit check would be considered part of
Selected Answer: GDP
Correct Answer: PI

Selected Answer: $8,000 billion
conclude that

Selected Answer: between 10 and 12 trillion

Selected Answer: transfer of payments

The size of planned consumption is influence to a considerable extent by
Selected Answer: how much income people are receiving
Correct Answer: how much income people are receiving

Selected Answer: levels of national income, output, and employment

foreign
foreign

goods,
Selected Answer: the marginal propensity to consume is high

Planned consumption and planned investment are
Selected Answer: two important components of aggregate expenditure
Correct Answer: two important components of aggregate expenditure

Prior to Keynes, the prevailing viewpoint concerning equilibrium in the economy
was that of
Selected Answer: classical economics
Correct Answer: classical economics

Selected Answer: supply creates its own demand
According to the Keynesian theory, inflation
Selected Answer: can occur when aggregate expenditure exceeds output at full
employment
Correct Answer: can occur when aggregate expenditure exceeds output at full
employment

The relationship between an initial increase in planned investment and the resulting
increase in income is known as the
Selected Answer: capital consumption effect
Correct Answer: multiplier effect

Selected Answer: refers to spending by federal, state, and local governments

Selected Answer: discretionary government spending

Selected Answer: has in excess of its required reserves
Assume the following: M=$500; V=10; and Q=500. From the equation of exchange,
the value of P is
Correct Answer: $10

Selected Answer: the less the money supply can expand

Selected Answer: changes in the prices received by producers

periods
Selected Answer: must be held constant

Selected Answer: that act directly and immediately changes one kind of money into
Selected Answer: the national economy tends to operate at full employment

Selected Answer: reduce the multiple expansion of the money supply

The U.S. money supply measure that consists of currency plus travelers checks and
checkable deposits is referred to as
Selected Answer: M2
Correct Answer: M1

Selected Answer: 1982-1984
Correct Answer: 1982-1984

If a worker receives a weekly nominal wage of $300 and the CPI is 125, the real
wage is approximately
Correct Answer: $240
Selected Answer: the goods and services that a given amount of money will buy
Question 50
If the CPI is 150, the value of the dollar now compared to in the base period is
Selected Answer: $1.50
Correct Answer: $0.67
COURSES > ECON125-HK. ECONOMICS FOR MANAGERS >

ASSIGNMENTS&EXAM > REVIEW ASSESSMENT: MIDTERM EXAM
Review Assessment: Midterm Exam
Name: Midterm Exam

Status :Completed
Score:95 out of 100 points
Instructions:This exam consists of 80 equally weighed questions. Always pick the
single best answer. Questions that are skipped or are submitted with multiple answers
will be scored as incorrect.
Question 1
1.25 of 1.25 points
A monopolist will choose a level of output that sets
Selected Answer: d. marginal revenue equal to marginal cost.

Correct Answer: d. marginal revenue equal to marginal cost.
Feedback: Correct
Question 2
0 of 1.25 points
Refer to the graph below. When do diminishing returns set in?
Selected Answer: a. Between the first and the second units of output.
Correct Answer: b. After three units of output are produced.
Feedback: b, after 3 units of output
Question 3
1.25 of 1.25 points
Which of the following statements is true?
Selected Answer: d. If marginal cost is greater than average variable cost, average
variable cost must be increasing.
Correct Answer: d. If marginal cost is greater than average variable cost, average
Feedback: Correct
Question 4
0 of 1.25 points
Which of the following formulas shows total profit?
Selected Answer: a. P ? ATC
Correct Answer: b. (P ? ATC)Q

Feedback: b, (P-ATC)Q. Profit per unit times the number of units of output sold
equals total profit.
Question 5
1.25 of 1.25 points
Under price leadership, a price war may be triggered when a firm lowers price
because
Selected Answer: d. Firms interpret price changes as an attempt to underprice

competitors.
Correct Answer: d. Firms interpret price changes as an attempt to underprice
competitors.
Feedback: Correct
Question 6
1.25 of 1.25 points
An upward-sloping short-run marginal cost curve shows that:
Selected Answer: a. with a fixed amount of capital, as more and more labor is
added, output increases at a decreasing rate, and thus each unit is more expensive than
the previous unit.
Correct Answer: a. with a fixed amount of capital, as more and more labor is
the previous unit.
Feedback: Correct
Question 7
1.25 of 1.25 points
In the short-run, an increase in demand results in a(n)
Selected Answer: a. greater increase in the equilibrium price than in the long-run.
Correct Answer: a. greater increase in the equilibrium price than in the long-run.
Feedback: Correct
Question 8
1.25 of 1.25 points
If you earn $80,000 a year and acquiring cable TV service costs you $150 per year,
your demand for cable is likely to be:
Selected Answer: d. inelastic.
Correct Answer: d. inelastic.
Feedback: Correct
Question 9
1.25 of 1.25 points
Economic profit is
Selected Answer: c. total revenue minus the total of explicit and implicit costs.
Correct Answer: c. total revenue minus the total of explicit and implicit costs.
Feedback: Correct
Question 10
0 of 1.25 points
If a store advertises that it will match the prices of any competitor, it is most likely
that consumers will:
Selected Answer: e. pay lower prices at all stores.

Correct Answer: a. pay higher prices at all stores.
Feedback: a. Guaranteed price matching schemes give all firms a disincentive to
cut prices, and thus it is likely that the level of prices will, in general, be higher.
Question 11
1.25 of 1.25 points
The Organization of Petroleum Exporting Countries, OPEC, attempts to set world oil
prices by limiting the production of member nations. This is an example of a
Selected Answer: c. cartel.
Correct Answer: c. cartel.
Feedback: Correct
Question 12
1.25 of 1.25 points
The problem of scarcity,
Selected Answer: d. exists because human wants exceed available resources.

Correct Answer: d. exists because human wants exceed available resources.
Feedback: Correct
Question 13
1.25 of 1.25 points
According to the utility-maximization rule, consumers will choose combinations of

ice-cream and pizzas such that
Selected Answer: a. on the last unit of each good consumed, the marginal utility
per dollar spent on ice-cream is equal to the marginal utility per dollar spent on pizza.
Correct Answer: a. on the last unit of each good consumed, the marginal utility
per dollar spent on ice-cream is equal to the marginal utility per dollar spent on pizza.
Feedback: Correct
Question 14
1.25 of 1.25 points
Why do people specialize and trade?
Selected Answer: a. Because each person can consume more by specializing and
trading.
Correct Answer: a. Because each person can consume more by specializing and
trading.
Feedback: Correct
Question 15
1.25 of 1.25 points
The income elasticity of widgets is negative; the cross elasticity between widgets and
gadgets is negative. Widgets are a(n):
Selected Answer: d. inferior good and a complement to gadgets.
Correct Answer: d. inferior good and a complement to gadgets.
Feedback: Correct
Question 16
1.25 of 1.25 points
When people have very little time to respond to price changes, demand becomes
Selected Answer: b. less elastic .
Correct Answer: b. less elastic .
Feedback: Correct
Question 17
1.25 of 1.25 points
As compared to perfect competition, monopolies
Selected Answer: a. reduce consumer surplus, create positive economic profits,

and generate deadweight loss.
Correct Answer: a. reduce consumer surplus, create positive economic profits,
and generate deadweight loss.
Feedback: Correct
Question 18
1.25 of 1.25 points
A monopolist may choose prices that are very close to competitive prices:
Selected Answer: if it is trying to deter entry.

Correct Answer: if it is trying to deter entry.
Feedback: Correct
Question 19
1.25 of 1.25 points
The concept of opportunity cost is based on the principle of:
Selected Answer: scarcity.
Correct Answer: scarcity.
Feedback: Correct
Question 20
1.25 of 1.25 points
We say that that countries have become more economically interdependent because:
Selected Answer: e. All of the above are reasons for increased interdependence.
Correct Answer: e. All of the above are reasons for increased interdependence.
Feedback: Correct
Question 21
1.25 of 1.25 points
If foreign officials make it time-consuming and complicated to get goods through

customs, this is an example of a:
Selected Answer: d. nontariff trade barrier.

Correct Answer: d. nontariff trade barrier.
Feedback: Correct
Question 22
1.25 of 1.25 points
Which of the following questions is outside the scope of economics?
Selected Answer: e. None of the above; all are within the scope of economic
study.
Correct Answer: e. None of the above; all are within the scope of economic
study.
Feedback: Correct
Question 23
1.25 of 1.25 points
Which of the following does NOT restrict the free flow of goods between nations?
Selected Answer: b. the General Agreement on Tariffs and Trade

Correct Answer: b. the General Agreement on Tariffs and Trade
Feedback: Correct
Question 24
1.25 of 1.25 points
Hal sells tennis shoes. Hal wants to increase his revenues, so he raises his prices. This
strategy will only work if demand is
Selected Answer: c. inelastic.
Correct Answer: c. inelastic.
Feedback: Correct
Question 25
1.25 of 1.25 points
The firm?s short-run production function, or total product curve, is a relationship that
shows:
Selected Answer: d. The amount of output that can be obtained from the addition
of a variable input (i.e. labor), while holding at least one other input (i.e. capital)
constant, or fixed.
Correct Answer: d. The amount of output that can be obtained from the addition
of a variable input (i.e. labor), while holding at least one other input (i.e. capital)
constant, or fixed.
Feedback: Correct
Question 26
1.25 of 1.25 points
Minimum Efficient Scale (MES) represents
Selected Answer: d. the output at which the long-run average cost curve reaches
its lowest point.
Correct Answer: d. the output at which the long-run average cost curve reaches
its lowest point.
Feedback: Correct
Question 27
1.25 of 1.25 points
According to the marginal principle, if the marginal benefit is far greater than the
marginal cost, than a rational individual will
Selected Answer: c. stop the activity when the marginal benefit is equal to the
marginal cost.
Correct Answer: c. stop the activity when the marginal benefit is equal to the
marginal cost.
Feedback: Correct
Question 28
1.25 of 1.25 points
Suppose that an additional unit of output would require 5 additional hours of labor
and 7 additional units of materials. If the wage is $15 per hour and the price of
materials is $2 per unit, what is the marginal cost of production?
Selected Answer: b. $89
Correct Answer: b. $89
Feedback: Correct
Question 29
1.25 of 1.25 points
If prices fall but what you earn stays the same, then:
Selected Answer: your nominal income hasn't changed, but your real income has
increased.
Correct Answer: your nominal income hasn't changed, but your real income has
increased.
Feedback: Correct
Question 30
1.25 of 1.25 points
Refer to the graph below. Which of the following factors can cause a move from point
d to points g or h?
Selected Answer: d. All of the above.
Correct Answer: d. All of the above.
Feedback: Correct
Question 31
1.25 of 1.25 points
James has enough money to buy a car at the market price from fifteen years ago, but
today it?s only half of what he would need. Which principle does this represent?
Selected Answer: Reality
Correct Answer: Reality
Feedback: Correct
Question 32
1.25 of 1.25 points
In a monopolistically competitive market, what will cause the entry of new firms to
stop?
Selected Answer: d. A decrease in economic profit down to zero.
Correct Answer: d. A decrease in economic profit down to zero.
Feedback: Correct
Question 33
1.25 of 1.25 points
Consider the effect of the following on the market for chocolate: There is an increase
in the price of cacao,an input to chocolate production, and at the same time, a
successful advertising campaign convinces consumers that chocolate is even more
desirable. Which of the following best explains the effect on the chocolate market?
Selected Answer: c. The equilibrium price of chocolate will rise, but the effect on
the quantity is uncertain.
Correct Answer: c. The equilibrium price of chocolate will rise, but the effect on
Feedback: Correct
Question 34
1.25 of 1.25 points
Under a policy of average-cost pricing,
Selected Answer: a. the government picks a point on the demand curve where
price equals average cost.
Correct Answer: a. the government picks a point on the demand curve where
price equals average cost.
Feedback: Correct
Question 35
1.25 of 1.25 points
As price falls along a linear demand curve, the price elasticity of demand:
Selected Answer: c. decreases.
Correct Answer: c. decreases.

Feedback: Correct
Question 36
1.25 of 1.25 points
The output decisions of a monopolistically competitive firm are based on the

following principle:
Selected Answer: a. The marginal principle.

Correct Answer: a. The marginal principle.
Feedback: Correct
Question 37
1.25 of 1.25 points
Strategies such as the grim trigger, tit-for-tat, and guaranteed price matching help
keep cartels together because:
Selected Answer: b. they reduce the rewards and/or increase the penalties for
cheating.
Correct Answer: b. they reduce the rewards and/or increase the penalties for
cheating.
Feedback: Correct
Question 38
1.25 of 1.25 points
Suppose that there is a particularly good wheat harvest this year, and at the same time,
medical reports indicate that increased grain consumption improves health. What will
happen to the equilibrium price and quantity of wheat?
Selected Answer: e. Quantity will increase, but the change in price depends on
the relative size of the shift.
Correct Answer: e. Quantity will increase, but the change in price depends on
the relative size of the shift.
Feedback: Correct
Question 39
1.25 of 1.25 points
A perfectly competitive firm is operating at an output where price is greater than

marginal cost. Therefore:
Selected Answer: a. the firm should produce more to maximize profit.

Correct Answer: a. the firm should produce more to maximize profit.
Feedback: Correct
Question 40
1.25 of 1.25 points
Which of the following is NOT an example of a marginal decision?
Selected Answer: c. If I hire ten workers to produce tables, what will be the
average cost per table?
Correct Answer: c. If I hire ten workers to produce tables, what will be the
average cost per table?
Feedback: Correct
Question 41
1.25 of 1.25 points
A curve showing the relationship between price and the quantity of output supplied by
an entire industry is a
Selected Answer: d. short-run market supply curve.

Correct Answer: d. short-run market supply curve.
Feedback: Correct
Question 42
1.25 of 1.25 points
For the typical firm in a monopolisitically competitive market in long-run

equilibrium,
Selected Answer: e. the price is greater than both marginal revenue and marginal
cost.
Correct Answer: e. the price is greater than both marginal revenue and marginal
cost.
Feedback: Correct
Question 43
1.25 of 1.25 points
Monopolistic competition is similar to monopoly because:
Selected Answer: a. marginal revenue is less than price in both industries.

Correct Answer: a. marginal revenue is less than price in both industries.
Feedback: Correct
Question 44
1.25 of 1.25 points
If your new business (in which you have invested $50,000, which you previously kept
in savings, earning 10% interest) earns an accounting profit of $30,000 in the first
year, and you had previously been employed as a ditch-digger, earning $10,000 per
year, your economic profit is:
Selected Answer: d. 15,000.
Correct Answer: d. 15,000.
Feedback: Correct
Question 45
1.25 of 1.25 points
According to the Law of Supply,
Selected Answer: d. the higher the price, the larger the quantity supplied.
Correct Answer: d. the higher the price, the larger the quantity supplied.
Feedback: Correct
Question 46
1.25 of 1.25 points
If Country 1 is absolutely better at producing all goods than Country 2, which of the
following is most likely to be true?
Selected Answer: a. Both countries can gain from trade.

Correct Answer: a. Both countries can gain from trade.
Feedback: Correct
Question 47
1.25 of 1.25 points
If the marginal product of labor is increasing,
Selected Answer: a. output is increasing at an increasing rate.

Correct Answer: a. output is increasing at an increasing rate.
Feedback: Correct
Question 48
1.25 of 1.25 points
Refer to the graph below. Along this budget line, what do points j, e, and x have in
common?
Selected Answer: c. All three combinations can be obtained with the same
amount of income.
Correct Answer: c. All three combinations can be obtained with the same
amount of income.
Feedback: Correct
Question 49
1.25 of 1.25 points
In order to increase the amount of output sold, a monopoly must:
Selected Answer: c. Decrease the price on all units sold.

Correct Answer: c. Decrease the price on all units sold.
Feedback: Correct
Question 50
1.25 of 1.25 points
Market systems are desirable because
Selected Answer: a. they facilitate exchange and specialization.

Correct Answer: a. they facilitate exchange and specialization.
Feedback: Correct
Question 51
1.25 of 1.25 points
If Y = 600 - 3X, what is the vertical intercept?
Selected Answer: d. 600
Correct Answer: d. 600
Feedback: Correct
Question 52
1.25 of 1.25 points
In a monopolistically competitive industry in long-run equilibrium, what will the

market price be?
Selected Answer: b. Price will be equal to average cost.

Correct Answer: b. Price will be equal to average cost.
Feedback: Correct
Question 53
1.25 of 1.25 points
Monopolistic competition may be beneficial to society because:
Selected Answer: c. consumers gain from increased variety.

Correct Answer: c. consumers gain from increased variety.
Feedback: Correct
Question 54
1.25 of 1.25 points
Refer to the graph below. What can be said about the consumption of six burgers?
Selected Answer: c. Six burgers are not sufficient because marginal benefit
remains above marginal cost.
Correct Answer: c. Six burgers are not sufficient because marginal benefit
remains above marginal cost.
Feedback: Correct
Question 55
1.25 of 1.25 points
If the demand for baked potatoes increases as a person?s income decreases, potatoes
are
Selected Answer: b. an inferior good.
Correct Answer: b. an inferior good.
Feedback: Correct
Question 56
1.25 of 1.25 points
What are the characteristics of monopolistic competition:
Selected Answer: c. Many firms, differentiated product, and no artificial barriers

to entry.
Correct Answer: c. Many firms, differentiated product, and no artificial barriers
to entry.
Feedback: Correct
Question 57
1.25 of 1.25 points
What is the marginal benefit of the fourth slice of pizza?
Feedback: Correct
Question 58
1.25 of 1.25 points
Which of the following conditions exist in long-run competitive equilibrium?
Feedback: Correct
Question 59
1.25 of 1.25 points
If Y = 200 + 2X, what is the slope of this line?
Selected Answer: c. 2
Correct Answer: c. 2
Feedback: Correct
Question 60
1.25 of 1.25 points
Why are monopoly markets considered to be inefficent?
Selected Answer: d. because they restrict output, creating a deadweight loss

Correct Answer: d. because they restrict output, creating a deadweight loss
Feedback: Correct
Question 61
1.25 of 1.25 points
If the firm has economies of scale in the long run, then the long-run average cost
curve is:
Selected Answer: c. downward-sloping.

Correct Answer: c. downward-sloping.
Feedback: Correct
Question 62
1.25 of 1.25 points
At levels of output where the firm's short-run average cost curve is increasing,
Selected Answer: a. the marginal cost curve is above the short-run average cost
curve.
Correct Answer: a. the marginal cost curve is above the short-run average cost
curve.
Feedback: Correct
Question 63
1.25 of 1.25 points
In the short run, the cost that is independent of the amount of output produced is
called:
Selected Answer: c. Fixed cost.
Correct Answer: c. Fixed cost.
Feedback: Correct
Question 64
1.25 of 1.25 points
The following table gives production possibilities for an economy that can produce
two goods: lobsters and boats. Graph the production possibilities curve (PPC), given
the information in Table 1-1, and putting lobsters on the horizontal axis. Use your
graph to answer the question: As this economy produces more and more lobsters, the
slope of the PPC:
Selected Answer: a. increases.
Correct Answer: a. increases.
Feedback: Correct
Question 65
1.25 of 1.25 points
Joe can choose between working one more hour at a wage of $5, watching TV for an
hour, or studying for an hour. He chooses to work, but his second choice would have
been to study. What is the opportunity cost of working for an hour?
Selected Answer: one hour of studying

Correct Answer: one hour of studying
Feedback: Correct
Question 66
1.25 of 1.25 points
As compared to the short-run elasticity of supply, in the long run, the elasticity of
supply will usually:
Selected Answer: a. increase (become more elastic).

Correct Answer: a. increase (become more elastic).
Feedback: Correct
Question 67
1.25 of 1.25 points
Monopolistic competition is similar to perfect competition because:
Selected Answer: b. there are no barriers to entry in either industry.

Correct Answer: b. there are no barriers to entry in either industry.
Feedback: Correct
Question 68
1.25 of 1.25 points
Technology improves, reducing the cost of producing computers. Which of the

following shows the effect on the computer market?
Selected Answer: b. Graph B
Correct Answer: b. Graph B
Feedback: Correct
Question 69
1.25 of 1.25 points
If the cross elasticity of demand between two products is 6.0, then
Selected Answer: a. the two products are substitutes.

Correct Answer: a. the two products are substitutes.
Feedback: Correct
Question 70
1.25 of 1.25 points
When firms act together to set prices:
Selected Answer: e. all of the above
Correct Answer: e. all of the above

Feedback: Correct
Question 71
1.25 of 1.25 points
In which type of economy does the government decide what to produce, how to
produce, and how to distribute goods and services to consumers?
Selected Answer: d. centrally planned economy

Correct Answer: d. centrally planned economy
Feedback: Correct
Question 72
0 of 1.25 points
In the short run, the price elasticity of demand for gasoline is estimated to be about
0.11. In the long run, studies suggest that it is about 0.9. How can you best explain
this difference?
Selected Answer: a. The supply of gasoline is likely to increase in the long run.
Correct Answer: c. Consumers are more able to make different choices given
more time to adapt.
Feedback: c, consumer adapt. In the short run, it is difficult to make different
choices about transportation. However, in the long run, consumers can adapt to
changing gas prices in a number of ways, such as choice of a different car or a
different place to live. Thus elasticity increases dramatically in the long run (though it
is still inelastic).
Question 73
1.25 of 1.25 points
Refer to the graph below. Starting at point a, an increase in demand with no change in
supply moves equilibrium to:
Selected Answer: d. Point b
Correct Answer: d. Point b

Feedback: Correct
Question 74
1.25 of 1.25 points
Refer to the graph below. Marginal utility is:
Selected Answer: a. greater at points u and v than at points w and x.

Correct Answer: a. greater at points u and v than at points w and x.
Feedback: Correct
Question 75
1.25 of 1.25 points
Suppose a firm responds to underpricing by another firm by choosing a price so low

that neither firm can profit. This strategy is known as
Selected Answer: d. the grim trigger strategy.

Correct Answer: d. the grim trigger strategy.
Feedback: Correct
Question 76
1.25 of 1.25 points
The overall demand for a product will NOT change in which of the following cases?
Selected Answer: b. The price of the good changes drastically.

Correct Answer: b. The price of the good changes drastically.
Feedback: Correct
Question 77
1.25 of 1.25 points
An economist's notion of costs differs from an accountant's notion of costs as follows:
Selected Answer: c. Economic cost includes the opportunity costs of

nonpurchased inputs; accounting cost includes only actual cash payments.
Correct Answer: c. Economic cost includes the opportunity costs of
nonpurchased inputs; accounting cost includes only actual cash payments.
Feedback: Correct
Question 78
1.25 of 1.25 points
Suppose that all of the fast-food restaurants in the entire world are purchased by one
firm. Relative to the current (competitive) price and quantity (and assuming that
nothing else has changed), we would expect the monopolist to:
Selected Answer: d. sell less and charge more.

Correct Answer: d. sell less and charge more.
Feedback: Correct
Question 79
1.25 of 1.25 points
Marginal revenue equals the change in total revenue associated with:
Selected Answer: d. Selling an additional unit of output.

Correct Answer: d. Selling an additional unit of output.
Feedback: Correct
Question 80
1.25 of 1.25 points
A firm's variable costs
Selected Answer: d. are determined by quantity of output produced by a firm.

Correct Answer: d. are determined by quantity of output produced by a firm.
Feedback: Correct
Question 1 0 out of 1.25 points

Company X and Company Y have reached a price-fixing agreement. If one company
cheats on the agreement, the other will cheat on the agreement in the next month. This
strategy is known as
Selected Answer: b. the duopoly price strategy.
Correct Answer: a. the tit-for-tat strategy.
Feedback: a, tit-for-tat
Question 2 1.25 out of 1.25 points

Selected Answer: b. The price of the good changes drastically.
Feedback: Correct

Selected Answer: c. 2
Feedback: Correct

Marginal utility is the
Selected Answer: b. additional happiness gained by consuming one more unit of a
good.
Correct Answer: b. additional happiness gained by consuming one more unit of a
good.
Feedback: Correct

Which of the following formulas shows total profit?
Selected Answer: b. (P ? ATC)Q
Correct Answer: b. (P ? ATC)Q
Feedback: Correct
If a store advertises that it will match the prices of any competitor, it is most likely
that consumers will:
Selected Answer: a. pay higher prices at all stores.
Correct Answer: a. pay higher prices at all stores.
Feedback: Correct

A friend offers you a Coke, a Pepsi, or a Diet Coke. You don't like Diet Coke, so after
some thought, you take the Pepsi. What is the opportunity cost of your choice?
Selected Answer: the Coke plus the Diet Coke
Correct Answer: the Coke
Feedback: The opportunity cost is the Coke that you gave up to get the Pepsi.

Feedback: Correct

Selected Answer: a. the marginal cost curve is above the short-run average cost
curve.
Correct Answer: a. the marginal cost curve is above the short-run average cost
curve.
Feedback: Correct

Selected Answer: a. reduce consumer surplus, create positive economic profits, and
generate deadweight loss.
Correct Answer: a. reduce consumer surplus, create positive economic profits, and
Feedback: Correct

A curve showing the relationship between price and the quantity of output supplied
by an entire industry is a
Selected Answer: d. short-run market supply curve.
Feedback: Correct

shows:
Selected Answer: d. The amount of output that can be obtained from the addition of
a variable input (i.e. labor), while holding at least one other input (i.e. capital)
constant, or fixed.
Correct Answer: d. The amount of output that can be obtained from the addition of a
variable input (i.e. labor), while holding at least one other input (i.e. capital) constant,
or fixed.
Feedback: Correct

When people have very little time to respond to price changes, demand becomes
Selected Answer: b. less elastic .
Correct Answer: b. less elastic .
Feedback: Correct
Selected Answer: d. marginal revenue equal to marginal cost.
Feedback: Correct

When firms act together to set prices:
Selected Answer: e. all of the above
Correct Answer: e. all of the above
Feedback: Correct

Which of the following would be expected to have the MOST elastic demand?
Selected Answer: a. all motor vehicles
Correct Answer: d. Ford Taurus
Feedback: d, Ford Taurus. Elasticity increases with the number of substitutes. There
are few substitutes for motor vehicles in general, and many substitutes for a Ford
Taurus.

stop?
Selected Answer: d. A decrease in economic profit down to zero.
Correct Answer: d. A decrease in economic profit down to zero.
Feedback: Correct

Refer to the graph below. Which of the following factors can cause a move from
point d to points g or h?

Feedback: Correct

called:
Selected Answer: c. Fixed cost.
Feedback: Correct

Which of the following statements best describes total utility?
Selected Answer: c. Total utility increases at an increasing rate with each good a
consumer purchases.
Correct Answer: b. Total utility increases at a decreasing rate with each good a
consumer purchases.
Feedback: b, increases at a decreasing rate. Total utility is the satisfaction that
consumer gets from whatever amount of products that he or she consumes. However,
since marginal utility, the change in satisfaction from consuming an additional unit, is
assumed to be diminishing, total utility increases at a decreasing rate as more goods
are purchased.

Selected Answer: b. $89
Feedback: Correct
If your new business (in which you have invested $50,000, which you previously
kept in savings, earning 10% interest) earns an accounting profit of $30,000 in the
first year, and you had previously been employed as a ditch-digger, earning $10,000
per year, your economic profit is:
Selected Answer: d. 15,000.
Feedback: Correct

Refer to the graph below. Marginal utility is:
Selected Answer: a. greater at points u and v than at points w and x.

Correct Answer: a. greater at points u and v than at points w and x.
Feedback: Correct

Selected Answer: a. they facilitate exchange and specialization.
Feedback: Correct

An economist's notion of costs differs from an accountant's notion of costs as
follows:
Selected Answer: c. Economic cost includes the opportunity costs of nonpurchased
inputs; accounting cost includes only actual cash payments.
Correct Answer: c. Economic cost includes the opportunity costs of nonpurchased
Feedback: Correct

nothing else has changed), we would expect the monopolist to:
Selected Answer: d. sell less and charge more.
Correct Answer: d. sell less and charge more.
Feedback: Correct

A natural monopoly occurs when
Selected Answer: d. the exit of the first firm would make the second firm
unprofitable.
Correct Answer: a. the entry of a second firm would make both firms unprofitable.
Feedback: a.

A firm's variable costs
Selected Answer: d. are determined by quantity of output produced by a firm.
Correct Answer: d. are determined by quantity of output produced by a firm.
Feedback: Correct

because
Selected Answer: d. Firms interpret price changes as an attempt to underprice
competitors.
competitors.
Feedback: Correct

Selected Answer: your nominal income hasn't changed, but your real income has
increased.
increased.
Feedback: Correct

According to the Law of Supply,
Selected Answer: d. the higher the price, the larger the quantity supplied.
Correct Answer: d. the higher the price, the larger the quantity supplied.
Feedback: Correct

Selected Answer: a. output is increasing at an increasing rate.
Feedback: Correct

Selected Answer: d. the output at which the long-run average cost curve reaches its
lowest point.
Correct Answer: d. the output at which the long-run average cost curve reaches its
lowest point.
Feedback: Correct
Selected Answer: c. Decrease the price on all units sold.
Feedback: Correct

Selected Answer: d. exists because human wants exceed available resources.
Feedback: Correct

Selected Answer: e. All of the above are reasons for increased interdependence.
Feedback: Correct

Selected Answer: c. cartel.
Feedback: Correct

Selected Answer: a. the government picks a point on the demand curve where price
equals average cost.
Correct Answer: a. the government picks a point on the demand curve where price
Feedback: Correct

Refer to the graph below. Along the line corresponding to points a and b, the
following statement(s) is/are true:
Selected Answer: c. For any value of X beyond point a, the value of X is greater
than the corresponding value of Y.
Feedback: d, all of the above

Selected Answer: a. increase (become more elastic).
Feedback: Correct

In the short run, the price elasticity of demand for gasoline is estimated to be about
0.11. In the long run, studies suggest that it is about 0.9. How can you best explain
this difference?
Selected Answer: c. Consumers are more able to make different choices given more
time to adapt.
Correct Answer: c. Consumers are more able to make different choices given more
time to adapt.
Feedback: Correct
Selected Answer: a. on the last unit of each good consumed, the marginal utility per
dollar spent on ice-cream is equal to the marginal utility per dollar spent on pizza.
Correct Answer: a. on the last unit of each good consumed, the marginal utility per
Feedback: Correct

Selected Answer: c. Six burgers are not sufficient because marginal benefit remains
above marginal cost.
Correct Answer: c. Six burgers are not sufficient because marginal benefit remains
Feedback: Correct

Feedback: one hour of studying

The concept of opportunity cost is based on the principle of:
Selected Answer: poverty.
Correct Answer: scarcity.
Feedback: Scarcity
Selected Answer: c. The equilibrium price of chocolate will rise, but the effect on
Correct Answer: c. The equilibrium price of chocolate will rise, but the effect on the
quantity is uncertain.
Feedback: Correct

strategy will only work if demand is
Selected Answer: c. inelastic.
Correct Answer: c. inelastic.
Feedback: Correct

Selected Answer: d. If marginal cost is greater than average variable cost, average
Feedback: Correct

Which of the following is not a type of product differentiation?
Selected Answer: b. location
Correct Answer: e. All of the above are types of product differentiation
Feedback: e. Anything that distinguishes one product from another is a type of
differentiation. Even products that are identical but sold in different locations can be
differentiated.

Selected Answer: b. they reduce the rewards and/or increase the penalties for
cheating.
Correct Answer: b. they reduce the rewards and/or increase the penalties for
cheating.
Feedback: Correct

Selected Answer: a. The marginal principle.
Feedback: Correct

slope of the PPC:
Selected Answer: a. increases.

Feedback: Correct
Selected Answer: a. Both countries can gain from trade.
Feedback: Correct

Selected Answer: a. the two products are substitutes.
Feedback: Correct

Selected Answer: d. centrally planned economy
Feedback: Correct

Use the information in this table to answer the question.
Which of the following statements is correct?
Selected Answer: c. Jorge has the absolute and comparative advantage in pies.
Correct Answer: c. Jorge has the absolute and comparative advantage in pies.
Feedback: Correct
equilibrium,
Selected Answer: e. the price is greater than both marginal revenue and marginal
cost.
Correct Answer: e. the price is greater than both marginal revenue and marginal
cost.
Feedback: Correct

customs, this is an example of a:
Selected Answer: d. nontariff trade barrier.
Correct Answer: d. nontariff trade barrier.
Feedback: Correct

marginal cost. Therefore:
Selected Answer: a. the firm should produce more to maximize profit.
Correct Answer: a. the firm should produce more to maximize profit.
Feedback: Correct

common?
Selected Answer: c. All three combinations can be obtained with the same amount
of income.
Correct Answer: c. All three combinations can be obtained with the same amount of
income.
Feedback: Correct

Selected Answer: b. there are no barriers to entry in either industry.
Feedback: Correct

The income elasticity of widgets is negative; the cross elasticity between widgets and
gadgets is negative. Widgets are a(n):
Selected Answer: d. inferior good and a complement to gadgets.
Feedback: Correct

According to the duopolists' dilemma,
Selected Answer: c. two firms are better off if one chooses a high price while the
other chooses a low price.
Correct Answer: b. two firms both choose a low price, although both would be
better off with the high price.
Feedback: b, both pick a low price.

Selected Answer: c. stop the activity when the marginal benefit is equal to the
marginal cost.
marginal cost.
Feedback: Correct

If Y = 600 - 3X, what is the vertical intercept?
Selected Answer: d. 600
Correct Answer: d. 600
Feedback: Correct

Which of the following best explains why there are diminishing returns in the short
run?
Selected Answer: In the short run, some inputs are fixed, so variable inputs have
less to work with, and output increases at a increasing rate.
Correct Answer: In the short run, some inputs are fixed, so variable inputs have less
to work with, and output increases at a decreasing rate.
Feedback: Some inputs are fixed, so output increases at a decreasing rate.

Selected Answer: c. consumers gain from increased variety.
Feedback: Correct

Selected Answer: a. Because each person can consume more by specializing and
trading.
trading.
Feedback: Correct
Selected Answer: a. with a fixed amount of capital, as more and more labor is
the previous unit.
Correct Answer: a. with a fixed amount of capital, as more and more labor is added,
output increases at a decreasing rate, and thus each unit is more expensive than the
previous unit.
Feedback: Correct

Selected Answer: a. marginal revenue is less than price in both industries.
Feedback: Correct

market price be?
Selected Answer: b. Price will be equal to average cost.
Feedback: Correct

Selected Answer: b. Graph B

Feedback: Correct

Selected Answer: b. After three units of output are produced.

Feedback: Correct

Selected Answer: d. Selling an additional unit of output.
Feedback: Correct

Which of the following is a competitive business firm able to control:
Selected Answer: c. The amount of output it produces
Correct Answer: c. The amount of output it produces
Feedback: Correct

are
Selected Answer: b. an inferior good.
Feedback: Correct
Selected Answer: e. None of the above; all are within the scope of economic study.
Correct Answer: e. None of the above; all are within the scope of economic study.
Feedback: Correct

curve is:
Selected Answer: c. downward-sloping.
Correct Answer: c. downward-sloping.
Feedback: Correct

A Production Possibilities Curve (PPC) illustrates the concept of scarcity. Which item
will be most likely to result in a shift of the PPC outward, indicating the ability to
produce more goods?
Selected Answer: a decrease in the price of steel
Correct Answer: an increase in population
Feedback: an increase in population

Which of the following is true of a monopoly?
Selected Answer: a. A monopoly always charges the highest possible price.
Correct Answer: c. The monopoly?s demand curve and the market demand curve
are one and the same.
Feedback: c.
COURSES > ECON125-HK. ECONOMICS FOR MANAGERS >

ASSIGNMENTS&EXAM > REVIEW ASSESSMENT: FINAL EXAM
Review Assessment: Final Exam
Name: Final Exam

Status :Completed
Score:95 out of 100 points
Instructions:This exam consists of 80 equally weighed questions. Always pick the
single best answer. Questions that are skipped or are submitted with multiple answers
will be scored as incorrect.
Question 1
0 of 1.25 points
According to the Q-theory of investment:
Selected Answer: b. firms will invest more when future GDP growth is predicted.
Correct Answer: c. firms will invest more when their stock prices are high.
Feedback: c, firms invest more when their stock price is high
Question 2
1.25 of 1.25 points
Assuming a Keynesian aggregate supply curve, which of the following will cause an
increase in output?
Selected Answer: b. an increase in government spending

Correct Answer: b. an increase in government spending
Feedback: Correct
Question 3
1.25 of 1.25 points
Suppose that the government increases taxes. In the short run, prices will _______
and output will ________.
Selected Answer: c. not change, fall
Correct Answer: c. not change, fall
Feedback: Correct
Question 4
1.25 of 1.25 points
If we observe that both wages and employment in a nation decrease, what is the most
likely cause?
Selected Answer: d. The demand for labor has decreased.

Correct Answer: d. The demand for labor has decreased.
Feedback: Correct
Question 5
1.25 of 1.25 points
Which of the following is the best example of cyclical unemployment?
Selected Answer: c. The aircraft industry has sharply reduced sales during
recessions, so it temporarily lays off workers.
Correct Answer: c. The aircraft industry has sharply reduced sales during
recessions, so it temporarily lays off workers.
Feedback: Correct
Question 6
1.25 of 1.25 points
Which of the following groups is primarily responsible for setting monetary policy,
such as open-market operations?
Selected Answer: c. The Federal Open Market Committee

Correct Answer: c. The Federal Open Market Committee
Feedback: Correct
Question 7
0 of 1.25 points
Which of the following will cause an INCREASE in aggregate demand?
Selected Answer: a. a decrease in the price level
Correct Answer: b. an increase in the money supply

Feedback: b, increase money supply
Question 8
1.25 of 1.25 points
According to real business cycle theory,
Selected Answer: d. business cycles are caused by technology shocks.

Correct Answer: d. business cycles are caused by technology shocks.
Feedback: Correct
Question 9
1.25 of 1.25 points
The unemployment rate is likely to understate the rate of actual unemployment

because:
Selected Answer: c. discouraged workers are not officially counted as

unemployed.
Correct Answer: c. discouraged workers are not officially counted as
unemployed.
Feedback: Correct
Question 10
1.25 of 1.25 points
Which of the following is an example of a government transfer payment?

Selected Answer: d. the food stamps issued to persons in an antipoverty program
Correct Answer: d. the food stamps issued to persons in an antipoverty program
Feedback: Correct
Question 11
1.25 of 1.25 points
The expected real interest rate
Selected Answer: e. is difficult to measure.

Correct Answer: e. is difficult to measure.
Feedback: Correct
Question 12
1.25 of 1.25 points
Which of the following will shift the Keynesian aggregate supply curve?
Selected Answer: d. a change in oil prices

Correct Answer: d. a change in oil prices
Feedback: Correct
Question 13
1.25 of 1.25 points
If a project costs $600 today and pays a return of $642 next year, what is the highest
interest rate at which the project should be undertaken?
Selected Answer: c. 7%
Correct Answer: c. 7%
Feedback: Correct
Question 14
1.25 of 1.25 points
In the long run, the decrease in taxes will cause prices to _____ and output to
_______.
Selected Answer: b. fall, not change
Correct Answer: b. fall, not change
Feedback: Correct
Question 15
1.25 of 1.25 points
Suppose the economy of Duckland produces 3 pizzas at $5 a pizza, 6 gallons of ice

cream at $3 a gallon, and 5 cases of soda pop at $10 a case. The gross domestic
product of Duckland is
Selected Answer: a. $83.
Correct Answer: a. $83.
Feedback: Correct
Question 16
1.25 of 1.25 points
Economic models in which demand determines output in the short run are known as
___________, while economic theory that emphasizes the role of technology shocks
as a cause of economic fluctuations is known as ____________.
Selected Answer: c. Keynesian economics, the real business cycle theory

Correct Answer: c. Keynesian economics, the real business cycle theory
Feedback: Correct
Question 17
1.25 of 1.25 points
Refer to the graph below. The reason why this consumption function is upward
sloping has to do with the value of:
Selected Answer: c. The marginal propensity to consume.
Correct Answer: c. The marginal propensity to consume.
Feedback: Correct
Question 18
1.25 of 1.25 points
If the capital stock increases:
Selected Answer: c. the aggregate production function will shift upward.

Correct Answer: c. the aggregate production function will shift upward.
Feedback: Correct
Question 19
1.25 of 1.25 points
Keynes referred to investors as having "animal spirits." What did he mean by that?
Selected Answer: d. Investors may have pessimistic or optimistic mood swings

not based on rational evidence.
Correct Answer: d. Investors may have pessimistic or optimistic mood swings
not based on rational evidence.
Feedback: Correct
Question 20
1.25 of 1.25 points
Suppose that the government announces that next year, there will be a temporary tax
surcharge of 20%. What would you expect to happen to consumer spending next
year?
Selected Answer: b. Consumer spending would decrease, but only slightly.

Correct Answer: b. Consumer spending would decrease, but only slightly.
Feedback: Correct
Question 21
1.25 of 1.25 points
If the marginal propensity to consume (MPC) increases, then
Selected Answer: d. the slope of the consumption function increases.

Correct Answer: d. the slope of the consumption function increases.
Feedback: Correct
Question 22
1.25 of 1.25 points
The difference between real GDP and nominal GDP is that
Selected Answer: b. nominal GDP is the value of GDP in current dollars, while
real GDP controls for changes in prices.
Correct Answer: b. nominal GDP is the value of GDP in current dollars, while
real GDP controls for changes in prices.
Feedback: Correct
Question 23
1.25 of 1.25 points
Suppose a newspaper publisher provides computers for all the reporters and does not
fire any employees. This firm is said to experience
Selected Answer: a. capital deepening.

Correct Answer: a. capital deepening.
Feedback: Correct
Question 24
1.25 of 1.25 points
Assuming a classical aggregate supply curve, which of the following will cause a
decrease in output?
Selected Answer: e. None of the above are true.

Correct Answer: e. None of the above are true.
Feedback: Correct
Question 25
1.25 of 1.25 points
Suppose a farmer sells wheat to a miller for $400 and the miller grinds the wheat into
flour. The flour is sold to a bakery for $750. The bakery uses the flour to produce
$1,250 worth of bread. Assume the bakery has no other input to production. In the
production of the bread, the value added by the bakery is
Correct Answer: a. $500.
Feedback: Correct
Question 26
0 of 1.25 points
Suppose currency held by the public is $100, $250 is held in checkable deposits, $50
is held in travelers' checks, and $500 is held in money market mutual funds.
Assuming no money is held in any other account, the value of M1 is
Correct Answer: c. $400.

Feedback: c, $400
Question 27
1.25 of 1.25 points
Investment spending is very
Selected Answer: d. procyclical.
Correct Answer: d. procyclical.
Feedback: Correct
Question 28
1.25 of 1.25 points
Which of the following is the best example of structural unemployment?
Selected Answer: b. Typewriters have largely been replaced by computers, so the

typewriter industry permanently lays off workers. These workers do not have the
skills to get a job in the computer industry.
Correct Answer: b. Typewriters have largely been replaced by computers, so the
Feedback: Correct
Question 29
1.25 of 1.25 points
Which of the following is NOT an intermediate good?
Selected Answer: e. paint sold to a consumer to use on his house

Correct Answer: e. paint sold to a consumer to use on his house
Feedback: Correct
Question 30
1.25 of 1.25 points
If the price of a hamburger is 3 marks in Germany and the exchange rate is 1.5 marks
= $1, what is the dollar price of a hamburger in Germany?
Selected Answer: d. $2.0
Correct Answer: d. $2.0
Feedback: Correct
Question 31
0 of 1.25 points
Assuming that capital is fixed, as the amount of labor in the economy increases, total
output
Selected Answer: d. increases at a decreasing rate.
Correct Answer: b. decreases at a decreasing rate.
Feedback: b, increases at a decreasing rate
Question 32
1.25 of 1.25 points
For the poorest developing countries, the best use of investment funds may be:
Selected Answer: d. elementary education.

Correct Answer: d. elementary education.
Feedback: Correct
Question 33
1.25 of 1.25 points
What is the effect of government spending on capital deepening?
Selected Answer: c. Government spending can increase capital deepening when it

is used to build infrastructures such as roads and bridges.
Correct Answer: c. Government spending can increase capital deepening when it
is used to build infrastructures such as roads and bridges.
Feedback: Correct
Question 34
1.25 of 1.25 points
Suppose that the reserve ratio is 0.2 and that banks loan out all their excess reserves.
If a person deposits $100 cash in a bank, checking account balances will increase by
Selected Answer: d. $500.
Correct Answer: d. $500.
Feedback: Correct
Question 35
1.25 of 1.25 points
If John quits his job to find a new job in a different city, John is considered
Selected Answer: b. frictionally unemployed.

Correct Answer: b. frictionally unemployed.
Feedback: Correct
Question 36
1.25 of 1.25 points
At the full-employment level of output,
Selected Answer: c. the labor market is in equilibrium.

Correct Answer: c. the labor market is in equilibrium.
Feedback: Correct
Question 37
1.25 of 1.25 points
In a closed economy, if government spending increases:
Selected Answer: c. either consumption or investment or both must decrease.

Correct Answer: c. either consumption or investment or both must decrease.
Feedback: Correct
Question 38
1.25 of 1.25 points
If the Fed wishes to decrease the money supply, which of the following would
accomplish that goal?
Selected Answer: a. sell bonds to the private sector

Correct Answer: a. sell bonds to the private sector
Feedback: Correct
Question 39
1.25 of 1.25 points
Which of the following is an example of an automatic stabilizer?
Selected Answer: d. a decrease in unemployment benefits paid out during an

expansion
Correct Answer: d. a decrease in unemployment benefits paid out during an
expansion
Feedback: Correct
Question 40
1.25 of 1.25 points
What is the definition of a recession?
Selected Answer: b. A decrease in real GDP for two consecutive quarters.

Correct Answer: b. A decrease in real GDP for two consecutive quarters.
Feedback: Correct
Question 41
1.25 of 1.25 points
Sources of external funds of a financial intermediary are known as
Selected Answer: a. liabilities.
Correct Answer: a. liabilities.
Feedback: Correct
Question 42
1.25 of 1.25 points
If the nominal interest rate is 8% and the inflation rate is 3%, then the real interest rate
is
Selected Answer: c. 5%.
Correct Answer: c. 5%.

Feedback: Correct
Question 43
1.25 of 1.25 points
An increase in the real interest rate:
Selected Answer: c. decreases the quantity of investment.

Correct Answer: c. decreases the quantity of investment.
Feedback: Correct
Question 44
1.25 of 1.25 points
Which of the following is NOT a true statement about investment?
Selected Answer: b. Investment refers to the purchases of stocks and bonds.

Correct Answer: b. Investment refers to the purchases of stocks and bonds.
Feedback: Correct
Question 45
1.25 of 1.25 points
___________ interest rates are quoted in the market, while ___________ interest rates
are adjusted for inflation.
Selected Answer: b. Nominal, real
Correct Answer: b. Nominal, real
Feedback: Correct
Question 46
1.25 of 1.25 points
If the economy is at full employment, which of the following is true?
Selected Answer: b. There is no cyclical unemployment.

Correct Answer: b. There is no cyclical unemployment.
Feedback: Correct
Question 47
1.25 of 1.25 points
Why is it difficult to compare real per capita GDP across countries?
Selected Answer: b. because exchange rates are determined by supply and

demand for traded goods and financial assets and do not reflect the value of many
goods that determine living standards
Correct Answer: b. because exchange rates are determined by supply and
demand for traded goods and financial assets and do not reflect the value of many
goods that determine living standards
Feedback: Correct
Question 48
1.25 of 1.25 points
Financial intermediaries
Selected Answer: b. reduce risk through diversification.

Correct Answer: b. reduce risk through diversification.
Feedback: Correct
Question 49
1.25 of 1.25 points
Trade deficits are likely to lead to future increases in consumption if
Selected Answer: a. the trade deficits support current investment.

Correct Answer: a. the trade deficits support current investment.
Feedback: Correct
Question 50
1.25 of 1.25 points
Money serves as a unit of account because

Selected Answer: d. prices are quoted in terms of money.
Correct Answer: d. prices are quoted in terms of money.
Feedback: Correct
Question 51
1.25 of 1.25 points
Suppose you notice that when the price level falls, the real value of your money
increases. This induces you to increase your level of consumption. This is an example
of the
Selected Answer: a. wealth effect.
Correct Answer: a. wealth effect.
Feedback: Correct
Question 52
1.25 of 1.25 points
Which of the following will shift the classical aggregate supply curve?
Selected Answer: d. changes in the stock of labor or capital

Correct Answer: d. changes in the stock of labor or capital
Feedback: Correct
Question 53
1.25 of 1.25 points
Which of the following are examples of items used as money?
Selected Answer: e. All of the above are true.

Correct Answer: e. All of the above are true.
Feedback: Correct
Question 54
1.25 of 1.25 points
Suppose there are 2,000 people in the nation of Utopia. Of the people over 16 years
old, 1,500 are employed, and 100 are unemployed and looking for work, and 400 are
unemployed and are not looking for work. The labor force participation rate in Utopia
is:
Selected Answer: c. 80%.
Feedback: Correct
Question 55
1.25 of 1.25 points
Money serves as a store of value because
Selected Answer: b. its value is preserved between transactions.

Correct Answer: b. its value is preserved between transactions.
Feedback: Correct
Question 56
1.25 of 1.25 points
Suppose that you have the choice of five investments: A, B, C, D, and E, with
expected returns of $103, $106, $110, $115, and $120, respectively. If the cost of each
investment is $100 and the real interest rate is 8%, which investments will you
choose?
Selected Answer: d. C, D and E only
Correct Answer: d. C, D and E only
Feedback: Correct
Question 57
1.25 of 1.25 points
If people transfer money from their checking account to their savings account
Selected Answer: b. M1 falls and M2 remains constant.

Correct Answer: b. M1 falls and M2 remains constant.
Feedback: Correct
Question 58
1.25 of 1.25 points
Which of the following is an example of convergence?
Selected Answer: e. The GDP per capita of a poor nation grows more quickly
than that of a rich nation.
Correct Answer: e. The GDP per capita of a poor nation grows more quickly
than that of a rich nation.
Feedback: Correct
Question 59
1.25 of 1.25 points
During the Great Depression, banks failed because:
Selected Answer: c. no bank keeps 100% of deposits on hand, and thus must
collapse if all savers try to withdraw funds at once.
Correct Answer: c. no bank keeps 100% of deposits on hand, and thus must
collapse if all savers try to withdraw funds at once.
Feedback: Correct
Question 60
1.25 of 1.25 points
Which of the following will decrease the supply of labor?
Selected Answer: d. an increase in income taxes

Correct Answer: d. an increase in income taxes
Feedback: Correct
Question 61
1.25 of 1.25 points
Which of the following will cause aggregate demand to increase?
Selected Answer: a. an increase in the money supply

Correct Answer: a. an increase in the money supply
Feedback: Correct
Question 62
1.25 of 1.25 points
If the CPI is 350 in Year 1 and 420 in Year 2, what is the inflation rate?
Selected Answer: b. 20%
Correct Answer: b. 20%
Feedback: Correct
Question 63
1.25 of 1.25 points
Refer to the graph below. The country inside of the red circle is:
Selected Answer: c. A poor country growing rapidly.

Correct Answer: c. A poor country growing rapidly.
Feedback: Correct
Question 64
1.25 of 1.25 points
Suppose a computer manufacturer develops a new method of processing that allows

them to make more computers with the same amount of input. This is an example of
Selected Answer: b. technological progress.

Correct Answer: b. technological progress.
Feedback: Correct
Question 65
1.25 of 1.25 points
Which of the following is NOT a true statement about the Consumer Price Index
(CPI) and the GDP deflator?
Selected Answer: d. Neither the CPI nor the GDP deflator adjusts for quality
improvements in goods.
Correct Answer: d. Neither the CPI nor the GDP deflator adjusts for quality
improvements in goods.
Feedback: Correct
Question 66
1.25 of 1.25 points
The relationship between the price level and the quantity of real GDP demanded is
called
Selected Answer: c. aggregate demand.

Correct Answer: c. aggregate demand.
Feedback: Correct
Question 67
1.25 of 1.25 points
If the natural rate of unemployment for the economy is 5% and the current rate of
unemployment is 4%, which of the following is true?
Selected Answer: a. Cyclical unemployment is negative.

Correct Answer: a. Cyclical unemployment is negative.
Feedback: Correct
Question 68
1.25 of 1.25 points
According to the ___________, investment spending depends positively on the

expected future growth of GDP, while the _____________ model suggests that a
downturn in GDP reduces investment, causing an additional decrease in GDP.
Selected Answer: b. accelerator theory, multiplier-accelerator

Correct Answer: b. accelerator theory, multiplier-accelerator
Feedback: Correct
Question 69
1.25 of 1.25 points
When the level of national output is zero, total consumption is
Selected Answer: c. equal to autonomous consumption.

Correct Answer: c. equal to autonomous consumption.
Feedback: Correct
Question 70
1.25 of 1.25 points
An increase in the capital stock
Selected Answer: a. shifts up the short-run production function, causing output to

increase at all positive levels of labor.
Correct Answer: a. shifts up the short-run production function, causing output to
Feedback: Correct
Question 71
1.25 of 1.25 points
If the cost of a basket of goods is $125 in 1989, $135 in 1990, and $150 for 1991,
assuming 1991 is the base year, the CPI for 1989 is
Selected Answer: e. 83.
Correct Answer: e. 83.
Feedback: Correct
Question 72
1.25 of 1.25 points
Which of the following is an example of a durable good?
Selected Answer: b. a television
Correct Answer: b. a television
Feedback: Correct
Question 73
1.25 of 1.25 points
The study of the economy as it operates at full employment is called
Selected Answer: c. classical economics.

Correct Answer: c. classical economics.
Feedback: Correct
Question 74
1.25 of 1.25 points
A consumer buys a new house. In which GDP category does this count?
Selected Answer: b. Investment
Correct Answer: b. Investment
Feedback: Correct
Question 75
1.25 of 1.25 points
Currency is:
Selected Answer: b. an asset to the public and a liability of the Fed.

Correct Answer: b. an asset to the public and a liability of the Fed.
Feedback: Correct
Question 76
1.25 of 1.25 points
Which of the following is considered to be included in the underground economy?
Selected Answer: b. gambling winnings not reported on your taxes

Correct Answer: b. gambling winnings not reported on your taxes
Feedback: Correct
Question 77
1.25 of 1.25 points
In an open economy, exports _______ national income, and imports ________

national income.
Selected Answer: b. increase, reduce
Correct Answer: b. increase, reduce
Feedback: Correct
Question 78
1.25 of 1.25 points
The government budget deficit and the trade deficit are known as the twin deficits
because:
Selected Answer: d. in an open economy, increased government budget deficits

can reduce exports and increase imports, increasing the trade deficit.
Correct Answer: d. in an open economy, increased government budget deficits
can reduce exports and increase imports, increasing the trade deficit.
Feedback: Correct
Question 79
1.25 of 1.25 points
Suppose that you observe that nominal GDP has increased. Based on that information,
what can you say about output?
Selected Answer: d. Any of the above answers are possible.

Correct Answer: d. Any of the above answers are possible.
Feedback: Correct
Question 80
1.25 of 1.25 points
Which of the following is NOT an example of government spending?
Selected Answer: c. A retired person receives a Social Security payment.

Correct Answer: c. A retired person receives a Social Security payment.
Feedback: Correct
A curve showing the relationship between price and the quantity of output supplied by
an entire industry is a d. short-run market supply curve.
A firm's variable costs d. are determined by quantity of output produced by a firm.
A monopolist may choose prices that are very close to competitive prices: c. if it
is trying to deter entry.
A monopolist sets the price of a good by choosing the level of output and then b.
setting the price according to the market demand curve.
R d. marginal revenue equal to marginal cost.
A natural monopoly occurs when a. the entry of a second firm would make both
firms unprofitable.
marginal cost. Therefore: a. the firm should produce more to maximize profit.
According to the Law of Supply, d. the higher the price, the larger the quantity
supplied.
ice-cream and pizzas such that a. on the last unit of each good consumed, the
marginal utility per dollar spent on ice-cream is equal to the marginal utility per dollar
spent on pizza.
An upward-sloping short-run marginal cost curve shows that: a. with a fixed
amount of capital, as more and more labor is added, output increases at a decreasing
rate, and thus each unit is more expensive than the previous unit.
As compared to perfect competition, monopolies a. reduce consumer surplus,
create positive economic profits, and generate deadweight loss.
As more firms enter the market, which of the following is true? a. Demand for each
firm decreases.
As price falls along a linear demand curve, the price elasticity of demand: c.
decreases.
At levels of output where the firm's short-run average cost curve is increasing, a. the
marginal cost curve is above the short-run average cost curve.
c. The equilibrium price of chocolate will rise, but the effect on the quantity is
uncertain.
Economic profit is c. total revenue minus the total of explicit and implicit costs.
equilibrium, e. the price is greater than both marginal revenue and marginal cost.
strategy will only work if demand is c. inelastic.
customs, this is an example of a: d. nontariff trade barrier.
If prices fall but what you earn stays the same, then: c. your nominal income hasn't
changed, but your real income has increased.
If the cross elasticity of demand between two products is 6.0, then a. the two
products are substitutes.
are b. an inferior good.
curve is: c. downward-sloping.
If the marginal product of labor is increasing, a. output is increasing at an
increasing rate.
If Y = 600 - 3X, what is the vertical intercept? d. 600
If you earn $80,000 a year and acquiring cable TV service costs you $150 per year,
your demand for cable is likely to be: d. inelastic.
market price be? b. Price will be equal to average cost.
stop? d. A decrease in economic profit down to zero.
In order to increase the amount of output sold, a monopoly must: c. Decrease the
price on all units sold.
called: c. Fixed cost.
In the short-run, an increase in demand results in a(n) a. greater increase in the
equilibrium price than in the long-run.
produce, and how to distribute goods and services to consumers? d. centrally
planned economy
been to study. What is the opportunity cost of working for an hour? b. one hour of
studying
Marginal revenue equals the change in total revenue associated with: d. Selling
an additional unit of output.
Marginal utility is the b. additional happiness gained by consuming one more unit
of a good.
Minimum Efficient Scale (MES) represents d. the output at which the long-run
average cost curve reaches its lowest point.
Monopolistic competition is similar to monopoly because: a. marginal revenue is less
than price in both industries.
Monopolistic competition is similar to perfect competition because: b. there are no
barriers to entry in either industry.
Monopolistic competition may be beneficial to society because: c. consumers
gain from increased variety.
following statement(s) is/are true: d. All of the above.
common? c. All three combinations can be obtained with the same amount of
income.
Refer to the graph below. Starting at point a, an increase in demand with no change in
supply moves equilibrium to: d. Point b
c. Six burgers are not sufficient because marginal benefit remains above marginal
cost.
Refer to the graph below. When do diminishing returns set in? b. After three units of
output are produced.
Refer to the graph below. Which of the following factors can cause a move from point
d to points g or h? d. All of the above.
keep cartels together because: b. they reduce the rewards and/or increase the
penalties for cheating.
that neither firm can profit. This strategy is known as d. the grim trigger strategy.
nothing else has changed), we would expect the monopolist to: d. sell less and
charge more.
materials is $2 per unit, what is the marginal cost of production? b. $89
Suppose that there is a particularly good wheat harvest this year, and at the same time,
medical reports indicate that increased grain consumption improves health. What will
happen to the equilibrium price and quantity of wheat? e. Quantity will increase,
but the change in price depends on the relative size of the shift.
following shows the effect on the computer market? b. Graph B
The concept of opportunity cost is based on the principle of: d. scarcity.
shows: d. The amount of output that can be obtained from the addition of a variable
input (i.e. labor), while holding at least one other input (i.e. capital) constant, or fixed.
slope of the PPC: a. increases.
The key feature of an oligopoly is that: d. Firms act strategically.
prices by limiting the production of member nations. This is an example of a c.
cartel.
following principle: a. The marginal principle.
b. The price of the good changes drastically.
The problem of scarcity, d. exists because human wants exceed available
resources.
Under a policy of average-cost pricing, a. the government picks a point on the
demand curve where price equals average cost.
because d. Firms interpret price changes as an attempt to underprice competitors.
e. All of the above are reasons for increased interdependence.
What are the characteristics of monopolistic competition: c. Many firms,
differentiated product, and no artificial barriers to entry.
What is the marginal benefit of the fourth slice of pizza? b. $1.50
What is the marginal cost of the second slice of pizza? a. $1.50
When firms act together to set prices: e. all of the above
run? b. In the short run, some inputs are fixed, so variable inputs have less to
work with, and output increases at a decreasing rate.
Which of the following conditions exist in long-run competitive equilibrium? d. All
of the above.
b. the General Agreement on Tariffs and Trade
Which of the following formulas shows total profit? b. (P ? ATC)Q
Which of the following is not a type of product differentiation? e. All of the above
are types of product differentiation
Which of the following is NOT an example of a marginal decision? c. If I hire ten
workers to produce tables, what will be the average cost per table?
Which of the following is true of a monopoly? c. The monopoly?s demand curve
and the market demand curve are one and the same.
Which of the following questions is outside the scope of economics? e. None of the
above; all are within the scope of economic study.
Which of the following statements best describes total utility? b. Total utility
increases at a decreasing rate with each good a consumer purchases.
Which of the following statements is correct? c. Jorge has the absolute and
comparative advantage in pies.
Which of the following statements is true? d. If marginal cost is greater than average
variable cost, average variable cost must be increasing.
Which of the following would be expected to have the MOST elastic demand? d.
Ford Taurus
Why are monopoly markets considered to be inefficent? d. because they restrict
output, creating a deadweight loss
Why do people specialize and trade? a. Because each person can consume more by
specializing and trading.
___________ interest rates are quoted in the market, while ___________ interest rates
are adjusted for inflation. b. Nominal, real
A consumer buys a new house. In which GDP category does this count? b.
Investment
According to real business cycle theory, d. business cycles are caused by
technology shocks.
According to supply-side economists, higher tax rates e. may reduce tax
revenues by discouraging economic activity.
According to the ___________, investment spending depends positively on the
expected future growth of GDP, while the _____________ model suggests that a
downturn in GDP reduces investment, causing an additional decrease in GDP. b.
accelerator theory, multiplier-accelerator
An increase in the capital stock a. shifts up the short-run production function,
causing output to increase at all positive levels of labor.
An increase in the real interest rate: c. decreases the quantity of investment.
increase in output? b. an increase in government spending
At the full-employment level of output, c. the labor market is in equilibrium.
Automatic stabilizers in the economy smooth business cycles by: a. increasing
transfer payments during recessions and increasing tax collections during inflationary
periods.
Consider the Keynesian cross model. If output exceeds the equilibrium level of
output, then b. firms experience an increase in inventories and respond by reducing
production.
as a cause of economic fluctuations is known as ____________. c. Keynesian
economics, the real business cycle theory
Economists are concerned that the CPI may actually overstate the true annual increase
in the cost of living. Why is this a problem? c. Because increases in Social
Security are related to the increase in the CPI, and the federal budget will increase too
fast.
Financial intermediaries b. reduce risk through diversification.
For the poorest developing countries, the best use of investment funds may be: d.
elementary education.
interest rate at which the project should be undertaken? c. 7%
If John quits his job to find a new job in a different city, John is considered b.
frictionally unemployed.
If nominal interest rates are high but there is still a high level of investment, it is likely
that: c. the inflation rate is high, and thus the real interest rate is low.
If people transfer money from their checking account to their savings account b. M1
falls and M2 remains constant.
If prices increase but the level of national output is held constant, than nominal GDP
________ and real GDP __________. e. increases, does not change
If the capital stock increases: c. the aggregate production function will shift
upward.
If the cost of a basket of goods is $125 in 1989, $135 in 1990, and $150 for 1991,
assuming 1991 is the base year, the CPI for 1989 is e. 83.
If the economy is at full employment, which of the following is true? b. There is
no cyclical unemployment.
If the marginal propensity to consume (MPC) increases, then d. the slope of the
consumption function increases.
If the nominal interest rate is 8% and the inflation rate is 3%, then the real interest rate
is c. 5%.
If the price of a hamburger is 3 marks in Germany and the exchange rate is 1.5 marks
= $1, what is the dollar price of a hamburger in Germany? d. $2.0
If the real GDP growth rate of a country is 7%, how many years will it take for real
GDP to double? b. 10 years
likely cause? d. The demand for labor has decreased.
In a closed economy, if government spending increases: c. either consumption or
investment or both must decrease.
national income. b. increase, reduce
_______. b. fall, not change
Investment spending is very d. procyclical.
d. Investors may have pessimistic or optimistic mood swings not based on
rational evidence.
Money serves as a store of value because b. its value is preserved between
transactions.
National output that is not consumed is called c. savings.
Refer to the graph below. The country inside of the red circle is: c. A poor country
growing rapidly.
sloping has to do with the value of: c. The marginal propensity to consume.
Some economists argue that cutting the capital gains tax is desirable because: b.
individuals will be more likely to sell stock that has increased in value, and tax
revenues will rise.
Sources of external funds of a financial intermediary are known as a. liabilities.
b. technological progress.
Suppose a farmer sells wheat to a miller for $400 and the miller grinds the wheat into
flour. The flour is sold to a bakery for $750. The bakery uses the flour to produce
$1,250 worth of bread. Assume the bakery has no other input to production. In the
production of the bread, the value added by the bakery is a. $500.
fire any employees. This firm is said to experience a. capital deepening.
Suppose that a U.S. corporation has a plant in Malaysia. Income from that plant is part
of the company's annual earnings, but how is it counted in the national income
accounts? c. It counts toward both gross national product (GNP) but not toward
gross domestic product (GDP).
year? b. Consumer spending would decrease, but only slightly.
and output will ________. c. not change, fall
choose? d. C, D and E only
Suppose that you observe that nominal GDP has increased. Based on that information,
what can you say about output? d. Any of the above answers are possible.
Suppose there are 2,000 people in the nation of Utopia. Of the people over 16 years
old, 1,500 are employed, and 100 are unemployed and looking for work, and 400 are
unemployed and are not looking for work. The labor force participation rate in Utopia
is: c. 80%.
of the a. wealth effect.
The expected real interest rate e. is difficult to measure.
The GDP deflator: c. is an index of how prices change over time.
The government budget deficit and the trade deficit are known as the twin deficits
because: d. in an open economy, increased government budget deficits can reduce
exports and increase imports, increasing the trade deficit.
The investment spending curve is a. a negative relationship between real interest
rates and investment.
The stock of high-powered money, or the monetary base, is bank reserves plus
currency held by the public. Which of the following would change the stock of high-
powered money? d. The Fed buys bonds from the public sector.
The U. S. Federal Reserve is controlled by: d. the Chairman of the Fed and the Board
of Governors.
because: c. discouraged workers are not officially counted as unemployed.
Trade deficits are likely to lead to future increases in consumption if a. the trade
deficits support current investment.
What is the definition of a recession? b. A decrease in real GDP for two consecutive
quarters.
What is the effect of government spending on capital deepening? c. Government
spending can increase capital deepening when it is used to build infrastructures such
as roads and bridges.
When the level of national output is zero, total consumption is c. equal to
autonomous consumption.
Which of the following are examples of items used as money? e. All of the above
are true.
Which of the following is a correct statement about the natural rate of unemployment?
b. The natural rate of unemployment differs between developed countries.
Which of the following is an example of a contractionary fiscal policy? b.
increased taxes
Which of the following is an example of a durable good? b. a television
Which of the following is an example of a government transfer payment? d. the food
stamps issued to persons in an antipoverty program
Which of the following is an example of an automatic stabilizer? d. a decrease in
unemployment benefits paid out during an expansion
Which of the following is an example of convergence? e. The GDP per capita of
a poor nation grows more quickly than that of a rich nation.
Which of the following is considered to be included in the underground economy?
b. gambling winnings not reported on your taxes
Which of the following is NOT a reason why the aggregate demand curve is
downward-sloping? c. When the price level rises, consumers will substitute to
other, less-expensive goods, and the quantity demanded will fall.
Which of the following is NOT a true statement about the Consumer Price Index
(CPI) and the GDP deflator? d. Neither the CPI nor the GDP deflator adjusts for
quality improvements in goods.
Which of the following is NOT an example of government spending? c. A retired
person receives a Social Security payment.
Which of the following is NOT an intermediate good? e. paint sold to a
consumer to use on his house
Which of the following is the best example of cyclical unemployment? c. The
aircraft industry has sharply reduced sales during recessions, so it temporarily lays off
workers.
Which of the following is the best example of structural unemployment? b.
Typewriters have largely been replaced by computers, so the typewriter industry
permanently lays off workers. These workers do not have the skills to get a job in the
computer industry.
Which of the following will cause aggregate demand to increase? a. an increase in
the money supply
Which of the following will decrease the supply of labor? d. an increase in income
taxes
Which of the following will shift the classical aggregate supply curve? d. changes
in the stock of labor or capital
Which of the following will shift the Keynesian aggregate supply curve? d. a change
in oil prices
Why is it difficult to compare real per capita GDP across countries? b. because
exchange rates are determined by supply and demand for traded goods and financial
assets and do not reflect the value of many goods that determine living standards
Why was fiscal policy more effective in the early 1960s than in the late 1960s?
d. because the change in the early 1960s was expected to be permanent while the
change in the late 1960s was known to be temporary
slope of the PPC:
What is the marginal benefit of the fourth slice of pizza?
Correct Answer: a. with a fixed amount of capital, as more and more labor is added,
output increases at a decreasing rate, and thus each unit is more expensive than the
previous unit.
As more firms enter the market, which of the following is true?
Correct Answer: a. Demand for each firm decreases.
Correct Answer: a. reduce consumer surplus, create positive economic profits, and
called:
Correct Answer: a. the government picks a point on the demand curve where price
A curve showing the relationship between price and the quantity of output supplied
by an entire industry is a
Why are monopoly markets considered to be inefficent?
Correct Answer: d. because they restrict output, creating a deadweight loss
Correct Answer: c. The equilibrium price of chocolate will rise, but the effect on the
quantity is uncertain.
are
An economist's notion of costs differs from an accountant's notion of costs as
follows:
Correct Answer: c. Economic cost includes the opportunity costs of nonpurchased
In the short-run, an increase in demand results in a(n)
Correct Answer: a. greater increase in the equilibrium price than in the long-run.
A Production Possibilities Curve (PPC) illustrates the concept of scarcity. Which
item will be most likely to result in a shift of the PPC outward, indicating the ability
to produce more goods?
Correct Answer: an increase in population
Correct Answer: d. the output at which the long-run average cost curve reaches its
lowest point.
A monopolist sets the price of a good by choosing the level of output and then
Correct Answer: b. setting the price according to the market demand curve.
James has enough money to buy a car at the market price from fifteen years ago, but
today it?s only half of what he would need. Which principle does this represent?
Correct Answer: Reality
following statement(s) is/are true:
Use the following table to answer the question. What is the marginal cost of the
second slice of pizza?
Refer to the graph below. Starting at point a, an increase in demand with no change
in supply moves equilibrium to:
Correct Answer: d. Point b
trading.
equilibrium,
Correct Answer: e. the price is greater than both marginal revenue and marginal cost.
As price falls along a linear demand curve, the price elasticity of demand:
Correct Answer: c. decreases.
common?
Correct Answer: c. All three combinations can be obtained with the same amount of
income.
A natural monopoly occurs when
Correct Answer: a. the entry of a second firm would make both firms unprofitable.
because
competitors.
increased.
Correct Answer: b. the General Agreement on Tariffs and Trade
Correct Answer: e. None of the above; all are within the scope of economic study.
marginal cost.
market price be?
Correct Answer: a. the marginal cost curve is above the short-run average cost curve.
Which of the following would be expected to have the MOST elastic demand?
Correct Answer: d. Ford Taurus
Correct Answer: b. they reduce the rewards and/or increase the penalties for cheating.
Often a firm will spend money to lobby government officials to allow the firm to act
as a monopolist. This process is known as
Correct Answer: e. rent seeking.
Which of the following statements best describes total utility?
Correct Answer: b. Total utility increases at a decreasing rate with each good a
consumer purchases.
Correct Answer: a. on the last unit of each good consumed, the marginal utility per
run?
Correct Answer: In the short run, some inputs are fixed, so variable inputs have less
to work with, and output increases at a decreasing rate.
that neither firm can profit. This strategy is known as
Correct Answer: d. the grim trigger strategy.
A monopolist may choose prices that are very close to competitive prices:
Correct Answer: if it is trying to deter entry.
If your new business (in which you have invested $50,000, which you previously
kept in savings, earning 10% interest) earns an accounting profit of $30,000 in the
first year, and you had previously been employed as a ditch-digger, earning $10,000
per year, your economic profit is:
Correct Answer: c. Six burgers are not sufficient because marginal benefit remains
Use the information in this table to answer the question. Which of the following
statements is correct?
Correct Answer: c. Jorge has the absolute and comparative advantage in pies.
According to the duopolists' dilemma,
Correct Answer: b. two firms both choose a low price, although both would be better
off with the high price.
The income elasticity of widgets is negative; the cross elasticity between widgets
and gadgets is negative. Widgets are a(n):
A friend offers you a Coke, a Pepsi, or a Diet Coke. You don't like Diet Coke, so
after some thought, you take the Pepsi. What is the opportunity cost of your choice?
Correct Answer: the Coke
Suppose that the reserve ratio is 0.2 and that banks loan out all their excess reserves.
If a person deposits $100 cash in a bank, checking account balances will increase by
Correct Answer: d. $500.
The investment spending curve is
Correct Answer: a. a negative relationship between real interest rates and investment.
What is the definition of a recession?
Correct Answer: b. A decrease in real GDP for two consecutive quarters.
Which of the following groups is primarily responsible for setting monetary policy,
such as open-market operations?
Correct Answer: c. The Federal Open Market Committee
The U. S. Federal Reserve is controlled by:
Correct Answer: d. the Chairman of the Fed and the Board of Governors.
The stock of high-powered money, or the monetary base, is bank reserves plus
currency held by the public. Which of the following would change the stock of high-
powered money?
Correct Answer: d. The Fed buys bonds from the public sector.
If the natural rate of unemployment for the economy is 5% and the current rate of
unemployment is 4%, which of the following is true?
Correct Answer: a. Cyclical unemployment is negative.
Which of the following is a correct statement about the natural rate of
unemployment?
Correct Answer: b. The natural rate of unemployment differs between developed
countries.
as a cause of economic fluctuations is known as ____________.
Correct Answer: c. Keynesian economics, the real business cycle theory
If the real GDP growth rate of a country is 7%, how many years will it take for real
GDP to double?
Correct Answer: b. 10 years
interest rate at which the project should be undertaken?
Correct Answer: c. 7%
likely cause?
Correct Answer: d. The demand for labor has decreased.
and output will ________.
Correct Answer: c. not change, fall
Which of the following is an example of a contractionary fiscal policy?
Correct Answer: b. increased taxes
Refer to the graph below. The country inside of the red circle is:
Correct Answer: c. A poor country growing rapidly.
Money serves as a store of value because
Correct Answer: b. its value is preserved between transactions.
When the level of national output is zero, total consumption is
Correct Answer: c. equal to autonomous consumption.
The study of the economy as it operates at full employment is called
Correct Answer: c. classical economics.
Which of the following is NOT an intermediate good?
Correct Answer: e. paint sold to a consumer to use on his house
of the
Correct Answer: a. wealth effect.
During the Great Depression, banks failed because:
Correct Answer: c. no bank keeps 100% of deposits on hand, and thus must collapse
if all savers try to withdraw funds at once.
Which of the following is the best example of structural unemployment?
Correct Answer: b. Typewriters have largely been replaced by computers, so the
Economists are concerned that the CPI may actually overstate the true annual
increase in the cost of living. Why is this a problem?
Correct Answer: c. Because increases in Social Security are related to the increase in
the CPI, and the federal budget will increase too fast.
If the nominal interest rate is 8% and the inflation rate is 3%, then the real interest
rate is
Which of the following is NOT a true statement about investment?
Correct Answer: b. Investment refers to the purchases of stocks and bonds.
choose?
Correct Answer: d. C, D and E only
Refer to the graph below. Inventory buildup exists when the level of output is:
Correct Answer: c. y1
because:
Correct Answer: c. discouraged workers are not officially counted as unemployed.
Why is it difficult to compare real per capita GDP across countries?
Correct Answer: b. because exchange rates are determined by supply and demand for
traded goods and financial assets and do not reflect the value of many goods that
determine living standards
Which of the following is an example of convergence?
Correct Answer: e. The GDP per capita of a poor nation grows more quickly than that
of a rich nation.
Correct Answer: b. technological progress.
Which of the following are examples of items used as money?
Correct Answer: e. All of the above are true.
increase in output?
Correct Answer: b. an increase in government spending
_______.
Correct Answer: b. fall, not change
What is the effect of government spending on capital deepening?
Correct Answer: c. Government spending can increase capital deepening when it is
used to build infrastructures such as roads and bridges.
Why was fiscal policy more effective in the early 1960s than in the late 1960s?
Correct Answer: d. because the change in the early 1960s was expected to be
permanent while the change in the late 1960s was known to be temporary
If the capital stock increases:
Correct Answer: c. the aggregate production function will shift upward.
Financial intermediaries
Correct Answer: b. reduce risk through diversification.
In a closed economy, if government spending increases:
Correct Answer: c. either consumption or investment or both must decrease.
National output that is not consumed is called
Correct Answer: c. savings.
If prices increase but the level of national output is held constant, than nominal GDP
________ and real GDP __________.
Correct Answer: e. increases, does not change
Money serves as a unit of account because
Correct Answer: d. prices are quoted in terms of money.
Sources of external funds of a financial intermediary are known as
Correct Answer: a. liabilities.
If the economy is at full employment, which of the following is true?
Correct Answer: b. There is no cyclical unemployment.
If the CPI is 350 in Year 1 and 420 in Year 2, what is the inflation rate?
Correct Answer: b. 20%
Trade deficits are likely to lead to future increases in consumption if
Correct Answer: a. the trade deficits support current investment.
Currency is:
Correct Answer: b. an asset to the public and a liability of the Fed.
Automatic stabilizers in the economy smooth business cycles by:
Correct Answer: a. increasing transfer payments during recessions and increasing tax
collections during inflationary periods.
Which of the following will shift the classical aggregate supply curve?
Correct Answer: d. changes in the stock of labor or capital
If the Fed wishes to decrease the money supply, which of the following would
accomplish that goal?
Correct Answer: a. sell bonds to the private sector
The expected real interest rate
Correct Answer: e. is difficult to measure.
The relationship between the price level and the quantity of real GDP demanded is
called
Correct Answer: c. aggregate demand.
If the price of a hamburger is 3 marks in Germany and the exchange rate is 1.5
marks = $1, what is the dollar price of a hamburger in Germany?
Correct Answer: d. $2.0
The GDP deflator:
Correct Answer: c. is an index of how prices change over time.
Assuming a classical aggregate supply curve, which of the following will cause a
decrease in output?
Correct Answer: e. None of the above are true.
Suppose that you observe that nominal GDP has increased. Based on that
information, what can you say about output?
Correct Answer: d. Any of the above answers are possible.
According to real business cycle theory,
Correct Answer: d. business cycles are caused by technology shocks.
Which of the following is NOT a reason why the aggregate demand curve is
downward-sloping?
Correct Answer: c. When the price level rises, consumers will substitute to other,
less-expensive goods, and the quantity demanded will fall.
national income.
Correct Answer: b. increase, reduce
An increase in the real interest rate:
Correct Answer: c. decreases the quantity of investment.
fire any employees. This firm is said to experience
Correct Answer: a. capital deepening.
sloping has to do with the value of:
Correct Answer: c. The marginal propensity to consume.
The difference between real GDP and nominal GDP is that
Correct Answer: b. nominal GDP is the value of GDP in current dollars, while real
GDP controls for changes in prices.
year?
Correct Answer: b. Consumer spending would decrease, but only slightly.
According to supply-side economists, higher tax rates
Correct Answer: e. may reduce tax revenues by discouraging economic activity.
Which of the following will cause an INCREASE in aggregate demand?
Correct Answer: b. an increase in the money supply
Investment spending is very
Correct Answer: d. procyclical.
Which of the following will cause aggregate demand to increase?
Correct Answer: a. an increase in the money supply
For the poorest developing countries, the best use of investment funds may be:
Correct Answer: d. elementary education.
Correct Answer: d. Investors may have pessimistic or optimistic mood swings not
based on rational evidence.
An increase in the capital stock
Correct Answer: a. shifts up the short-run production function, causing output to
According to the Q-theory of investment:
Selected Answer: c. firms will invest more when their stock prices are high.
Correct Answer: c. firms will invest more when their stock prices are high.
Feedback: Correct

In a simple economy with no government, savings must be equal to investment.
Therefore, all other things equal, a higher level of savings will mean:
Selected Answer: a. a higher level of gross investment.
Correct Answer: e. all of the above.
Feedback: e, all of the above.


Various studies have recommended changes in the Federal Reserve structure and
policy that include
Selected Answer: placing monetary policy in the control of Congress
Correct Answer: placing monetary policy in the control of Congress

If the Fed buys securities on the open market, this will
Selected Answer: increase banks’ excess reserves
Correct Answer: increase banks’ excess reserves


The Federal Reserve today no longer has control over stock market margins
requirements.

Selected Answer: their member banks

If a commercial bank is short of reserves, it can obtain funds by
Selected Answer: borrowing from another commercial bank

The largest 80 banks in the United States control about
Selected Answer: 70% of all banking assets
Correct Answer: 70% of all banking assets

share?

insurance companies
insurance companies

Raising the reserve requirement or the discount rate always decreases the money
supply.

Branch banking can now be carried our regionally and even nationally.

An increase in the price level adds to the value of the nominal GDP but not to the real
GDP.

Selected Answer: taxes

If a lawn service mows your grass, it is included in the GDP.

In terms of purchasing power parity, Japan has highest per capita GDP in the world.

approximately
Selected Answer: two-thirds


Selected Answer: the GDP value is adjusted upward

Selected Answer: undistributed corporate profits

Selected Answer: net inventory change

percent, then
Selected Answer: the change in real GDP equaled the change in nominal GDP

The consumption function shows the relationship between the income received by the
Selected Answer: amount businesses plans to spend on investment
Correct Answer: amount they plan to spend on currently produced final output

Which of the following is part of Keynesian economic theory?
Selected Answer: businesses adjust their level of output to meet the demand for
output

Selected Answer: the labor force is fully employed
As income increases, the absolute level of planned consumption will increase.



The 45-degree line in the Keynesian income-expenditure graph indicates
Selected Answer: the size of the multiplier
Correct Answer: points where total output is equal to aggregate expenditure

In the four-sector Keynesian model,
Selected Answer: increased exports increase aggregate expenditure
Correct Answer: increased exports increase aggregate expenditure

Selected Answer: the reciprocal of MPS

According to the Keynesian analysis, as income increases, the marginal propensity to
consume will rise.

Aggregate expenditure (AE) equals
Selected Answer: C + I + G + (X – IM)
Correct Answer: C + I + G + (X – IM)

The curve that shows quantities of total real output that will be offered for sale at
various price levels is called the
Selected Answer: yield curve
Correct Answer: aggregate supply curve

In the classical model, a basic theoretical feature of self-regulating markets was that
Selected Answer: unsold inventory would never occur
Correct Answer: lower wages and prices would eliminate unemployment and unsold
inventory

In the circular flow, an increase in the money supply tends to result when
Selected Answer: planned I is greater than planned S
Correct Answer: planned I is greater than planned S

Selected Answer: the prices charged by manufacturers



The value or purchasing power of the dollar can be obtained by dividing $1 by the
CPI.

periods





The total checkable deposits a bank may have can be determined by dividing its
reserves by the reserve requirement.

The first attempt at centralized banking in the United States was the Federal Reserve
System.

Selected Answer: lower the reserve requirement


Selected Answer: 1913
Most monetary transactions in the United States are done by electronic banking.

Selected Answer: required of national banks and open to state banks

Selected Answer: raise the discount rate

If the Fed desires to expand the money supply, it will raise the discount rate.

The primary function of the Fed’s Board of Governors is to formulate U.S. monetary
policy.
Assume total reserves are $1 million, checkable deposits are $5 million, and the
reserve requirement is 10 percent. What are the excess reserves?
Selected Answer: $1 million

Selected Answer: appointed by the U.S. President


Selected Answer: require all commercial banks to join the Federal Reserve System

Selected Answer: C + I + G

The new classical school holds that rational expectations tends to defeat the goals of
monetary policy.

The time lags lead monetarists to contend that monetary policy is counterproductive.

If planned investment increases by $30 billion and, as a result, national output
increases by $60 billion, the value of the multiplier is
Selected Answer: 2
Correct Answer: 2

If the aggregate supply curve is horizontal,

Selected Answer: full employment as a norm

Selected Answer: MPC = 1/MPS


Selected Answer: lowering the reserve requirement

Selected Answer: 3
Correct Answer: 3

“Supply creates its own demand” is an expression of
Selected Answer: Say’s Law
Correct Answer: Say’s Law

The marginal propensity to consume is
Selected Answer: the fraction of an increase in income that would be spent on
consumer goods
Correct Answer: the fraction of an increase in income that would be spent on
consumer goods



Your nominal wages rose during the same period from $200 a week to $260. By how
Selected Answer: 16.7 percent
Correct Answer: 8.33 percent

Selected Answer: is inversely related to its reserve requirements

Selected Answer: a 20 percent increase in price level

Real wages are determined by multiplying money wages by the CPI.

CPI refers to the

The most liquid measure of the U.S. money supply is M1.

The PPI is an index of the price level of aggregate output.

Federal Reserve banks stand ready to convert dollars into gold upon demand.
periods

If a $1,000 cash deposit is made in a bank where the reserve requirement is 10
percent, then the maximum total loans in the form of checkable deposits that may be
made as a result of that cash deposit is

industries have
Selected Answer: remained about the same


Selected Answer: U.S. Department of Commerce

conclude that


The GDP makes no measurement of the deterioration of the natural environment.


National income is equivalent to total earnings in the form of wages, rent, interest,
and profits.


Selected Answer: GNP plus corporate profits


policy that include

If the Fed buys securities on the open market, this will
Selected Answer: increase banks’ excess reserves
Correct Answer: increase banks’ excess reserves


requirements.
Selected Answer: their member banks

If a commercial bank is short of reserves, it can obtain funds by
Selected Answer: borrowing from another commercial bank


The largest 80 banks in the United States control about
Selected Answer: 70% of all banking assets
Correct Answer: 70% of all banking assets

share?

insurance companies
insurance companies

supply.


An increase in the price level adds to the value of the nominal GDP but not to the real
GDP.

Selected Answer: taxes



approximately



Selected Answer: the GDP value is adjusted upward



Selected Answer: net inventory change

percent, then
Selected Answer: the change in real GDP equaled the change in nominal GDP

The consumption function shows the relationship between the income received by the
Selected Answer: amount businesses plans to spend on investment
Correct Answer: amount they plan to spend on currently produced final output

Which of the following is part of Keynesian economic theory?
Selected Answer: businesses adjust their level of output to meet the demand for
output

Selected Answer: the labor force is fully employed



The 45-degree line in the Keynesian income-expenditure graph indicates
Selected Answer: the size of the multiplier
Correct Answer: points where total output is equal to aggregate expenditure


Selected Answer: the reciprocal of MPS

consume will rise.

Selected Answer: C + I + G + (X – IM)
The curve that shows quantities of total real output that will be offered for sale at
various price levels is called the
Selected Answer: yield curve
Correct Answer: aggregate supply curve

Selected Answer: unsold inventory would never occur
inventory

In the circular flow, an increase in the money supply tends to result when
Selected Answer: planned I is greater than planned S
Correct Answer: planned I is greater than planned S

Selected Answer: the prices charged by manufacturers


CPI.

periods







System.

Selected Answer: lower the reserve requirement



Most monetary transactions in the United States are done by electronic banking.

Selected Answer: required of national banks and open to state banks


The primary function of the Fed’s Board of Governors is to formulate U.S. monetary
policy.

Assume total reserves are $1 million, checkable deposits are $5 million, and the
reserve requirement is 10 percent. What are the excess reserves?

Selected Answer: appointed by the U.S. President

Selected Answer: require all commercial banks to join the Federal Reserve System

Selected Answer: C + I + G

The new classical school holds that rational expectations tends to defeat the goals of
monetary policy.


If planned investment increases by $30 billion and, as a result, national output
increases by $60 billion, the value of the multiplier is
Selected Answer: 2
Correct Answer: 2
If the aggregate supply curve is horizontal,


Selected Answer: MPC = 1/MPS


Selected Answer: lowering the reserve requirement
Selected Answer: 3
Correct Answer: 3

“Supply creates its own demand” is an expression of
Selected Answer: Say’s Law
Correct Answer: Say’s Law

The marginal propensity to consume is
Selected Answer: the fraction of an increase in income that would be spent on
consumer goods
Correct Answer: the fraction of an increase in income that would be spent on
consumer goods


Your nominal wages rose during the same period from $200 a week to $260. By how
Selected Answer: 16.7 percent
Correct Answer: 8.33 percent




CPI refers to the

The most liquid measure of the U.S. money supply is M1.

The PPI is an index of the price level of aggregate output.

Federal Reserve banks stand ready to convert dollars into gold upon demand.

periods

If a $1,000 cash deposit is made in a bank where the reserve requirement is 10
percent, then the maximum total loans in the form of checkable deposits that may be
made as a result of that cash deposit is

industries have
Selected Answer: remained about the same




conclude that


The GDP makes no measurement of the deterioration of the natural environment.



National income is equivalent to total earnings in the form of wages, rent, interest,
and profits.


Selected Answer: GNP plus corporate profits



A government surplus may trigger a decline in the money supply.

If banks had $10 million in legal reserves, $110 million in checkable deposits, and a
10 percent reserve requirement, they would have to reduce checkable deposits by $10
million or increase reserves by $1 million.


If the CPI reads 150, prices have increased 50 percent since the base year.

time are known as
Selected Answer: time deposits

Which of the following tend to be at a disadvantage in periods of rising prices?
Correct Answer: people with fixed incomes

Selected Answer: 1982–1984
Correct Answer: 1982–1984


Selected Answer: the goods and services that a given amount of money will buy

CPI.

Which of the following emphasizes government spending as a countercyclical
approach to create economic expansion?
Selected Answer: Keynesian economics
Correct Answer: Keynesian economics

Assume a marginal propensity to consume of three-fourths. If private planned
investment decreases by $10 billion and government spending increases by $13
billion, the national income will increase by
Selected Answer: $12 billion
Correct Answer: $12 billion

Say’s Law states that
Selected Answer: demand generates supply
Correct Answer: supply generates demand


Net exports are excluded in the calculation of the national income.
The aggregate demand curve tends to be
Selected Answer: downward sloping
Correct Answer: downward sloping


Total planned consumption
Selected Answer: exceeds total income at very low levels of output
Correct Answer: exceeds total income at very low levels of output

Selected Answer: increases federal debt

Selected Answer: may be either positive or negative

Keynes stated that equilibrium could exist at any level of employment or
unemployment.

that
Selected Answer: total planned injections must be equal to total planned leakages

Selected Answer: intermediate goods

The total value added in the production of a final good
Selected Answer: exceeds the total payments made to owners of productive
resources used in the production
Correct Answer: equals the price of the final good

measure of

Final sales are always larger than the GDP.


Selected Answer: annual rates

Selected Answer: a full year’s statistics are not useful to economists


Selected Answer: compensation of employees

When final sales are less than GDP, a net reduction in inventory has taken place.

The value of leisure is not taken into consideration in GDP accounting.

approximately

Electronic banking does not include
Selected Answer: direct deposit of paychecks
Correct Answer: credit cards

If a bank has excess reserves,
Selected Answer: it can make a loan if it wishes
Correct Answer: it can make a loan if it wishes


Members of the Board of Governors are appointed for five-year terms.

Cash transactions account for about 20 percent of the value of transactions.




Competition in U.S. banking has been increased by

Any bank reserves over and above the level of required reserves are known as
Selected Answer: excess reserves
Correct Answer: excess reserves

The Federal Reserve currently exercises credit control over
Selected Answer: home financing
Correct Answer: stock market purchases

Assume a reserve requirement of 10 percent. A commercial bank has total reserves of
$100,000, excess reserves of $25,000, and total checkable deposits outstanding of
$750,000) If the reserve requirement were increased to 15 percent,
Selected Answer: the bank would have no alternative but to decrease its checkable
deposits
Correct Answer: the bank would be $12,500 short of required reserves

supply.


Which of the following is not part of the Federal Reserve System?
Selected Answer: the Council of Economic Advisers
Correct Answer: the Council of Economic Advisers

Selected Answer: sell securities in the open market

The Reigle-Neal Act was passed by Congress in 1932 to regulate banking.

The discount rate is
Selected Answer: set by the Federal Reserve Bank
Correct Answer: set by the Federal Reserve Bank

The Federal Reserve System was established by the National Banking Act of 1864.

The purpose of open-market operations is to
Selected Answer: influence the flow of credit and money
Correct Answer: influence the flow of credit and money

Selected Answer: the federal government
The greater the level of excess reserves, the lower the Federal Funds rate will be.

The Financial Services Modernization Act of 1999 is likely to result in fewer
financial institutions.

Electronic banking does not include
Selected Answer: direct deposit of paychecks
Correct Answer: credit cards


According to classical economists, the aggregate supply curve is
Selected Answer: vertical only in the long run
Correct Answer: vertical in both the long run and the short run

consume will rise.

As disposable income increases, the total amount of planned consumption increases.


The consumption function shows
Selected Answer: that the amount of national income determines the rate at which
the economy consumes its resources
Correct Answer: that households’ incomes determine how much the households will
spend for consumer goods



Selected Answer: the rate of interest will fall

In the Keynesian model, the most important influence on planned consumption is
Selected Answer: disposable income
Correct Answer: disposable income

According to Keynes, in deciding whether to increase or decrease planned
investment, businesses will be guided primarily by
Selected Answer: the rate of interest
Correct Answer: expected profits


Say’s Law implies that
Selected Answer: markets do not clear
Correct Answer: production generates income, which is all spent to purchase what
was produced

Gross national product measures the current market value of final output produced
within a country by both domestic and foreign resources.

example of
Selected Answer: social costs

Selected Answer: personal income

The GDP figure does not accurately reflect economic welfare because
Selected Answer: the value of goods produced in the home is usually overstated
Correct Answer: it does not include nonmonetary transactions




Selected Answer: GDP is probably somewhat smaller than true total output

An increase in business inventories would be included in the investment component
of GDP.

The total value added in the production of a final good
Selected Answer: equals the price of the final good
Correct Answer: equals the price of the final good

Selected Answer: the underground economy

Which of the following tend to be at a disadvantage in periods of rising prices?
Selected Answer: people with fixed incomes
Correct Answer: people with fixed incomes

A government surplus may trigger a decline in the money supply.



A decrease in the level of required reserves will decrease a bank’s ability to extend
loans.


In the monetary equation of exchange, MV = PQ, P stands for
Selected Answer: purchases


A formula for determining how much a bank can extend loans through the creation of
checkable deposits is
Selected Answer: excess reserves/the reserve requirement
Correct Answer: excess reserves/the reserve requirement

When money enables us to convert excess goods into money and retain the money, it
is acting as a
Selected Answer: store of value
Correct Answer: store of value

COLA clauses are usually based on the
Selected Answer: CPI
Correct Answer: CPI

Selected Answer: the perverse elasticity of the money supply

Committee.

The interest rate at which commercial banks lend to their customers with the best
collateral is known as
Selected Answer: prime rate
Correct Answer: prime rate

the
Selected Answer: federal funds rate



Decisions on the Fed’s buying and selling of government securities to control the
U.S. money supply are made by
Correct Answer: the Federal Open Market Committee

According to monetarists, the money supply ought to be changed
Selected Answer: at a constant annual rate, regardless of economic conditions
Correct Answer: at a constant annual rate, regardless of economic conditions

The Reigle-Neal Act was passed by Congress in 1932 to regulate banking.

Interest rate ceilings were phased out by the Depository Institutions Deregulation and
Monetary Control Act of 1980.

Today, the number of commercial banks in the United States is about
Selected Answer: 8,000
Correct Answer: 8,000

Selected Answer: sell securities in the open market

Which of the following explains the downward slope of the aggregate demand curve?
Selected Answer: higher prices reduce the household’s real wealth
Correct Answer: higher prices reduce the household’s real wealth

Any time that planned leakages exceed planned injections, the economy will expand.

The higher the propensity to save, the larger the size of the multiplier.

If planned investment increases by $20 billion, other things remaining the same,
planned saving eventually will increase by $20 billion, regardless of the size of the
multiplier.

foreign
foreign

According to Keynes, the aggregate supply curve is
Selected Answer: vertical only in the long run
Correct Answer: vertical only in the long run


Higher prices reduce the purchasing power of financial assets owned by households.

According to the classical economists, demand creates its own supply.

Selected Answer: a curve showing the quantities of goods and services that
households will provide at various price levels

Equilibrium in the Keynesian model is
Selected Answer: stable as long as planned injections are equal to planned leakages
Correct Answer: stable as long as planned injections are equal to planned leakages

Selected Answer: military costs
The measurements of business cycles tend to be exaggerated as a result of the GDP
treatment of
Selected Answer: durable goods
Correct Answer: durable goods

percent, then
Selected Answer: real GDP per capital did not change

Selected Answer: United States

Selected Answer: GNP minus capital consumption allowances

within a country by
Selected Answer: both domestic and foreign resources



The GDP counts durable goods only during their year of production.

Dividends are included in national income but not in personal income.

Selected Answer: the underground economy




If M equals $40, V equals 16, and Q equals 16, then P equals $40.

If the reserve requirement were cut in half, the banking system’s ability to extend
loans would be
Selected Answer: increased by 25 percent
Correct Answer: nearly doubled

periods

If a worker’s nominal wage moves from $180 per week in a base period to $300 per
week subsequently, but the real wage rises to only $240, we can conclude that
Selected Answer: the price level has increased by 25 percent
Correct Answer: the price level has increased by 25 percent

According to modern economists, the velocity of money is affected by
Selected Answer: interest rates and expected price changes
Correct Answer: interest rates and expected price changes


Selected Answer: reduce the multiple expansion of the money supply

If the CPI reads 150, prices have increased 50 percent since the base year.

An increase in the money supply is more likely to be inflationary when
Selected Answer: the economy is at full employment
Correct Answer: the economy is at full employment

Current disposable income can be adjusted for price changes and population changes
to yield real per capita disposable income.

Selected Answer: PI minus personal taxes

measure of

If real GDP increases by 5 percent and the population increases by 10 percent during

Selected Answer: external costs

GDP overstates national income because it does not make any adjustment for national
debt.

Undistributed corporate profits are included in national income but not in personal
income.

Selected Answer: United States


Selected Answer: between 10 and 12 trillion

The value of leisure is not taken into consideration in GDP accounting.

Most national wealth in the United States is held in the private sector.

Which of the following emphasizes government spending as a countercyclical
approach to create economic expansion?
Selected Answer: Keynesian economics
Correct Answer: Keynesian economics
The value of the marginal propensity to consume
Selected Answer: is always between 0 and 1
Correct Answer: is always between 0 and 1

Selected Answer: a curve showing the quantities of total output that will be offered

Selected Answer: lower wages and prices would eliminate unemployment and
unsold inventory
inventory

Selected Answer: may be either positive or negative

According to the Keynesian analysis, the point of equilibrium income
Selected Answer: can be anywhere along the 45-degree line
Correct Answer: can be anywhere along the 45-degree line
Selected Answer: 3
Correct Answer: 3


foreign
foreign

In the Keynesian model, whenever unplanned inventory increases occur in the
economy, production is likely to
Selected Answer: remain unchanged
Correct Answer: slow down

The aggregate demand curve tends to be
If the marginal propensity to consume were four-fifths, the size of the multiplier
would be 5.



insurance companies
insurance companies

requirements.


System.

the
Selected Answer: federal funds rate

The usual term of office of members of the Board of Governors is

policy that include





The Glass Steagall Act was passed in 1932 to prevent ruinous competition in the
banking industry.
If banks have $10 million in legal reserves, $70 million in checkable deposits, and a
reserve requirement of 10 percent, they can still expand the money supply by



According to the equation of exchange, an increase in either velocity or the money
supply will
Selected Answer: cause PQ to rise
Correct Answer: cause PQ to rise

A price index number
Selected Answer: is always greater than 100 if prices have risen during the period
in question

likely result is
Selected Answer: an increase in the value of P



Selected Answer: has in excess of its required reserves
Only wages or income can be indexed to the CPI.

Skip navigation links ECON125-HK2. ECONOMICS FOR MANAGERS

(ECON125-HK2) > TOOLS > MY GRADES > VIEW ATTEMPTS > REVIEW
ASSESSMENT: EXAM 3
User Hon Fai Yeung
Name Exam 3
Status Completed
incorrect.

Correct The discount rate is
Question 1 answers
Selected Answer: Correct set by the Federal Reserve Bank
Correct Answer: Correct set by the Federal Reserve Bank

Correct If a Federal Reserve Bank wanted to tighten the money supply, it would
Question 2 answers
Selected Answer: Correct raise the discount rate
Correct Answer: Correct raise the discount rate

Correct Each Federal Reserve Bank can issue Federal Reserve notes.
Question 3 answers

Correct The Federal Reserve System is built around
Question 4 answers
Selected Answer: Correct 12 district banks
Correct Answer: Correct 12 district banks

Correct Legislation has been introduced in Congress that would have required the
Fed to reduce inflation to zero percent.
Question 5 answers

Correct The purpose of open-market operations is to
Question 6 answers
Selected Answer: Correct influence the flow of credit and money
Correct Answer: Correct influence the flow of credit and money

Correct Members of the Board of Governors are appointed for five-year terms.
Question 7 answers

Incorrect The Fed’s ability to influence the money supply through its open-market
operations is independent of a commercial bank’s desire to make loans.
Question 8 answers

Incorrect The Financial Services Modernization Act of 1999 seeks to restrict
competition between insurance companies and banks.
Question 9 answers

Incorrect Regarding the Board of Governors of each Federal Reserve Bank,
Question 10 answers
Selected Answer: Incorrect one member must represent labor
Correct Answer: Correct two-thirds of the members must be nonbankers

Correct The interest rate at which commercial banks lend to their customers with the
best collateral is known as
Question 11 answers
Selected Answer: Correct prime rate
Correct Answer: Correct prime rate

Correct Branch banking can now be carried our regionally and even nationally.
Question 12 answers

Correct If a commercial bank is short of reserves, it can obtain funds by
Question 13 answers

Correct A price index number
Question 14 answers

Correct The value or purchasing power of the dollar can be obtained by dividing $1
by the CPI.
Question 15 answers

Correct Indexation is a good means of reducing inflation.
Question 16 answers

Correct If you want to deflate the current price of something to eliminate the effect
of inflation,
Question 17 answers
Selected Answer: Correct divide the number by the price index
Correct Answer: Correct divide the number by the price index

Correct The ease with which an asset can be converted into the medium of exchange
is called
Question 18 answers
Selected Answer: Correct liquidity
Correct Answer: Correct liquidity

Correct In the equation of exchange MV = PQ, V stands for
Question 19 answers
Selected Answer: Correct average rate of turnover of the money supply
Correct Answer: Correct average rate of turnover of the money supply

Correct The current base period for the CPI is
Question 20 answers
Selected Answer: Correct 1982–1984
Correct Answer: Correct 1982–1984

Incorrect Savings deposits are not counted as part of the M1 measure of the U.S.
money supply.
Question 21 answers

Correct COLA is a form of indexation.
Question 22 answers

Correct According to the equation of exchange, if total output and velocity are
constant, a 20 percent increase in the money supply leads to
Question 23 answers
Selected Answer: Correct a 20 percent increase in price level
Correct Answer: Correct a 20 percent increase in price level

Correct In the past 10 years or so, average real wages of U.S. workers in
nonagricultural industries have
Question 24 answers
Selected Answer: Correct increased slightly
Correct Answer: Correct increased slightly

Correct The more volatile the inflation rate, the weaker the money supply as a
standard of deferred payment.
Question 25 answers
Correct Personal income does not include
Question 26 answers
Selected Answer: Correct undistributed corporate profits
Correct Answer: Correct undistributed corporate profits

Correct The best measure of a change in the standard of living is the change in
Question 27 answers
Selected Answer: Correct real per capita disposable income
Correct Answer: Correct real per capita disposable income

Correct The total value added in the production of a final good
Question 28 answers
Selected Answer: Correct equals the price of the final good
Correct Answer: Correct equals the price of the final good

Correct The GDP does not include raw materials used up in the productive process.
Question 29 answers

Correct Final sales are always larger than the GDP.
Question 30 answers

Correct The national income accounts for the United States are prepared by the
Question 31 answers
Selected Answer: Correct U.S. Department of Commerce
Correct Answer: Correct U.S. Department of Commerce

Correct Disposable personal income is equal to
Question 32 answers
Selected Answer: Correct PI minus personal taxes
Correct Answer: Correct PI minus personal taxes

Correct The difference between GDP and final sales equals
Question 33 answers
Selected Answer: Correct net inventory change
Correct Answer: Correct net inventory change

Correct The measurements of business cycles tend to be exaggerated as a result of
the GDP treatment of
Question 34 answers
Selected Answer: Correct durable goods
Correct Answer: Correct durable goods

Correct The value of leisure is not taken into consideration in GDP accounting.
Question 35 answers

Incorrect If real GDP increased and nominal GDP decreased during the same year, we
could conclude that
Question 36 answers
Selected Answer: Incorrect the general price level increased during the year
Correct Answer: Correct the general price level fell during the year

Incorrect Social costs are associated with
Question 37 answers
Selected Answer: Incorrect government programs for the disadvantaged
Correct Answer: Correct deterioration of the natural environment

Correct As income increases, the absolute level of planned consumption will
increase.
Question 38 answers

Correct According to the classical approach, if planned savings increases,
Question 39 answers
Selected Answer: Correct the rate of interest will fall
Correct Answer: Correct the rate of interest will fall

Incorrect The change in the level of planned spending that results from a change in
the price level is indicated by the movement of the economy along a given
Question 40 answers
Selected Answer: Incorrect both (a) and (b)
Correct Answer: Correct aggregate demand curve

Correct In a measure of aggregate expenditures for the national economy, net
exports
Question 41 answers
Selected Answer: Correct may be either positive or negative
Correct Answer: Correct may be either positive or negative

Correct The purpose of the Keynesian analysis is to explain what determines the
Question 42 answers
Selected Answer: Correct levels of national income, output, and employment
Correct Answer: Correct levels of national income, output, and employment

Correct In the Keynesian model, the most important influence on planned
consumption is
Question 43 answers
Selected Answer: Correct disposable income
Correct Answer: Correct disposable income
Correct According to the classical economists, demand creates its own supply.
Question 44 answers

Incorrect Aggregate demand curves tend to be very flat.
Question 45 answers

Incorrect “A given change in business investment will cause a larger change in
equilibrium output.” This statement describes an important Keynesian concept called
the
Question 46 answers
Selected Answer: Incorrect consumption function
Correct Answer: Correct multiplier effect

Correct The consumption function shows the relationship between the income
received by the economy’s households and the
Question 47 answers
Selected Answer: Correct amount they plan to spend on currently produced final
output
Correct Answer: Correct amount they plan to spend on currently produced final
output

Correct If the economy is in equilibrium and suddenly the level of planned
investment increases by $2 billion, national income will increase by
Question 48 answers
Selected Answer: Correct more than $2 billion because of MPC
Correct Answer: Correct more than $2 billion because of MPC

Correct In the Keynesian model, whenever unplanned inventory increases occur in
the economy, production is likely to
Question 49 answers
Selected Answer: Correct slow down
Correct Answer: Correct slow down

Correct Keynes recommended the use of government deficit spending to overcome
widespread unemployment.
Question 50 answers
OK

TOOLS > MY GRADES > VIEW ATTEMPTS > REVIEW ASSESSMENT: EXAM 3
User Sin Man Lau
Name Exam 3
Status Completed
Correct Real GDP refers to nominal GDP adjusted for
Question 1 answers
Selected Answer: Correct price changes

Correct Answer: Correct price changes
Correct The unregulated portion of the economy involving goods and services that are produced
and exchanged without monetary transactions is known as
Question 2 answers
Selected Answer: Correct the underground economy
Correct Answer: Correct the underground economy
Correct The existence of undistributed corporate profits tends to cause
Question 3 answers
Selected Answer: Correct national income to be larger than personal income
Correct Answer: Correct national income to be larger than personal income
Incorrect The total resource cost of goods and services produced by the U. S. economy is known
as
Question 4 answers
Selected Answer: Incorrect real GDP
Correct Answer: Correct national income
Correct The portion of the GDP that takes the form of consumer goods and services is
approximately
Question 5 answers
Selected Answer: Correct two-thirds
Correct Answer: Correct two-thirds
Correct The total earnings arising from the production of the GDP is known as
Question 6 answers
Selected Answer: Correct national income
Correct Answer: Correct national income
Correct The GDP in the United States is reported quarterly in terms of
Question 7 answers
Selected Answer: Correct annual rates
Correct Answer: Correct annual rates
Correct If real GDP increases by 5 percent and the population increases by 10 percent during
Question 8 answers
Selected Answer: Correct decreases
Correct Answer: Correct decreases

Correct An increase in the price level adds to the value of the nominal GDP but not to the real
GDP.
Question 9 answers
Correct The value of leisure is not taken into consideration in GDP accounting.
Question 10 answers
Correct The portion of NI in the United States that takes the form of compensation of
employees amounts to
Question 11 answers
Selected Answer: Correct approximately three-fourths
Correct Answer: Correct approximately three-fourths
Correct The GDP is reported on a monthly basis by the Department of Commerce.
Question 12 answers
Correct The CPI does not necessarily make adjustments for improvement in the quality of
goods and services in the market basket.
Question 13 answers
Correct A standard of deferred payment is most essential in a
Question 14 answers
Selected Answer: Correct credit economy
Correct Answer: Correct credit economy
Correct The quantity theory of money assumes that
Question 15 answers
Selected Answer: Correct the national economy tends to operate at full employment
Correct Answer: Correct the national economy tends to operate at full employment

Correct If the CPI in City A is 150 and the CPI in City B is 135,
Question 16 answers
Selected Answer: Correct none of the above
Correct Answer: Correct none of the above
Incorrect If the money supply is $350 and PQ is $1,400, according to the quantity theory of
money, the velocity of money is
Question 17 answers
Selected Answer: Incorrect 7.5
Correct Answer: Correct 4.0
Incorrect The inflation index that is most favored by economists is the
Question 18 answers
Selected Answer: Incorrect Consumer Price Index
Correct Answer: Correct GDP Implicit Price Deflation
Incorrect Included in the official U.S. money supply are
Question 19 answers
Correct Answer: Correct checkable deposits

Correct In the equation of exchange MV = PQ, V stands for
Question 20 answers
Selected Answer: Correct average rate of turnover of the money supply
Correct Answer: Correct average rate of turnover of the money supply
Correct A decrease in reserve requirements immediately increases the money supply.
Question 21 answers
Correct The CPI measures price changes for only about two-thirds of all spending.
Question 22 answers
Correct An increase in the money supply always causes an increase in the price level.
Question 23 answers

Correct Indexation is a good means of reducing inflation.
Question 24 answers
Correct The new classical school contends that government fiscal policy is better than monetary
policy in controlling inflation.
Question 25 answers
Correct Say’s Law states that
Question 26 answers
Selected Answer: Correct supply generates demand
Correct Answer: Correct supply generates demand
Correct Equilibrium in the Keynesian model is

Question 27 answers
Selected Answer: Correct stable as long as planned injections are equal to planned leakages
Correct Answer: Correct stable as long as planned injections are equal to planned leakages
Correct In the simple Keynesian model, if output exceeds aggregate expenditures,
Question 28 answers
Selected Answer: Correct inventories will increase and businesses will decrease output
Correct Answer: Correct inventories will increase and businesses will decrease output
Correct The multiplier is the relationship between the initial change in aggregate expenditure
and the resulting change in income.
Question 29 answers
Correct Keynes recommended the use of government deficit spending to overcome widespread
unemployment.
Question 30 answers

Incorrect The classical economists held that chronic unemployment was likely.
Question 31 answers
Correct Which of the following is not one of the four major sectors of the economy to which
GDP is allocated?
Question 32 answers
Selected Answer: Correct agriculture
Correct Answer: Correct agriculture
Correct The value of the marginal propensity to consume
Question 33 answers
Selected Answer: Correct is always between 0 and 1
Correct Answer: Correct is always between 0 and 1
Correct The new classical school holds that rational expectations tends to defeat the goals of
monetary policy.
Question 34 answers

Correct Along the composite aggregate supply curve,
Question 35 answers
Correct According to Keynes, in deciding whether to increase or decrease planned investment,

businesses will be guided primarily by
Question 36 answers
Selected Answer: Correct expected profits
Correct Answer: Correct expected profits
Correct Aggregate expenditure (AE) equals
Question 37 answers
Selected Answer: Correct C + I + G + (X – IM)
Correct Answer: Correct C + I + G + (X – IM)
Correct Permanent members of the Federal Open Market Committee include

Question 38 answers
Correct Electronic banking does not include
Question 39 answers
Selected Answer: Correct credit cards
Correct Answer: Correct credit cards
Incorrect Each Federal Reserve Bank has its own board of directors.
Question 40 answers
Correct Which of the following is not a correct statement?
Question 41 answers
Selected Answer: Correct the U.S. Senate must approve any major change in Fed policy
Correct Answer: Correct the U.S. Senate must approve any major change in Fed policy

Correct The Financial Services Modernization Act of 1999 is likely to result in fewer financial i
nstitutions.
Question 42 answers
Correct One problem associated with the National Banking System was
Question 43 answers
Selected Answer: Correct the perverse elasticity of the money supply
Correct Answer: Correct the perverse elasticity of the money supply
Incorrect Changing the discount rate
Question 44 answers
Selected Answer: Incorrect is a function of the federal Reserve Banks without any review by
the Board of Governors
Correct Answer: Correct provides a signal that the Fed wants to encourage an expansion or contra
ction of the money supply
Correct The official term of office of the chairman of the Fed is
Question 45 answers
Selected Answer: Correct 4 years

Correct Answer: Correct 4 years
Correct Any bank reserves over and above the level of required reserves are known as
Question 46 answers
Selected Answer: Correct excess reserves
Correct Answer: Correct excess reserves
Correct The Reigle-Neal Act was passed by Congress in 1932 to regulate banking.
Question 47 answers
Correct If the Federal Open Market Committee desired to tighten credit, it would
Question 48 answers
Selected Answer: Correct sell securities in the open market
Correct Answer: Correct sell securities in the open market
Correct During the so-called wildcat banking period in the United States,
Question 49 answers
Correct The Federal Reserve Banks are owned by
Question 50 answers
Selected Answer: Correct their member banks
Correct Answer: Correct their member banks
OK
Exam 4
Status Completed
incorrect.

Unemployment
Selected Answer: usually increases whenever real GDP decreases
Correct Answer: usually increases whenever real GDP decreases

All people in the noninstitutional population are counted as members of the labor
force.
Since 1970, a sizable part of the growth of the U.S. labor force has been due to
Selected Answer: the entry of more women into the labor force
Correct Answer: the entry of more women into the labor force

Part-time workers who want full-time employment but cannot find it are considered
underemployed.

The natural rate of unemployment is sometimes called the inflation threshold rate of
unemployment.

Among the world’s major industrial countries, the nation with the lowest
unemployment rate in 2005 was

Persons who do not work because of bad weather or vacation are part of
Selected Answer: cyclical unemployment
Correct Answer: the employed labor force
U.S. workers tend to be both geographically and occupationally immobile.

Which of the following types of workers has decreased as a percentage of the U.S.
labor force in recent decades?
Selected Answer: unskilled workers
Correct Answer: unskilled workers

The Employment Act of 1946
Selected Answer: gave no specific definition for maximum employment
Correct Answer: gave no specific definition for maximum employment

The amount of unemployment that arises because workers are temporarily between
jobs or new entrants to the labor force is known as
Selected Answer: frictional unemployment
Correct Answer: frictional unemployment

Underemployment includes employed workers not performing at full capacity.
Credit restrictions that increase the size of down payments and shorten loan
maturities promote economic expansion.

An advantage of public works over transfer payments as a means of reducing
unemployment is that
Selected Answer: public works require using a large amount of capital goods and
producing a large amount of supplies
Correct Answer: public works require using a large amount of capital goods and

Demand-pull inflation occurs whenever the economy is at full employment and total
demand for goods and services
Selected Answer: is less than total supply
Correct Answer: is greater than total supply

Stagflation is a mixture of
Selected Answer: low inflation and high unemployment
Correct Answer: high inflation and high unemployment

Crowding out occurs when unemployment compensation increases and income taxes
are held constant.
The U.S. experience with expansionary measures from 1930 to 1945
Selected Answer: repudiated the pump-priming theory
Correct Answer: repudiated the pump-priming theory

The most effective way for the government to develop a surplus as a contractionary
measure is to increase taxes and hold or decrease spending.

One lesson learned from the U.S. deficit spending of the 1930s was that direct
spending for transfer payments stimulated the economy more than spending on public
works.

During the 1980s, hyperinflation was usually associated with
Selected Answer: the U.S. economy
Correct Answer: Latin American economies

The Phillips curve shows a trade-off between unemployment and inflation.
The higher the economy’s level of capacity utilization, the lower will be the rate of
unemployment.

Government policies designed to lower aggregate demand in order to combat
inflation are known as
Selected Answer: contractionary policies
Correct Answer: contractionary policies

If the government finances increased spending strictly through higher taxes, this
action
Selected Answer: has no impact on the multiplier effect
Correct Answer: decreases the multiplier to one

During the expansion phase of the business cycle, profit margins increase due to a
widening cost-price relationship.

A recession is defined as a period in which real GDP is negative for two consecutive
quarters.

During a contraction in the business cycle, the multiplier effect leads to cumulative
declines in output, employment, and income.

Psychological forces have no effect on business fluctuations.

An example of an external force in business fluctuations is
Selected Answer: a devaluation in the nation’s currency
Correct Answer: a devaluation in the nation’s currency

The psychological theory of the business cycle is
Selected Answer: incorporated into practically all other theories of the cycle
Correct Answer: incorporated into practically all other theories of the cycle

Since the Great Depression, business cycles have not been an issue in the United
States.

In an expanding economy,
Selected Answer: profit margins decrease
Correct Answer: prices rise faster than costs

Business cycles can be described as
Selected Answer: fluctuations around a long-term growth trend
Correct Answer: fluctuations around a long-term growth trend

Economic indexes whose upward and downward turning points generally precede the
peaks and troughs of general business activity are known as
Selected Answer: roughly preceding indicators
Correct Answer: leading indicators

Which of the following is the most valid expression of a theory of underconsumption
as a cause of business cycles?
Selected Answer: people want more goods than the economy is capable of
producing; therefore, they must cut their consumption expectations
Correct Answer: income equals production, but not all income is used for current
purchasing power

Changes in the level of inventories are an internal force in the economy’s cyclical
movements.

During the expansion phase of the business cycle, we would normally expect to see
real income ________, price level ________, and unemployment rate_______.
Selected Answer: increasing; increasing; decreasing
Correct Answer: increasing; increasing; decreasing

The median income of white households is greater than the median income of all
households in the United States.

Channeling people according to sex or race into particular occupations tends to
Selected Answer: lower the wage rate in these occupations
Correct Answer: lower the wage rate in these occupations

The Lorenz curve measures the per capita annual income of individuals.

The distribution of world income is
Selected Answer: very unequal
Correct Answer: very unequal

Compared to the Gini coefficient for income distribution, the value of the Gini
coefficient for the distribution of wealth would be
Selected Answer: higher
Correct Answer: higher

The total number of people in poverty has changed little since the late 1960s.

The value of the Gini coefficient has increased since the 1960s.

If a single household received all income, the Gini coefficient would
Selected Answer: have a value of 1
Correct Answer: have a value of 1

According to the Department of Commerce, a person living alone constitutes a
single-person family.

Which of the following is a disincentive to leave welfare?
Selected Answer: lower taxes
Correct Answer: decrease in real income

The goal of every economic system should be the elimination of income inequality.

Employment discrimination refers to
Selected Answer: differing economic opportunities based on personal
characteristics
Correct Answer: wage differentials based on productivity differences

Most of the unemployment experienced during the Great Depression was
Correct Answer: cyclical

unemployment.
The organization that develops and recommends to the U.S. President national
economic policies to foster maximum employment, production, and purchasing power
is the
Correct Answer: Council of Economic Advisers

The total labor force includes all persons in the noninstitutional population who are
either working or seeking work.

In order to be effective, the minimum wage must be
Correct Answer: above the market wage

In recent years, the highest rate of unemployment among U.S. adults has been among
Correct Answer: black workers

underemployed.
If you are “between jobs,” you are considered to be
Correct Answer: frictionally unemployed

The Council of Economic Advisors is directly responsible to the
Correct Answer: U.S. President

The Full Employment and Balanced Growth Act of 1978 is also known as the Deficit
Reduction Act.

Which of the following has not been outsourced from the U.S.?
Correct Answer: residential construction

Since 1930, U.S. agriculture employment
Correct Answer: has decreased while agricultural output has increased
The level of business activity at any time is affected by the trend, seasonal variations,
random fluctuations, and cyclical fluctuations.

During a trough in the business cycle, the economy eventually reaches the bottleneck
stage.

The underconsumption theory is classified as a real or physical cause of the business
cycle.

Economists use the phrase “business cycle” when discussing
Correct Answer: fluctuations in total output around the trend


Prior to 2006, the most severe trough in a U.S. business cycle since the Great
Depression occurred in 1982.

Inventory depletion can lead to increased production.

A recession is defined as a period in which real GDP is negative for two consecutive
quarters.

movements.
The innovation theory is classified among the real or physical causes of the business
cycle.


The term “recession” refers to a
Correct Answer: period of decline in real GDP over two consecutive quarters

The Lorenz curve shows the
Correct Answer: cumulative percent of income on the vertical axis and the
cumulative percent of families on the horizontal axis

An equitable distribution of income is based on an objective standard, such as the
perceived productivity of the individual.
The New Economy is one of
Correct Answer: information

The federal government employs an absolute rather than a relative measure to
determine poverty.


The official poverty threshold line is adjusted annually for
Correct Answer: inflation

Which of the following can you determine from a Lorenz curve of U.S. income
distribution?
Correct Answer: the percentage of income going to the lowest 20 percent of
households

A country with an equal distribution of income will have a higher standard of living
than a country with a more unequal distribution of income.

Household wealth refers to
Correct Answer: net worth


Poverty is a condition that randomly strikes all members of the population equally.

To most effectively combat inflation by raising taxes, the government should
Correct Answer: target funds that would otherwise be spent on consumption or
investment

Government demand-management policies included
Correct Answer: both monetary and fiscal policies

The expansionary effect on the economy that results from a government budget
deficit is known as a fiscal stimulus.

The policies of the New Deal in the 1930s, in an effort to alleviate unemployment,
paralleled those of
Correct Answer: Keynesian analysis

Cost-push inflation is characterized by
Correct Answer: the wage-price spiral

If business leaders thought an existing tax credit provision on new investment might
be suspended because of inflation, this would cause
Correct Answer: investment spending to accelerate

A disadvantage of using tax financing to fund an increase in government spending,
which is designed to lower unemployment, is that
Correct Answer: the taxes may absorb funds that would otherwise be used for
consumption or investment

The trade-off between unemployment and inflation is usually shown by the
Correct Answer: Phillips curve

Stagflation is a mixture of
Correct Answer: high inflation and high unemployment

To combat inflation, President Nixon resorted to
Correct Answer: compulsory wage and price controls

Fiscal policy is likely to be more effective than monetary policy when used to
increase aggregate demand during periods of serious unemployment.

Inflation and unemployment can never exist at the same time.

are held constant.

paralleled those of

During an inflationary period caused by excessive aggregate expenditure, which type
of government budget would most effectively combat inflation?
Correct Answer: a surplus budget

Cost-push inflation is initiated by
Correct Answer: either (b) or (c)

Which of the following would increase aggregate expenditure?

By the late 1960s, record investment levels, high levels of consumption, and large
government outlays generated inflationary pressures in the U.S. economy.

If the Fed is following policies to reduce inflation, it is most likely to be
Correct Answer: lowering the money supply

The progressive income tax serves as an automatic stabilizer for the U.S. economy.

During the 1980s, hyperinflation was usually associated with
Correct Answer: Latin American economies
investment

If the federal government is seeking to reduce large budget deficits, the flexibility of
fiscal policy is
Correct Answer: limited when trying to combat unemployment

Which of the following statements is correct?
Correct Answer: cost-push inflation can occur in either a fully employed economy
or an underemployed economy

action

In the late 1960s, a 10 percent surcharge on U.S. personal and corporate income taxes
was imposed as an expansionary measure.

The U.S. unemployment rate excludes unemployed workers who are not actively
seeking work.

The Full Employment and Balanced Growth Act set a 1983 U.S. inflation rate target
of
Correct Answer: 3 percent

Among the world’s major industrial countries, the nation with the lowest
unemployment rate in 2005 was

underemployed.

The federal minimum wage law seeks to
Correct Answer: create a floor for wages

The official rate of unemployment is based on a(n)
Correct Answer: telephone survey

Because of increases in the minimum wage, new entrants into the labor force find it
easier to find employment.

The rate of unemployment that can be expected from normal frictional
unemployment in an otherwise fully employed labor force is known as the
Correct Answer: full-employment unemployment rate

The Humphrey-Hawkins Act set a 1983 unemployment target of 3 percent for adult
unemployment.


The number and the percentage of U.S. workers in labor unions have decreased in the
past decade.


Involuntary inventory accumulation may occur during the contracting phase of the
business cycle.

The impact of hurricanes on the level of business activity in North Carolina is an
example of
Correct Answer: random fluctuation

The U.S. economy has experienced no minor cycles since World War II.


Population growth and wars are examples of external forces affecting the economy’s
cyclical movements.


During the contraction phase of the business cycle,
Correct Answer: prices fall relative to costs, reducing profit margins


The long-run average change in real GDP is known as
Correct Answer: the trend

movements.

A recession is defined as a period when the
Correct Answer: real GDP falls for two consecutive quarters

The term “recession” refers to a

The statistical indicators of business cycle changes contain
The Gini coefficient index
Correct Answer: is another way of expressing income inequality



The Lorenz curve measures the degree to which incomes are distributed.

In 2004, the top 5 percent of households earned approximately
Correct Answer: 50 percent of aggregate income
Although the number of jobs requiring computer knowledge has increased, these jobs
are found primarily in low-wage industries.

In 2004, households with incomes less than $22,629 received
Correct Answer: 3.4 percent of aggregate income

If income were distributed solely according to productivity, some individuals would
not receive any income.

The fact that women in large numbers choose careers in education and nursing may
be the result of occupational segregation.

An income distribution in which all households receive exactly the same income is
referred to as a(n)
A minimum wage rate job raises a family out of poverty.



User Siu Ying Mandy Chan
Status Completed
Instructions
Clear Attempt

Since 1970, U.S. union membership has
Given Answer: declined as a percentage of the labor force
Correct Answer: declined as a percentage of the labor force

Given Answer: unskilled workers

The Full Employment and Balanced Growth Act of 1978
Given Answer: set the goals for the U.S. economy as 4 percent unemployment by
1983 and zero inflation by 1988
Correct Answer: set the goals for the U.S. economy as 4 percent unemployment by

The total U.S. labor force excludes those
Given Answer: under age 16
Correct Answer: under age 16

If workers are changing jobs voluntarily and it takes a while for them to find new
jobs, they are an example of
Given Answer: frictional unemployment

The natural rate of unemployment is usually
Given Answer: higher than the full-employment rate of unemployment
Correct Answer: higher than the full-employment rate of unemployment

Most of the unemployment experienced during the Great Depression was
Given Answer: cyclical
Correct Answer: cyclical

In recent years, the U.S. labor force has experienced
Given Answer: an increase in the percentage of females
Correct Answer: an increase in the percentage of females

Among the world's major industrial countries, the nation with the lowest
unemployment rate is
Given Answer: Japan

The U.S. civilian labor force does not include
Given Answer: members of the armed services
Correct Answer: members of the armed services

Given Answer: U.S. President

The natural rate of unemployment corresponds roughly to the sum of
Given Answer: frictional unemployment plus structural unemployment
Correct Answer: frictional unemployment plus structural unemployment
Which of the following statements concerning the Humphrey-Hawkins Act's
unemployment and inflation targets is correct?
Given Answer: neither was met by 1983
Correct Answer: neither was met by 1983

The most effective means of stimulating the economy during a recession is for the
federal government to
Given Answer: increase spending and hold taxes
Correct Answer: increase spending and hold taxes

Forces within the economy that naturally tend to counteract recessions and inflation
are known as
Given Answer: automatic stabilizers
Correct Answer: automatic stabilizers

A disadvantage of using public works to reduce unemployment is that

In terms of the impact on aggregate expenditure of alternative methods of raising
Given Answer: borrowing from banks is more effective than borrowing from the
public, which is more effective than taxation
Correct Answer: borrowing from banks is more effective than borrowing from the

A cost associated with an economic depression

Fiscal policy deals with
Given Answer: the government budget
Correct Answer: the government budget

A decrease in the economy's capacity utilization rate
Given Answer: tends to increase the unemployment rate
Correct Answer: tends to increase the unemployment rate

To increase employment, the most effective type of government budget would be a
Given Answer: deficit budget
Correct Answer: deficit budget

Stagflation refers to
Given Answer: sluggish production combined with inflation
Correct Answer: sluggish production combined with inflation
Government demand-management policies that are used to try to increase the
equilibrium level of output in the economy are known as
Given Answer: expansionary policies
Correct Answer: expansionary policies

If the U.S. government increases spending, the U.S. Treasury
Given Answer: does not have the legal right to issue currency to pay for the
spending
Correct Answer: does not have the legal right to issue currency to pay for the
spending

Suppose that the government is considering a policy to combat unemployment. If the
government pays for increased spending by borrowing funds that otherwise would
have been used for consumption and investment,
Given Answer: the positive effect of increased government spending is offset by a
reduction in private spending
Correct Answer: the positive effect of increased government spending is offset by a

According to the U.S. Department of Commerce, all persons, unrelated or related
Given Answer: a household
Correct Answer: a household
Given Answer: very unequal

In discussing the distribution of income among families, the term "lowest fifth"
indicates
Given Answer: the poorest twenty percent of families
Correct Answer: the poorest twenty percent of families

Given Answer: higher

Given Answer: inflation

Given Answer: cumulative percent of income on the vertical axis and the
cumulative percent of families on the horizontal axis.
Given Answer: differing economic opportunities offered to persons according to
their productivity
Correct Answer: differing economic opportunities based on personal characteristics

Given Answer: have a value of 1

Geographically, a higher percentage of the poor live in the
Given Answer: South
Correct Answer: South

The curve that indicates how far actual income distribution differs from a perfectly
equal income distribution is called the
Given Answer: Lorenz curve
Correct Answer: Lorenz curve

According to the U.S. Department of Commerce, a group of two or more persons
living together who are related by birth, marriage, or adoption is known as
Given Answer: a family
Correct Answer: a family
Given Answer: information

Given Answer: 3.5 percent of aggregate income

Monetary theorists maintain that to eliminate the business cycle, it is necessary to
eliminate
Given Answer: bank creation of checkable deposits
Correct Answer: bank creation of checkable deposits

The term "recession" refers to a
Given Answer: period of decline in real GDP over two consecutive quarters

As the economy approaches the peak phase of the cycle, profits will tend to
Given Answer: increase because of higher sales and higher prices
Correct Answer: increase because of higher sales and higher prices

In the pattern of the business cycle, generally
Given Answer: costs lag behind prices
Correct Answer: costs lag behind prices

example of
Given Answer: random fluctuation

Given Answer: fluctuations around a long-term growth trend

Which of the following rises during a contraction and falls during the expansion
phase of the business cycle?
Given Answer: unemployment
Correct Answer: unemployment

Which of the following categories of business cycle theories includes the rational
expectations theory?
Given Answer: psychological
Correct Answer: psychological

Recurring fluctuations in business activity over the course of one year are known as
Given Answer: seasonal variations
Correct Answer: seasonal variations

According to monetary theories of the business cycle, fluctuations are
Given Answer: more prevalent in countries with modern banking systems
Correct Answer: more prevalent in countries with modern banking systems

Which of the following statements concerning major cycles is incorrect?
Given Answer: the United States has experienced ten major cycles since World
War II
Correct Answer: the United States has experienced ten major cycles since World
War II

Agricultural explanations of the business cycle are not as important today as they
were 50 to 75 years ago, because today
Given Answer: agricultural production is a smaller portion of the total economy
Correct Answer: agricultural production is a smaller portion of the total economy

Today, the U.S. unemployment rate among black teenagers is
Given Answer: the highest rate among all U.S. workers
Correct Answer: the highest rate among all U.S. workers

Given Answer: under age 16

By the late 1950s, the unemployment rate generally accepted as consistent with full
employment was about
Given Answer: 4 percent

In recent years the highest rate of unemployment among U.S. adults has been among
Given Answer: adult males
Correct Answer: adult males

Given Answer: increased as a percentage of the labor force

The Full Employment and Balanced Growth Act of 1978 set a specific 1983 target
for adult unemployment of

Which type of unemployment is the most difficult to cure?
Given Answer: structural
Correct Answer: structural

Given Answer: U.S. President

The Employment act of 1946 does not require that the administration in office should
endeavor to
Given Answer: maximize employment
Correct Answer: stabilize prices

Given Answer: the entry of more women into the labor force

The increased entry of women and young people into the U.S. labor force from 1960-
1980 led to
Given Answer: increased unemployment
Correct Answer: reduced unemployment

Given Answer: higher than the full-employment rate of unemployment

Given Answer: balanced budget



Fiscal drag refers to the
Given Answer: slowing effect on the economy that results from a government
budget surplus
Correct Answer: slowing effect on the economy that results from a government
budget surplus

Given Answer: the negative effect of increased government spending is augmented
by a reduction in private spending

When the U.S. Treasury sells bonds to the public to finance government spending and
then the Fed buys the bonds through open-market purchases, the Fed is
Given Answer: monetizing the debt
Correct Answer: monetizing the debt

Given Answer: is the loss of goods and services that are not produced

Given Answer: the taxes may absorb funds that would otherwise be used for
When trying to increase aggregate demand during a period of serious unemployment,
Given Answer: fiscal policy is likely to be more effective than monetary policy
Correct Answer: fiscal policy is likely to be more effective than monetary policy

Given Answer: both monetary and fiscal policies


The U.S. expansion of the 1960s was augmented by
Given Answer: balanced budgets
Correct Answer: escalation of the war in Vietnam

Which of the following categories of business cycle theories includes the
underinvestment theory?
Given Answer: monetary
Correct Answer: spending and saving
Given Answer: a devaluation in the nation's currency
Correct Answer: a devaluation in the nation's currency


example of
Given Answer: seasonal variation

During the trough of the business cycle
Given Answer: all of the above occur
Correct Answer: all of the above occur

Given Answer: fall in the rate of increase of real per capita GDP

Monetary theorists maintain that to eliminate the business cycle, it is necessary to
eliminate
Given Answer: bank creation of checkable deposits
Correct Answer: bank creation of checkable deposits

Given Answer: psychological

Given Answer: costs lag behind prices

Given Answer: seasonal variations


Given Answer: fluctuations around a long-term growth trend

Given Answer: information

distribution?
Given Answer: the average income of U.S. households
households

The federal government began to measure poverty in the
Given Answer: 1990s
Correct Answer: 1960s

Given Answer: lower the wage rate in these occupations

Given Answer: Lorenz curve


referred to as
Given Answer: an equal distribution of income
Correct Answer: an equal distribution of income

Given Answer: differing economic opportunities based on personal characteristics
Correct Answer: differing economic opportunities based on personal characteristics



Given Answer: net worth

If income were distributed equally, the Gini coefficient would
Given Answer: equal zero
Correct Answer: equal zero

Given Answer: West

Given Answer: a family

The percentage of the population classified as poor in 2001 was approximately
Given Answer: South

Given Answer: net worth

According to the U.S. Department of Commerce, all persons, unrelated or related
Given Answer: a household

The Lorenz curve of perfect equality is a
Given Answer: upward sloping line from the origin
Correct Answer: upward sloping line from the origin

If a Lorenz curve were constructed for the distribution of wealth, the curve would
Given Answer: indicate less inequality for wealth than income
Correct Answer: indicate greater inequality for wealth than income
Given Answer: 20 percent of aggregate income

distribution?
Given Answer: the percentage of income going to the lowest 20 percent of
households
households



indicates
Given Answer: the poorest twenty percent of families

Given Answer: borrowing from banks is more effective than borrowing from the

The policies of the New Deal in the 1930s, is an effort to alleviate unemployment,
paralleled those of
Given Answer: Keynesian analysis



During an inflationary period with full employment or near-full employment,
Given Answer: lower disbursements for unemployment compensation will
moderate inflation
Correct Answer: lower disbursements for unemployment compensation will
moderate inflation


Given Answer: increase spending and hold taxes

are known as
Given Answer: automatic stabilizers

Given Answer: public works require using a large amount of capital goods and

Given Answer: monetizing the debt


Given Answer: the government budget

Given Answer: frictional unemployment
Unemployment
Given Answer: usually increases whenever real GDP decreases

The U.S. civilian labor force does not include
Given Answer: members of the armed services
Correct Answer: members of the armed services

The Employment Act of 1946, passed by the U.S. Congress after World War II,
Given Answer: made the U.S. government responsible for achieving and
maintaining full employment
Correct Answer: made the U.S. government responsible for achieving and


Given Answer: gave no specific definition for maximum employment

The Full Employment and Balanced Growth Act of 1978
Given Answer: set the goals for the U.S. economy as 4 percent unemployment by
Correct Answer: set the goals for the U.S. economy as 4 percent unemployment by

endeavor to
Given Answer: stabilize prices

The increased entry of women and young people into the U.S. labor force from 1960-
1980 led to
Given Answer: reduced unemployment
Correct Answer: reduced unemployment

Given Answer: declined as a percentage of the labor force
Among the world's major industrial countries, the nation with the lowest
unemployment rate is
Given Answer: Japan

The natural rate of unemployment corresponds roughly to the sum of
Given Answer: frictional unemployment plus structural unemployment

Given Answer: more prevalent in countries with modern banking systems

example of
Given Answer: random fluctuation

Given Answer: increase because of higher sales and higher prices

Given Answer: held in disrepute by most economists

Which of the following is not a phase of the business cycle?
Given Answer: compression
Correct Answer: compression


During the trough of the business cycle
Given Answer: little investment in plant and equipment occurs
Correct Answer: all of the above occur

Given Answer: prices rise faster than costs

Given Answer: costs and prices move simultaneously

Given Answer: monetary

A recession is defined as a period when the
Given Answer: real GDP falls by at least 5 percent in a single quarter
Correct Answer: real GDP falls for two consecutive quarters

Selected Answer: both monetary and fiscal policies

An advantage of a transfer payments over public works as a means of reducing
unemployment is that transfer payments
Selected Answer: generate more secondary and tertiary employment
Correct Answer: provide more direct aid to those suffering most from
unemployment

Selected Answer: the taxes may absorb funds that would otherwise be used for


The policies of the New Deal in the 1930s, is an effort to alleviate unemployment,
paralleled those of
Selected Answer: Keynesian analysis

are known as
Selected Answer: automatic stabilizers

Selected Answer: expansionary policies

Selected Answer: the government budget


Selected Answer: slowing effect on the economy that results from a government
budget surplus
budget surplus

Selected Answer: sluggish production combined with inflation

Selected Answer: the positive effect of increased government spending is offset by
a reduction in private spending

referred to as
Selected Answer: an equal distribution of income
Correct Answer: an equal distribution of income

One of the problems with official poverty statistics is that they
Selected Answer: omit in-kind transfers, such as food stamps
Correct Answer: omit in-kind transfers, such as food stamps

Which of the following contributes to income inequality?
Selected Answer: discrimination

Selected Answer: South
Selected Answer: 20 percent of aggregate income

Selected Answer: upward sloping line from the origin

Selected Answer: Lorenz curve

Selected Answer: a family

Selected Answer: information
Selected Answer: 1960s

Selected Answer: cumulative percent of income on the vertical axis and the

If income were distributed equally, the Gini coefficient would
Selected Answer: equal zero
Correct Answer: equal zero

indicates
Selected Answer: the poorest twenty percent of families

Selected Answer: U.S. President

Selected Answer: 4 percent


Selected Answer: declined as a percentage of the labor force

In recent years the highest rate of unemployment among U.S. adults has been among
Selected Answer: adult males
Correct Answer: adult males
Which type of unemployment is the most difficult to cure?
Selected Answer: structural

Unemployment
Selected Answer: usually decreases whenever nominal GDP increases

Selected Answer: under age 16

Since 1930, U.S. agriculture employment
Selected Answer: has decreased while agricultural output also has decreased
Correct Answer: has decreased while agricultural output has increased


Selected Answer: an increase in the percentage of females

endeavor to
Selected Answer: stabilize prices

Selected Answer: seasonal variations

Selected Answer: period of decline in real GDP over two consecutive quarters

Selected Answer: a devaluation in the nation's currency
Correct Answer: a devaluation in the nation's currency

Which of the following is not a phase of the business cycle?
Selected Answer: compression
Correct Answer: compression
Selected Answer: more prevalent in countries with modern banking systems

Selected Answer: spending and saving

The highest and lowest levels of economic activity during the business cycle are
called
Selected Answer: nadirs and zeniths
Correct Answer: peaks and troughs


Selected Answer: psychological

Selected Answer: increase because of higher sales and higher prices

example of
Selected Answer: random fluctuation

are known as
Selected Answer: automatic stabilizers
Correct Answer: fiscal dividends

action
Selected Answer: decreases the multiplier to one
Government policies designed to decrease the marginal propensity to consume would
promote maximum output.

The Kennedy administration’s guidepost for wage increases was related to
Selected Answer: productivity increases
Correct Answer: productivity increases


Selected Answer: borrowing from banks is more effective than borrowing from the

The major economic problem faced by President Ford’s administration was
stagflation.
During the Great Depression, the rate of unemployment in the United States reached
a high of

Jawboning by the Carter Administration proved to be an unsuccessful contractionary
policy.

budget surplus
c unemployment,
a. monetary and fiscal policies are likely to be equally effective

b. monetary policy is likely to be more effective than fiscal policy
*c. fiscal policy is likely to be more effective than monetary policy
d. laissez-faire policy is likely to be most effective
budget surplus
c unemployment,


Selected Answer: deficit budget

Compared to its position during the late 1970s, the Phillips curve for the U.S.
economy in the 1980s appeared to
Selected Answer: shift to the right
Correct Answer: shift to the left

Selected Answer: above the market wage

The natural rate of unemployment never changes.

Increases in the federal minimum wage directly affects only a small percentage of
U.S. workers.

The Humphrey-Hawkins Act’s target rates for unemployment and inflation were
reached by their target date of 1983.

Selected Answer: full-employment unemployment rate

Selected Answer: telephone survey

The Employment Act of 1946 does not require that the administration in office
should endeavor to

The Employment Act of 1946 set a specific annual inflation rate target of 3 percent.

Much of the unemployment associated with recessions is cyclical in nature.

Foreign outsourcing refers to the
Selected Answer: selling of Treasury bonds to foreigners
Correct Answer: exporting of domestic jobs

of


Stabilizing measures by the federal government eliminate the business cycle.

Selected Answer: the United States has experienced ten major cycles since World
War II
War II


The theory of rational expectations is classified as a psychological cause of the
business cycle.


A noticeable drop in the level of business activity is known as a
Selected Answer: recession
Correct Answer: contraction

cycle.



The measurement of a business cycle is obtained by adjusting the real GDP for
seasonal variation, the trend, and random fluctuations.

Selected Answer: income equals production, but not all income is used for current
purchasing power
purchasing power


Which of the following categories of business cycle theories includes the theory of
“real business cycles?”
Selected Answer: physical

The poverty rate for female householders without a husband present exceeds the
poverty rate for blacks and Hispanics.


Welfare caseloads tend to fluctuate with
Selected Answer: business cycles
Correct Answer: business cycles

Unemployment insurance is a form of in-kind transfer payment to reduce poverty.

Labor market discrimination on the basis of sex or race is usually person-specific
rather than a general labor practice.
Selected Answer: differing economic opportunities offered to persons according to
their productivity

Selected Answer: inflation


The poverty rate for blacks is almost three times that for whites.


According to the rational expectations theory,
Selected Answer: the easy expansion of the money supply by banks eventually
leads to excess productive capacity
Correct Answer: the expected results of government anticyclical measures are offset
by the actions of businesses and individuals

A hurricane is considered an external force in business cycle analysis.

Cost changes generally lag behind price changes during the business cycle.

Selected Answer: the trend



The period when the level of business activity has dropped as far as it is going to
drop in a particular business cycle is known as the trough.


Selected Answer: spending and saving

Selected Answer: costs lag behind prices


Interest rates usually rise during the contraction phase of the business cycle.



The highest unemployment rate in the United States in recent years has been among
adult females.

The federal minimum wage law seeks to
Selected Answer: create a floor for wages
Correct Answer: create a floor for wages

Selected Answer: higher than the full-employment rate of unemployment


The demand for unskilled workers has been growing as a percent of total U.S. labor
force in recent years.


The full-employment unemployment rate is identical to the inflation threshold rate of
unemployment.

The labor force participation rate is
Selected Answer: the civilian labor force as a percentage of the total labor force
Correct Answer: the civilian labor force as a percentage of the civilian
noninstitutional population

Maximum employment was not defined in the Employment Act of 1946.

The total U.S. labor force excludes members of the armed services stationed outside
the United States.

Service-oriented jobs make up more than three-quarters of total employment in the
U.S. labor force.

determine poverty.



Selected Answer: 3.4 percent of aggregate income

The biggest disincentive to employment for those on welfare is the effect of taxes as
they earn income.

referred to as a(n)

Selected Answer: indicate greater inequality for wealth than income

Household wealth is defined as income minus liabilities.





The only way the government can engage in deficit spending is by increasing
spending while holding or decreasing taxes.

Out-of-control inflation that creates severe economic distortions is known as
Selected Answer: deflation
Correct Answer: hyperinflation

Selected Answer: monetizing the debt

Selected Answer: investment spending to accelerate


An advantage of transfer payments over public works as a means of reducing
Selected Answer: are unlikely to decrease unintended excess inventories of
consumer goods
unemployment

In the late 1960s, a 10 percent surcharge on U.S. personal and corporate income taxes
was imposed as an expansionary measure.
Investment tax credits are a monetary policy device.



If the government wants to generate a surplus as a contractionary measure, the most
effective method of doing so is to
Selected Answer: increase taxes and hold or decrease spending
Correct Answer: increase taxes and hold or decrease spending

Government policies designed to lower aggregate demand in order to combat
Selected Answer: contractionary policies
Correct Answer: contractionary policies
During the 1990–1991 recession, the U.S. government’s large budget deficits and
budget reduction commitments limited its ability to use fiscal policy to stimulate the
economy.

The U.S. experience with expansionary measures from 1930 to 1945
Selected Answer: repudiated the pump-priming theory
Correct Answer: repudiated the pump-priming theory


If the government builds a dam, as opposed to spending more on welfare payments, it
will have a greater multiplier effect.

Deflation and disinflation are synonymous terms.

Unemployment compensation is an example of an automatic economy stabilizer.

A major weakness of using public works as an expansionary device involves the long
period of time needed to plan and begin the project.

If government spending is used to bolster the level of economic activity, the type of
financing available to the U.S. government that would increase aggregate spending
the most is
Selected Answer: borrowing from banks
Correct Answer: borrowing from banks


The trade-off between unemployment and inflation is usually shown by the
Selected Answer: Phillips curve
Correct Answer: Phillips curve


The progressive income tax serves as an automatic stabilizer for the U.S. economy.

Stagflation suggests a rate of inflation near zero.

According to the Department of Commerce, a person living alone constitutes a
single-person family.
If the percentage of the population that is below the poverty line has decreased, then
the number of
Selected Answer: poor may have increased
Correct Answer: poor may have increased



Statistics indicate that because of government transfer programs, households in the
four lower quintiles now receive a much larger share of aggregate income than in
1970.

The poverty threshold line for a family of four in 2004 was
Selected Answer: between $10,000 and $15,000
Correct Answer: about $19,200

Selected Answer: wage differentials based on productivity differences

For many welfare recipients, taking a job reduces income.


If income were distributed solely according to productivity, some individuals would
not receive any income.

Although the number of jobs requiring computer knowledge has increased, these jobs
are found primarily in low-wage industries.
Selected Answer: information

Selected Answer: contraction

Through 2005, the most serious U.S. trough since the Great Depression was the one
that occurred in
Selected Answer: 1974–1975


A hurricane is considered an external force in business cycle analysis.
Selected Answer: prices rise faster than costs



States.

An example of an external force affecting the business cycle is
Selected Answer: a change in business attitudes toward investment
Correct Answer: a change in the discount rate by the Fed


Inventory depletion can lead to increased production.

The period when the level of business activity has dropped as far as it is going to
drop in a particular business cycle is known as the trough.


of

The total U.S. labor force excludes members of the armed services stationed outside
the United States.

Unemployment caused by an imbalance between the skills possessed by workers and
the skills demanded in labor markets is known as
Correct Answer: structural unemployment

Selected Answer: an increase in the percentage of females

The Employment Act of 1946 makes the government responsible for maintaining
maximum employment, production, and purchasing power.

The idea of the natural rate of unemployment is that
Selected Answer: the market system requires that a pool of unemployed people be
available to limit the power of workers
Correct Answer: frictional and structural causes prevent employment in the
economy from ever becoming 100 percent of the labor force

underemployed.

A sizable part of increases in the U.S. labor force in the past few decades has been
due to the influx of women.

Selected Answer: U.S. President
Frictional unemployment is caused primarily by automation.
Name Exam 4
Status Completed
incorrect.

are known as
Selected Answer: fiscal dividends

action
Selected Answer: decreases the multiplier to one

Government policies designed to decrease the marginal propensity to consume would
promote maximum output.


Selected Answer: borrowing from banks is more effective than borrowing from the

The major economic problem faced by President Ford’s administration was
stagflation.

During the Great Depression, the rate of unemployment in the United States reached
a high of
policy.

budget surplus
c unemployment,

budget surplus
c unemployment,


Selected Answer: deficit budget

Compared to its position during the late 1970s, the Phillips curve for the U.S.
economy in the 1980s appeared to
Selected Answer: shift to the right
Correct Answer: shift to the left

Selected Answer: above the market wage


Increases in the federal minimum wage directly affects only a small percentage of
U.S. workers.




should endeavor to


Much of the unemployment associated with recessions is cyclical in nature.

Foreign outsourcing refers to the
Selected Answer: selling of Treasury bonds to foreigners
Correct Answer: exporting of domestic jobs

of



Selected Answer: the United States has experienced ten major cycles since World
War II
War II


business cycle.


Selected Answer: recession

cycle.



The measurement of a business cycle is obtained by adjusting the real GDP for
seasonal variation, the trend, and random fluctuations.

Selected Answer: income equals production, but not all income is used for current
purchasing power
purchasing power





Welfare caseloads tend to fluctuate with
Selected Answer: business cycles
Correct Answer: business cycles



Selected Answer: differing economic opportunities offered to persons according to
their productivity


The poverty rate for blacks is almost three times that for whites.



The increased entry of women and young people into the U.S. labor force from
1960–1980 led to
Selected Answer: a more experienced workforce
Correct Answer: increased unemployment


Selected Answer: the employed labor force

Unemployment caused by automation would be broadly classified as
Selected Answer: cyclical

Selected Answer: black workers

All people in the noninstitutional population are counted as members of the labor
force.


The Employment Act of 1946, passed by the U.S. Congress after World War II,
Selected Answer: made the U.S. government responsible for achieving and
Correct Answer: made the U.S. government responsible for achieving and

is the
Selected Answer: Council of Economic Advisers
Which of the following statements concerning the Humphrey-Hawkins Act’s
Selected Answer: the unemployment rate was met but not the inflation target
Correct Answer: neither was met by 1983


In terms of its ability to combat inflation, the most effective restraint on installment
loans would require a
Selected Answer: higher down payment and longer loan maturity
Correct Answer: higher down payment and shorter loan maturity

During an inflationary period, the Federal Reserve is most likely to
Selected Answer: lower reserve requirements

Stagflation suggests a rate of inflation near zero.
are held constant.

If the government wants to generate a surplus as a contractionary measure, the most
effective method of doing so is to
Selected Answer: increase taxes and hold or decrease spending
Correct Answer: increase taxes and hold or decrease spending



Fiscal policy is likely to be more effective than monetary policy when used to
increase aggregate demand during periods of serious unemployment.
The Reagan administration’s Economic Recovery Tax Act of 1981
Selected Answer: eliminated tax credits on new investment
Correct Answer: reduced the top marginal income tax rate

The Federal Reserve usually increases interest rates during inflationary periods.

A decrease in the economy’s capacity utilization rate
Selected Answer: has no impact on the unemployment rate

Changing the discount rate is a tool of fiscal policy.


One of the problems with official poverty statistics is that they
Selected Answer: omit in-kind transfers, such as food stamps
Correct Answer: omit in-kind transfers, such as food stamps

1970.


As incomes rise, transfer benefits to the poor decrease.

Nonfamily households earn less than 50 percent of the income earned by family
households.

Selected Answer: net worth


Selected Answer: is another way of expressing income inequality


Selected Answer: upward sloping line from the origin

A minimum wage rate job raises a family out of poverty.


Measuring the intensity of the business cycle requires
Selected Answer: eliminating seasonal variations and identifiable random forces
from the data
Correct Answer: eliminating seasonal variations and identifiable random forces
from the data

Selected Answer: prices rise faster than costs

During a trough in the business cycle, the economy eventually reaches the bottleneck
stage.

Selected Answer: contraction

The impact of the 2005 hurricanes in Florida would be an example of a random
fluctuation in business activity.

During the trough of the business cycle,
Selected Answer: consumers postpone purchases of durable goods

Which of the following rises during a contraction and falls during the expansion
phase of the business cycle?
Selected Answer: unemployment
Correct Answer: unemployment

States.


example of
Selected Answer: random fluctuation



Selected Answer: increase because of higher sales and higher prices
Name Exam 4
Status Completed
incorrect.

During the trough of the business cycle,

Which of the following would not be considered an internal force that helps move the
economy out of a trough?
Selected Answer: the replacement of depleted inventories
Correct Answer: higher interest rates



The underinvestment theory is classified as a monetary cause of the business cycle.
movements.


A recession occurs whenever there’s a decline in real GDP for two or more
successive quarters.

The roughly coincident indicators have their upward and downward turning points
prior to the upward and downward turning points of real GDP.


business cycle.

Measuring the intensity of the business cycle requires
Selected Answer: eliminating seasonal variations and identifiable random forces
from the data
Correct Answer: eliminating seasonal variations and identifiable random forces
from the data

Selected Answer: the employed labor force

underemployed.
A sizable part of increases in the U.S. labor force in the past few decades has been
due to the influx of women.

The Employment Act of 1946 set a specific unemployment rate target of 4 percent.

Today, the U.S. unemployment rate among black teenagers is
Selected Answer: the highest rate among all U.S. workers
Correct Answer: the highest rate among all U.S. workers

is the
Selected Answer: Council of Economic Advisers

Selected Answer: under age 16

The natural rate of unemployment is the rate of unemployment we would expect to
find
Selected Answer: when there is no inflation in the economy
Correct Answer: when all unemployment is structural or frictional

If you are “between jobs,” you are considered to be
Selected Answer: frictionally unemployed
Correct Answer: frictionally unemployed

should endeavor to

During an inflationary period, the Federal Reserve is most likely to

In terms of its ability to combat inflation, the most effective restraint on installment
loans would require a
Selected Answer: higher down payment and shorter loan maturity
Correct Answer: higher down payment and shorter loan maturity

paralleled those of
Selected Answer: Keynesian analysis


Wage and price controls were imposed on the U.S. economy to suppress inflation in
1972.
A decrease in the economy’s capacity utilization rate
Selected Answer: tends to increase the unemployment rate


Debtors tend to benefit more from inflation than creditors do.

The U.S. economy failed to achieve full employment levels of output during the
1960s despite increased government spending

Keynesian analysis provides the basis for demand-management policies designed to
stimulate high levels of employment.
If the government must borrow during an inflationary period, it is less inflationary to
borrow idle funds rather than funds that would otherwise be spent.

During the 1990–1991 recession, the U.S. government’s large budget deficits and
budget reduction commitments limited its ability to use fiscal policy to stimulate the
economy.

The U.S. experience between 1931 and 1945 indicated that transfer payments combat
unemployment better than spending on public works.

Union membership in the United States has fallen to less than 15 percent of the
workforce.


Because their earnings are highest, married couples between the ages of 35-54 hold
the largest share of wealth in the United States.

Selected Answer: family
Correct Answer: family

Selected Answer: 3.4 percent of aggregate income

1970.


distribution?
Selected Answer: the percentage of income going to the lowest 20 percent of
households
households

In discussing the distribution of income among families, the term “lowest fifth”
indicates
Selected Answer: the smallest twenty percent of families

Selected Answer: indicate greater inequality for wealth than income


Selected Answer: is another way of expressing income inequality
Name Exam 4
Status Completed
incorrect.

Involuntary inventory accumulation may occur during the contracting phase of the
business cycle.

The impact of the 2005 hurricanes in Florida would be an example of a random

An example of an external force affecting the business cycle is
Selected Answer: a change in the discount rate by the Fed
Correct Answer: a change in the discount rate by the Fed

movements.



Through 2005, the most serious U.S. trough since the Great Depression was the one
that occurred in

Which of the following would not be considered an internal force that helps move the
economy out of a trough?
Selected Answer: higher interest rates
Correct Answer: higher interest rates

A recession occurs whenever there’s a decline in real GDP for two or more

Selected Answer: the trend

As the economy moves into the trough of the business cycle, there is a sizable
reduction in the output of capital goods.



The farther the Lorenz curve bows away from the line of income inequality, the
greater is the inequality of income distribution.


Selected Answer: differing economic opportunities based on personal
characteristics



The biggest disincentive to employment for those on welfare is the effect of taxes as
they earn income.

determine poverty.

Which of the following is a disincentive to leave welfare?
Selected Answer: decrease in real income
Correct Answer: decrease in real income


Selected Answer: have a value of 1

The Lorenz curve shows
Selected Answer: how income is distributed
Correct Answer: how income is distributed
According to the U.S. Department of Commerce, all persons, unrelated or related,
Selected Answer: an extended family unit

U.S. workers tend to be both geographically and occupationally immobile.

Because of increases in the minimum wage, new entrants into the labor force find it
easier to find employment.

Today, the full-employment unemployment rate in the United States is generally
agreed to be

The natural rate of employment corresponds roughly to the sum of
Selected Answer: cyclical unemployment plus structural unemployment
Which of the following has not been outsourced from the U.S.?
Selected Answer: residential construction
Correct Answer: residential construction


Many economists believe that increases in the minimum wage tend to create a labor
surplus.


of
The Full Employment and Balanced Growth Act of 1978 is also known as the Deficit
Reduction Act.

Selected Answer: the entry of more women into the labor force

unemployment.

Selected Answer: investment spending to accelerate

Selected Answer: target funds that would otherwise be spent on consumption or
investment
investment


During an inflationary period caused by excessive aggregate expenditure, which type
of government budget would most effectively combat inflation?
Selected Answer: a surplus budget
Correct Answer: a surplus budget


Selected Answer: increase spending and hold taxes

policy.

President Carter adopted voluntary wage and price standards as a means of
combating inflation.

The Phillips curve shows the trade-off between
Selected Answer: inflation and interest rates
Correct Answer: unemployment and inflation

are held constant.

An advantage of transfer payments over public works as a means of reducing
Selected Answer: provide more direct aid to those suffering most from
unemployment
unemployment
Credit restrictions that increase the size of down payments and shorten loan
maturities promote economic expansion.

A major force leading the U.S. economy to full employment after the Great
Depression was
Selected Answer: government spending for World War II
Correct Answer: government spending for World War II

(ECON125-HK2) > EXAMS > REVIEW ASSESSMENT: EXAM 4
User Hon Fai Yeung
Name Exam 4
Status Completed
incorrect.

Correct A recession occurs whenever there’s a decline in real GDP for two or more
Question 1 answers

Correct The impact of hurricanes on the level of business activity in North Carolina
is an example of
Question 2 answers
Selected Answer: Correct random fluctuation
Correct Answer: Correct random fluctuation

Correct The term “recession” refers to a
Question 3 answers
Selected Answer: Correct period of decline in real GDP over two consecutive
quarters
Correct Answer: Correct period of decline in real GDP over two consecutive
quarters

Correct During the expansion phase of the business cycle, profit margins increase
due to a widening cost-price relationship.
Question 4 answers

Correct In the pattern of the business cycle, generally
Question 5 answers
Selected Answer: Correct costs lag behind prices
Correct Answer: Correct costs lag behind prices

Correct Agricultural explanations of the business cycle are not as important today as
they were 50 to 75 years ago, because today
Question 6 answers
Selected Answer: Correct agricultural production is a smaller portion of the total
economy
Correct Answer: Correct agricultural production is a smaller portion of the total
economy

Correct Economists use the phrase “business cycle” when discussing
Question 7 answers
Selected Answer: Correct fluctuations in total output around the trend
Correct Answer: Correct fluctuations in total output around the trend
Correct The long-run average change in real GDP is known as
Question 8 answers
Selected Answer: Correct the trend
Correct Answer: Correct the trend

Correct Changes in the level of inventories are an internal force in the economy’s
cyclical movements.
Question 9 answers

Correct Population growth and wars are examples of external forces affecting the
economy’s cyclical movements.
Question 10 answers

Correct During the contraction phase of the business cycle,
Question 11 answers
Selected Answer: Correct prices fall relative to costs, reducing profit margins
Correct Answer: Correct prices fall relative to costs, reducing profit margins

Correct Since the Great Depression, business cycles have not been an issue in the
United States.
Question 12 answers

Correct The underconsumption theory is classified as a real or physical cause of the
business cycle.
Question 13 answers

Incorrect A drop in the rate of inflation is known as
Question 14 answers
Selected Answer: Incorrect deflation
Correct Answer: Correct disinflation

Correct Debtors tend to benefit more from inflation than creditors do.
Question 15 answers

Correct Investment tax credits are a monetary policy device.
Question 16 answers

Correct The U.S. recession in 1974–1975 was characterized by stagflation.
Question 17 answers

Correct The Federal Reserve usually increases interest rates during inflationary
periods.
Question 18 answers

Correct During the 1990–1991 recession, the U.S. government’s large budget
deficits and budget reduction commitments limited its ability to use fiscal policy to
stimulate the economy.
Question 19 answers

Incorrect The Economic Recovery Tax Act of 1981 reduced personal income taxes by
25 percent over a three-year period.
Question 20 answers

Correct The U.S. economy failed to achieve full employment levels of output during
the 1960s despite increased government spending
Question 21 answers

Correct Forces within the economy that naturally tend to counteract recessions and
Question 22 answers
Selected Answer: Correct automatic stabilizers
Correct Answer: Correct automatic stabilizers

Correct Cost-push inflation is characterized by
Question 23 answers
Selected Answer: Correct the wage-price spiral
Correct Answer: Correct the wage-price spiral

Correct Keynesian analysis does not offer an adequate framework for dealing with
Question 24 answers
Selected Answer: Correct both (b) and (c)
Correct Answer: Correct both (b) and (c)

Correct Demand-pull inflation occurs whenever the economy is at full employment
and total demand for goods and services
Question 25 answers
Selected Answer: Correct is greater than total supply
Correct Answer: Correct is greater than total supply

Correct Crowding out occurs when unemployment compensation increases and
income taxes are held constant.
Question 26 answers

Correct By the late 1950s, the unemployment rate generally accepted as consistent
with full employment was about
Question 27 answers
Selected Answer: Correct 4 percent
Correct Answer: Correct 4 percent

Correct The official rate of unemployment is based on a(n)
Question 28 answers
Selected Answer: Correct telephone survey
Correct Answer: Correct telephone survey

Correct A sizable part of increases in the U.S. labor force in the past few decades
has been due to the influx of women.
Question 29 answers

Correct The highest unemployment rate in the United States in recent years has been
among adult females.
Question 30 answers

Correct In recent years, the highest rate of unemployment among U.S. adults has
been among
Question 31 answers
Selected Answer: Correct black workers
Correct Answer: Correct black workers

Correct All people in the noninstitutional population are counted as members of the
labor force.
Question 32 answers

Correct Many economists believe that increases in the minimum wage tend to create
a labor surplus.
Question 33 answers

Incorrect Foreign outsourcing refers to the
Question 34 answers
Selected Answer: Incorrect selling of Treasury bonds to foreigners
Correct Answer: Correct exporting of domestic jobs

Incorrect Which type of unemployment is most likely to fall as a result of government
policies that stimulate aggregate demand?
Question 35 answers
Selected Answer: Incorrect natural unemployment
Correct Answer: Correct cyclical unemployment

Correct Which of the following types of workers has decreased as a percentage of
the U.S. labor force in recent decades?
Question 36 answers
Selected Answer: Correct unskilled workers
Correct Answer: Correct unskilled workers

Correct The total labor force includes all persons in the noninstitutional population
who are either working or seeking work.
Question 37 answers

Correct Since 1970, U.S. union membership has
Question 38 answers
Selected Answer: Correct declined as a percentage of the labor force
Correct Answer: Correct declined as a percentage of the labor force

Correct The biggest disincentive to employment for those on welfare is the effect of
taxes as they earn income.
Question 39 answers

Correct In 2004, the top 5 percent of households earned approximately
Question 40 answers
Selected Answer: Correct 50 percent of aggregate income
Correct Answer: Correct 50 percent of aggregate income

Correct If the percentage of the population that is below the poverty line has
decreased, then the number of
Question 41 answers
Selected Answer: Correct poor may have increased
Correct Answer: Correct poor may have increased
Correct The Lorenz curve measures the degree to which incomes are distributed.
Question 42 answers

Correct Which of the following statements is not true?
Question 43 answers
Selected Answer: Correct since service industries are less likely to use technology,
they are more likely to be unionized
Correct Answer: Correct since service industries are less likely to use technology,
they are more likely to be unionized

Correct As incomes rise, transfer benefits to the poor decrease.
Question 44 answers

Correct If everyone had the same income, the Lorenz curve would become the line
of income equality.
Question 45 answers

Correct The Lorenz curve of perfect equality is a
Question 46 answers
Selected Answer: Correct upward sloping line from the origin
Correct Answer: Correct upward sloping line from the origin

Correct The federal government employs an absolute rather than a relative measure
to determine poverty.
Question 47 answers

Correct In 2004, households with incomes less than $22,629 received
Question 48 answers
Selected Answer: Correct 3.4 percent of aggregate income
Correct Answer: Correct 3.4 percent of aggregate income

Correct The poverty rate for female householders without a husband present
exceeds the poverty rate for blacks and Hispanics.
Question 49 answers

Correct Poverty is a condition that randomly strikes all members of the population
equally.
Question 50 answers
OK

User Kit Wah Lam
Name Exam 4
Status Completed
Correct The progressive income tax serves as an automatic stabilizer for the U.S. economy.
Question 1 answers
Incorrect In the past few decades, the United States has not experienced any extended periods of
Question 2 answers
Selected Answer: Incorrect demand-pull inflation
Correct Answer: Correct deflation
Correct The U.S. economy failed to achieve full employment levels of output during the 1960s
despite increased government spending
Question 3 answers
Correct If the government must borrow during an inflationary period, it is less inflationary to
borrow idle funds rather than funds that would otherwise be spent.
Question 4 answers

Correct To combat inflation, President Nixon resorted to
Question 5 answers
Selected Answer: Correct compulsory wage and price controls
Correct Answer: Correct compulsory wage and price controls
Correct Several Latin American nations suffered from hyperinflation during the 1980s and
1990s.
Question 6 answers
Correct Compared to its position during the late 1970s, the Phillips curve for the U.S. economy
in the 1980s appeared to
Question 7 answers
Selected Answer: Correct shift to the left
Correct Answer: Correct shift to the left
Correct One lesson learned from the U.S. deficit spending of the 1930s was that direct spending
for transfer payments stimulated the economy more than spending on public works.
Question 8 answers

Correct The only way the government can engage in deficit spending is by increasing spending
while holding or decreasing taxes.
Question 9 answers
Incorrect Which of the following situations prevailed in the United States in the early 1990s?
Question 10 answers
Selected Answer: Incorrect the Bush Administration wanted higher interest rates
Correct Answer: Correct the Fed and the Bush Administration were at odds about interest rates
Correct If the government finances increased spending strictly through higher taxes, this action
Question 11 answers
Selected Answer: Correct decreases the multiplier to one
Correct Answer: Correct decreases the multiplier to one
Correct During the Great Depression, the rate of unemployment in the United States reached a
high of
Question 12 answers
Selected Answer: Correct 25 percent
Correct Answer: Correct 25 percent
Correct Forces within the economy that naturally tend to counteract recessions and inflation are
known as
Question 13 answers
Selected Answer: Correct automatic stabilizers
Correct Answer: Correct automatic stabilizers
Correct The federal government employs an absolute rather than a relative measure to
determine poverty.
Question 14 answers
Correct Statistics indicate that because of government transfer programs, households in the four
lower quintiles now receive a much larger share of aggregate income than in 1970.
Question 15 answers
Correct Geographically, a higher percentage of the poor live in the
Question 16 answers
Selected Answer: Correct South
Correct Answer: Correct South
Correct The Lorenz curve measures the per capita annual income of individuals.
Question 17 answers

Correct The federal government began to measure poverty in the
Question 18 answers
Selected Answer: Correct 1960s
Correct Answer: Correct 1960s
Correct The biggest disincentive to employment for those on welfare is the effect of taxes as
they earn income.
Question 19 answers
Correct The New Economy is one of
Question 20 answers
Selected Answer: Correct information
Correct Answer: Correct information
Correct Which of the following can you determine from a Lorenz curve of U.S. income
distribution?
Question 21 answers
Selected Answer: Correct the percentage of income going to the lowest 20 percent of
households
Correct Answer: Correct the percentage of income going to the lowest 20 percent of households
Correct Channeling people according to sex or race into particular occupations tends to
Question 22 answers
Selected Answer: Correct lower the wage rate in these occupations
Correct Answer: Correct lower the wage rate in these occupations
Correct If new highly progressive tax laws are enacted, the resulting Lorenz curve will move to
the right-hand corner of the graph.
Question 23 answers
Correct Welfare caseloads tend to fluctuate with
Question 24 answers
Selected Answer: Correct business cycles
Correct Answer: Correct business cycles
Correct Because their earnings are highest, married couples between the ages of 35-54 hold the
largest share of wealth in the United States.
Question 25 answers
Correct The level of business activity at any time is affected by the trend, seasonal variations,
random fluctuations, and cyclical fluctuations.
Question 26 answers
Correct The U.S. economy has experienced no minor cycles since World War II.
Question 27 answers
Correct Measuring the intensity of the business cycle requires
Question 28 answers
Selected Answer: Correct eliminating seasonal variations and identifiable random forces
from the data
Correct Answer: Correct eliminating seasonal variations and identifiable random forces from the
data
Incorrect According to monetary theories of the business cycle, fluctuations are
Question 29 answers
Selected Answer: Incorrect less prevalent in those countries with modern banking systems
c 13) Monetary theorists maintain that to eliminate the business cycle, it is necessary to eliminate
a. money
b. currency
*c. bank creation of checkable deposits
d. bank reserves
Correct Answer: Correct more prevalent in countries with modern banking systems
Correct Which of the following is not a phase of the business cycle?
Question 30 answers
Selected Answer: Correct compression
Correct Answer: Correct compression
Correct The long-run average change in real GDP is known as
Question 31 answers
Selected Answer: Correct the trend
Correct Answer: Correct the trend
Correct Minor cycles have fluctuations which are noticeable and severe.
Question 32 answers
Correct As the economy approaches the peak phase of the cycle, profits will tend to
Question 33 answers
Selected Answer: Correct increase because of higher sales and higher prices
Correct Answer: Correct increase because of higher sales and higher prices
Correct The impact of the 2005 hurricanes in Florida would be an example of a random
Question 34 answers
Correct The highest and lowest levels of economic activity during the business cycle are called
Question 35 answers
Selected Answer: Correct peaks and troughs
Correct Answer: Correct peaks and troughs
Correct Psychological forces have no effect on business fluctuations.
Question 36 answers
Correct A noticeable drop in the level of business activity is known as a
Question 37 answers
Selected Answer: Correct contraction

Correct Answer: Correct contraction
Correct A recession is defined as a period in which real GDP is negative for two consecutive
quarters.
Question 38 answers
Correct Since 1930, U.S. agriculture employment
Question 39 answers
Selected Answer: Correct has decreased while agricultural output has increased
Correct Answer: Correct has decreased while agricultural output has increased
Correct The natural rate of unemployment is usually
Question 40 answers
Selected Answer: Correct higher than the full-employment rate of unemployment
Correct Answer: Correct higher than the full-employment rate of unemployment
Correct The number and the percentage of U.S. workers in labor unions have decreased in the
past decade.
Question 41 answers

Correct Frictional unemployment is caused primarily by automation.
Question 42 answers
Incorrect The Council of Economic Advisers includes the Secretary of the Treasury and the
Chairman of the Federal Reserve Board.
Question 43 answers
Correct The Employment Act of 1946 makes the government responsible for maintaining
maximum employment, production, and purchasing power.
Question 44 answers
Correct If you are “between jobs,” you are considered to be
Question 45 answers
Selected Answer: Correct frictionally unemployed
Correct Answer: Correct frictionally unemployed
Correct The natural rate of employment corresponds roughly to the sum of
Question 46 answers
Selected Answer: Correct frictional unemployment plus structural unemployment
Correct Answer: Correct frictional unemployment plus structural unemployment
Incorrect The labor force participation rate describes the civilian labor force as a percentage of
the civilian noninstitutional population.
Question 47 answers
Correct The rate of unemployment that can be expected from normal frictional unemployment
in an otherwise fully employed labor force is known as the
Question 48 answers
Selected Answer: Correct full-employment unemployment rate
Correct Answer: Correct full-employment unemployment rate
Correct Which of the following statements concerning the Humphrey-Hawkins Act’s

Question 49 answers
Selected Answer: Correct neither was met by 1983
Correct Answer: Correct neither was met by 1983
Incorrect Unemployment
Question 50 answers
Selected Answer: Incorrect usually decreases whenever nominal GDP increases

Correct Answer: Correct usually increases whenever real GDP decreases
OK
Exam 5
Status Completed
incorrect.

In using the budget as an economic stabilizer, the United States has had the least
success in
Selected Answer: generating surpluses
Correct Answer: generating surpluses

The major advantage of the flat tax is its
Selected Answer: simplicity
Correct Answer: simplicity

In the United States, income is taxed only by the federal government.
Paying off the national debt brings about a(n)
Selected Answer: redistribution of income
Correct Answer: redistribution of income

When the government uses tax revenue to pay off portions of the national debt, total
purchasing power in the economy
Selected Answer: is not affected at any level
Correct Answer: remains the same but changes individually

A good tax must possess the characteristic of equality.

The U.S. national debt has declined continuously as a percentage of GDP since World
War II.

Monetizing the debt causes
Selected Answer: the money supply to contract
Correct Answer: the money supply to rise
Passing the debt on to future generations has a different impact on individuals than it
does on the total economy.

The U.S. Treasury often sells new bonds in order to raise money to pay off maturing
bonds.

In using taxes as a tool for the redistribution of income and wealth in the U.S.
economy, the government

The equality-of-sacrifice doctrine of taxation is based on the
Selected Answer: diminishing marginal utility of income
Correct Answer: diminishing marginal utility of income

A proportional tax rate
Selected Answer: remains unchanged as the tax base rises
Correct Answer: remains unchanged as the tax base rises
Unlike corporate debt, national debt possesses no productivity aspect.

Selected Answer: can have an expansionary effect on the economy if the
government finances spending with taxes on funds that would have been used for
private investment
Correct Answer: can have an expansionary effect on the economy if the government
finances spending with taxes on idle funds

The tax base is the percentage at which the tax is levied.

A loan is said to be productive if it
Selected Answer: increases the borrower’s total output and profits
Correct Answer: increases the borrower’s total output and profits

Special Drawing Rights are issued by the International Monetary Fund and are a
principal source of international reserves.
In the balance of payments, the settlement account
Selected Answer: is unrelated to the net deficit or surplus in the other accounts
Correct Answer: must exactly offset the net deficit or surplus in the other accounts

The United States devalued the dollar twice in the 1970s to alleviate the world’s
dollar shortage.

When a U.S. citizen buys goods from a foreign merchant, the goods are usually paid
for by having the U.S. citizen send a personal check or dollars directly to the exporter.

The balance of payments includes
Selected Answer: the balance on current account, plus all capital transactions and
all official transactions and the statistical discrepancy
Correct Answer: the balance on current account, plus all capital transactions and all
official transactions and the statistical discrepancy

Which of the following would cause a debit entry in the U.S. balance of payments?
Selected Answer: more U.S. citizens vacation in Austria
Correct Answer: more U.S. citizens vacation in Austria
There is a correlation between the level of economic development of a nation and the
status of its balance of trade.

Since unilateral transfers do not involve trading of goods or services, they are not
included in the current account.

Which of the following is not included in the current account of the balance of
payments?
Selected Answer: sales of military hardware to foreign governments
Correct Answer: sale of IBM stock to a foreign investor

The capital account of the balance of payments includes the purchase and sale of
physical assets but not of financial assets.

The demand curve for foreign exchange is
The Bretton Woods system
Selected Answer: put the world on a system of fixed exchange rates
Correct Answer: put the world on a system of fixed exchange rates

Although prices in the United States and France may be stable, changes in the
exchange rate between dollars and francs can make the actual cost of trade more
expensive for one or the other.

The international exchange rate system, which was set up just after World War II,
continued (with some modifications) until the
Selected Answer: middle of the Vietnam War
Correct Answer: early 1970s

An appreciation of the U.S. dollar would
Selected Answer: discourage foreigners from buying U.S. goods
Correct Answer: discourage foreigners from buying U.S. goods

The rate at which two currencies are exchanged for each other is the
Selected Answer: exchange rate
Correct Answer: exchange rate
Countries engage in trade because
Selected Answer: the exchange is mutually beneficial
Correct Answer: the exchange is mutually beneficial

As a result of a tariff on good X,
Selected Answer: domestic producers of good X are better off because they sell
more goods at a higher price
Correct Answer: domestic producers of good X are better off because they sell more
goods at a higher price

In dollar value, the United States is the largest importer in the world.

One goal of the European Common Market was to
Selected Answer: discourage the free movement of capital and labor among
member nations
Correct Answer: abolish tariffs and import quotas among the member nations

A trading block that includes the United States, Mexico, and Canada was established
by the
Selected Answer: North American Free Trade Agreement
Correct Answer: North American Free Trade Agreement

Exports from China into the U.S. have most seriously impacted the
Selected Answer: automobile industry
Correct Answer: furniture industry

During the Uruguay round of GATT negotiations, the United States sought to
Selected Answer: liberalize trade in agricultural products
Correct Answer: liberalize trade in agricultural products

The principle of comparative advantage holds that nations should
Selected Answer: specialize in activities for which they have the lowest opportunity
cost
Correct Answer: specialize in activities for which they have the lowest opportunity
cost

CAFTA is an organization comprised of six South American countries.

Although political arguments strongly favor free trade, most decisions affecting
international trade are made in the economic arena.

Beginning in 2002, Economic Monetary Union members no longer print their own
money.

The United States exports more to the Economic Union than it imports.

A tariff is a
Selected Answer: tax on exports
Correct Answer: tax on imports

Consider a country that initially does not interfere with imports of a given good. If
the government then imposes a tariff on that good, the supply curve
Selected Answer: slopes upward less steeply
Correct Answer: shifts upward

Historically, the international trade policies of the United States favored many import
restrictions until the early 1930s.

The 1992 plan of the European Union calls for
Selected Answer: the complete mobility of economic resources across EU borders
Correct Answer: the complete mobility of economic resources across EU borders

A provision that permits raising tariffs if domestic producers are suffering under an
existing tariff is known as
Selected Answer: antidumping
Correct Answer: an escape clause



The dollar shortage of the 1950s came about because the economies of foreign
countries became competitive with the United States.

The International Monetary Fund was established to stabilize exchange rates and to
provide temporary assistance to nations with deficit balance of payments.

The balance of trade includes
Correct Answer: only merchandise exports and imports

If the rate of exchange between the U.S. dollar and the British pound were 1.00 to
$2.00, then a U.S. tourist buying a British product costing 600 would need to
exchange dollars in the amount of

The settlement account of the balance of payments
Correct Answer: explains how the balance-of-payments deficit or surplus was
financed

A credit item on the U.S. balance of payments is an item that
Correct Answer: causes foreigners to use up their U.S. dollars

Under a system of fixed exchange rates, excess demand for foreign currency at the
official exchange rate would cause
Correct Answer: the government to sell foreign currency to the country’s importers

In a system of managed or fixed exchange rates, the controlling
Correct Answer: is performed by the central banks of the trading nations


Meetings among the leaders of the Group of Seven nations have directed the course
of international monetary policy in the last decade.

Depreciation of the dollar means that
Correct Answer: more dollars are required to purchase foreign exchange

If the exchange rate between the U.S. dollar and the Swiss franc changes from 75
cents per Swiss franc to $1 per Swiss franc, the dollar has depreciated, since its value
has declined.

dollar shortage.

Since World War II, the importance of gold in international exchange has increased.

The Byrd Amendment
Correct Answer: allows companies to share tariff revenues

For an antidumping tariff to be imposed in the United States, competitive damage
from dumping must be shown.

The only factor determining whether a country can develop a comparative advantage
in production is the degree to which it has a highly skilled labor force.

Which of the following factors can result in a nation developing a comparative
advantage?

Which of the following countries is not a member of the Economic Monetary Union?
Correct Answer: England

The Byrd Amendment seeks to penalize foreign exporters who dump products into
the United States.


Perhaps the strongest argument for trade restrictions is that they protect U.S. workers
from low-wage foreign workers.

Maquiladoras are export-oriented plants, often along the U.S.-Mexico border, that are
exempt from paying import duties on raw materials and parts used in making final
products.

Using tariffs to support diversification of a nation’s industrial structure
Correct Answer: is based on the need to make the economy less vulnerable to
demand fluctuations for its products

In 2003, Japan restricted imports of beef from the United States because of fear of
“mad cow” disease. This an example of
Correct Answer: a technical barrier
Exporting nations generally agree to voluntary restraint agreements in order to
Correct Answer: avoid more stringent trade barriers

The Uruguay round of GATT negotiations was encumbered by strong disagreements
over reducing domestic support of agriculture and subsidies of agricultural exports.

During times of recession, retaining the domestic economy’s money at home is a
valid argument for restricting imports.

by the

The Trade Expansion Act of 1962 was not intended to
Correct Answer: protect U.S. firms from foreign competition

Since World War II, the size of the U.S. national debt relative to income
Correct Answer: decreased and then increased

The United States will face bankruptcy if the national debt ever reaches a figure
higher than its GDP.

According to the equality-of-sacrifice doctrine, proportional income taxes impose
a(n)
Correct Answer: greater sacrifice on lower-income households

A consumption tax exempts saving from taxation.
Which of the following is not a necessary characteristic for a tax to qualify as a good
tax?
Correct Answer: equality

The point at which the burden of a tax ultimately rests is known as the
Correct Answer: incidence of the tax

The effect of a tax is the same thing as the incidence of the tax.

If the tax increases as the tax base increases, the tax is said to be
Correct Answer: progressive

The government’s ability to repay the national debt is governed only by the total
assets of the economy.

The financial burden entailed in the paying of a tax is known as the
Correct Answer: impact of the tax

An excise tax can be shifted relatively easily.


A deficit budget adds to the national debt.

The gasoline tax is based on the principle of
Correct Answer: benefit received

Refunding the debt refers to
Correct Answer: selling new bonds to raise money to pay off maturing bonds


The primary function of the Export-Import Bank is to assist in
Correct Answer: financing exports from the United States

Chile has been invited to join the European Union.

A tariff designed to promote industrial development within a nation would be
classified as
Correct Answer: a protective tariff
If a tariff is used to protect U.S. jobs,
Correct Answer: income is transferred from consumers to protected producers


The most-favored-nation policy implies that the United States will
Correct Answer: extend concessions made in bilateral trade agreements to all other
nations

In a large and diversified economy like the United States, international trade usually
hurts more people domestically than it helps.

The Maastricht Agreement calls for a common currency and a single central bank in
the European Union.
An argument for tariffs that has some validity is the
Correct Answer: infant-industry argument

The rule of origin defines the maximum percentage of a country’s exported product
that can be sold in the United States.

The Trade Expansion Act of 1974 restricted the authority of the president of the
United States to reduce tariffs.

If trade between the United States and Canada were totally free of restrictions, the
incomes of most Canadian workers would decrease.

Who does not gain when a tariff is imposed?
Correct Answer: domestic consumers of the good

advantage?

Consider a tariff levied on the importer of a consumer good. The tariff is ultimately
paid by
Correct Answer: the consumer


As the price of U.S. dollars decreases, more foreign currency is required to purchase
dollars.

One factor that definitely did not contribute to the deficit in the U.S. balance of
payments during 2005 was
Correct Answer: sales of military equipment to foreign nations


In recent years, the IMF has altered its mission from one of providing long-term
loans to developing nations to one of providing short-run financial support for dealing
with balance-of-payments problems.

Under a fixed or controlled exchange rate system, if the United States wanted to
increase the value of the dollar, it could buy foreign currencies with dollars.

The Bretton Woods system included the idea of fixed exchange rates.

Correct Answer: fixed exchange rates in terms of U.S. dollars

The best way to describe the international position of the U.S. dollar during the 1980s
is
Correct Answer: rising sharply during the first half of the decade, and then falling



In an attempt to solve the problem of the overvalued dollar in the early 1970s, the
United States
Correct Answer: devalued the dollar, which made foreign exchange more expensive

Overseas investments by U.S. citizens are recorded as credit items in the capital
account of the U.S. balance of payments.


If a U.S. farmer ships grain to Italy, this constitutes a debit transaction in Italy’s
balance of payments.

As foreign currency becomes less expensive in terms of the U.S. dollar,
Correct Answer: foreign goods become cheaper to U.S. citizens

A direct tax
Correct Answer: cannot be shifted

An excise tax can be shifted relatively easily.




The value of an object on which a tax is levied is known as the
Correct Answer: tax base


success in

According to the concept of the full-employment balanced budget,
Correct Answer: tax rates and government spending programs should be set up so as
to balance the budget at the full-employment income level

The United States will face bankruptcy if the national debt ever reaches a figure
higher than its GDP.


The size of the national debt relative to GDP will not be reduced by
Correct Answer: having creditors forgive part of the debt

Relative to GDP, the U.S. national debt held by the public is now in the vicinity of

The government’s ability to repay the national debt is governed only by the total

The equality-of-sacrifice doctrine would require larger taxes from higher-income
groups.

Selected Answer: [None Given] z



Status Completed
Instructions
Clear Attempt

Given Answer: progressive
Given Answer: remains unchanged as the tax base rises

A national sales tax is a form of
Given Answer: consumption tax
Correct Answer: consumption tax

The financial burden entailed in the paying of a tax is known as
Given Answer: the impact of the tax
Correct Answer: the impact of the tax

The best example of a direct tax is
Given Answer: an income tax
Correct Answer: an income tax

If a tax is economical,
Given Answer: its cost of collection is small relative to the revenue collected
Correct Answer: its cost of collection is small relative to the revenue collected

A consumption tax is usually collected on

Given Answer: incidence of the tax

Given Answer: tax base

Given Answer: increases the borrower's total output and profits
Correct Answer: increases the borrower's total output and profits

The value added tax is a
Given Answer: indirect tax
Correct Answer: indirect tax

In the early decades of the U.S. economy, the primary purpose of taxation was to
Given Answer: cover the cost of government services
Correct Answer: cover the cost of government services
Given Answer: a greater sacrifice on lower income households
Correct Answer: a greater sacrifice on lower income households

If the government uses the budget as an economic stabilizer, the budget is most likely
to be in deficit during
Given Answer: a trough
Correct Answer: a trough

The burden of a tax on a consumer good with very inelastic demand is usually
Given Answer: shifted to the final consumer
Correct Answer: shifted to the final consumer

The equality-of-sacrifice doctrine of taxation is based on
Given Answer: the diminishing marginal utility of income
Correct Answer: the diminishing marginal utility of income

Given Answer: specialize in activities for which they have the lowest opportunity
cost
cost
Dumping refers to the practice of
Given Answer: selling a product abroad at a price below cost or below the
domestic price
Correct Answer: selling a product abroad at a price below cost or below the
domestic price

The Reciprocal Trade Agreement Act of 1934
Given Answer: was the first in a series of Congressional acts reducing tariffs
Correct Answer: was the first in a series of Congressional acts reducing tariffs

Given Answer: extend concessions made in bilateral trade agreements to all other
nations
nations

Given Answer: domestic consumers of the good

Which of the following is not a product of international trade, according to the
principle of comparative advantage?
Given Answer: fewer options for consumers
Correct Answer: fewer options for consumers
classified as
Given Answer: a protective tariff

The principle of comparative advantage is associated with
Given Answer: specialization and exchange
Correct Answer: specialization and exchange

The United States has used export subsidies to encourage the exportation of
Given Answer: agricultural products
Correct Answer: agricultural products

Given Answer: the exchange is mutually beneficial

Given Answer: liberalize trade in agricultural products
Theoretically, a tariff imposed to protect an infant industry should be removed
Given Answer: when the industry has matured
Correct Answer: when the industry has matured

advantage?

As a result of a tariff on good X
Given Answer: domestic producers of good X are better off because they sell more

Since the Civil War, the international trade policies of the United States have been
generally
Given Answer: in favor of free trade since the 1930s
Correct Answer: in favor of free trade since the 1930s

The International Bank for Reconstruction and Development is an affiliate of the
Given Answer: International Finance Corporation
Correct Answer: World Bank
Import quotas are
Given Answer: methods for reducing imports by limiting the quantity of goods that
can enter the country each year
Correct Answer: methods for reducing imports by limiting the quantity of goods that

When Japanese investors who own hotels in Hawaii receive profits from their hotel
operations, the receipt of such profits is recorded in the balance of payments as a
Given Answer: current account item
Correct Answer: current account item

The balance of payments is an accounting statement that shows, between one nation
and the rest of the world, the
Given Answer: total values of goods, services, and payments flows
Correct Answer: total values of goods, services, and payments flows

Floating exchange rates are determined by the
Given Answer: forces of supply of and demand for currencies
Correct Answer: forces of supply of and demand for currencies

Given Answer: More U.S. citizens vacation in Austria
Correct Answer: More U.S. citizens vacation in Austria
A credit in the U.S. balance of payments occurs
Given Answer: when U.S. companies sell merchandise abroad
Correct Answer: when U.S. companies sell merchandise abroad

When a U.S. citizen invests in foreign assets, the transaction is recorded in the
balance of payments as a
Given Answer: debit in the capital account
Correct Answer: debit in the capital account

Given Answer: more dollars are required to purchase foreign exchange

Given Answer: explains how the balance-of-payments deficit or surplus was
financed
financed

Given Answer: the balance on current account, plus all capital transactions and all

An example of a credit item in the U.S. balance of payments would be
Given Answer: a British tourist spending money at a U.S. nightclub
Correct Answer: a British tourist spending money at a U.S. nightclub

Given Answer: discourage foreigners from buying U.S. goods

The balance of payments and the balance of trade are
Given Answer: two different things, but one is a part of the other
Correct Answer: two different things, but one is a part of the other

Appreciation of the dollar means that
Given Answer: fewer dollars are required to purchase foreign exchange
Correct Answer: fewer dollars are required to purchase foreign exchange

If the price of 1 peso in dollars is 10 cents, the price of 1 dollar in pesos is
Given Answer: 10 pesos
Correct Answer: 10 pesos
A freely floating exchange rate exists when
Given Answer: supply and demand forces are allowed to determine the rate at
which currencies are exchanged for each other
Correct Answer: supply and demand forces are allowed to determine the rate at

In the balance of payments, capital transactions include all
Given Answer: flows of capital investments between nations
Correct Answer: flows of capital investments between nations

Given Answer: exchange rate

success in
Given Answer: generating surpluses

Given Answer: effect of the tax

tax?
Given Answer: justifiability

Given Answer: it has an economic impact on households


Given Answer: regressive
Given Answer: simplicity

Given Answer: increases the present utility of the borrower's possessions

A direct tax
Given Answer: cannot be shifted


Given Answer: falls as the tax base rises



Given Answer: tax base



The highest tariff rates in U.S. history were the result of the
Given Answer: Hawley-Smoot Tariff of 1930
Correct Answer: Hawley-Smoot Tariff of 1930
Given Answer: extend concessions made in bilateral trade agreements to all other
nations
nations

Given Answer: domestic consumers of the good

Given Answer: when the industry has matured

Given Answer: specialize in activities for which they have the lowest opportunity
cost
cost


Given Answer: was the first in a series of Congressional acts reducing tariffs

Given Answer: selling a product abroad at a price below cost or below the
domestic price
domestic price

Given Answer: governments force industries to exchange

Given Answer: financing exports from the United States

The most-favored-nation clause was created in the
Given Answer: Reciprocal Trade Agreements Act of 1934
Correct Answer: Reciprocal Trade Agreements Act of 1934
Given Answer: liberalize trade in agricultural products

The trade barrier that involves levying one tariff rate for a certain amount of an
imported commodity and a higher tariff rate for quantities in excess of that amount is
the
Given Answer: tariff quota
Correct Answer: tariff quota

One of the main purposes of the 1947 General Agreement on Tariffs and Trade was to
Given Answer: promote free trade among nations
Correct Answer: promote free trade among nations

Import quotas are
Given Answer: voluntary agreements by exporting countries to limit sales in a
foreign country

advantage?

Given Answer: downward sloping



Foreign citizens have been increasing their ownership of U.S. assets. This contributes
to a U.S.
Given Answer: surplus on capital account
Correct Answer: surplus on capital account

When Japanese investors who own hotels in Hawaii receive profits from their hotel
operations, the receipt of such profits is recorded in the balance of payments as a
Given Answer: current account item
Correct Answer: current account item


A debit item on the U.S. balance of payments is any transaction that
Given Answer: results in a loss by U.S. sellers
Correct Answer: makes U.S. dollars available to foreigners


Given Answer: governments with a trade deficit

Given Answer: the balance on current account, plus all capital transactions and all

Given Answer: is like an import


Given Answer: more dollars are required to purchase foreign exchange


If domestic income is rising,
Given Answer: demand for foreign currency will fall
Correct Answer: imports will increase

Given Answer: net deficit items

A direct tax
Given Answer: cannot be shifted


Given Answer: simplicity

The equality-of-sacrifice doctrine of taxation is based on
Given Answer: the diminishing marginal utility of income
Correct Answer: the diminishing marginal utility of income



Given Answer: indirect tax

Given Answer: increases the borrower's total output and profits

Given Answer: benefit received
tax?
Given Answer: equality



Given Answer: incidence of the tax

success in
Given Answer: generating surpluses
Paying off the national debt brings about
Given Answer: a redistribution of income
Correct Answer: a redistribution of income


The International Bank for Reconstruction and Development is an affiliate of the
Given Answer: World Bank
Correct Answer: World Bank

the
Given Answer: tariff quota

Given Answer: income is transferred from consumers to protected producers

generally
Given Answer: in favor of free trade since the 1930s

Given Answer: protect U.S. firms from foreign competition

Given Answer: financing exports from the United States

If a tariff is increased to a level high enough to prevent any imports from entering the
country, the tariff has the same effect as
Given Answer: an embargo
Correct Answer: an embargo
classified as
Given Answer: a protective tariff

Selling a good at a lower price in a foreign country than in the home country is an
example of
Given Answer: dumping
Correct Answer: dumping

Import quotas are
Given Answer: subsidies to foreign producers to encourage them to trade

advantage?

Given Answer: domestic producers of good X are better off because they sell more
goods at the same price

Given Answer: the exchange is mutually beneficial

A tariff is a
Given Answer: tax on exports

Given Answer: agricultural products


Which of the following would cause a credit to the U.S. balance of payments?
Given Answer: Lloyd's of London makes an insurance payment to a U.S. resident
Correct Answer: Lloyd's of London makes an insurance payment to a U.S. resident

Given Answer: causes foreigners to use up their U.S. dollars


A decrease in the U.S. balance-of-payments surplus results when
Given Answer: more U.S. citizens vacation in Chile
Correct Answer: more U.S. citizens vacation in Chile


Given Answer: More U.S. citizens vacation in Austria



Given Answer: forces of supply of and demand for currencies

to a U.S.
Given Answer: surplus on capital account


Given Answer: fewer dollars are required to purchase foreign exchange

Given Answer: downward sloping

Given Answer: makes U.S. dollars available to foreigners

Given Answer: encourage foreigners to invest in the United States


Selected Answer: two different things, but one is a part of the other

Selected Answer: debit in the capital account

Selected Answer: Lloyd's of London makes an insurance payment to a U.S. resident
Correct Answer: Lloyd's of London makes an insurance payment to a U.S. resident

Selected Answer: total values of goods, services, and payments flows

Selected Answer: exchange rate

Selected Answer: when U.S. companies sell merchandise abroad

Selected Answer: imports will increase

Selected Answer: forces of supply of and demand for currencies

Selected Answer: all debit and credit items
to a U.S.
Selected Answer: surplus on capital account

Selected Answer: more dollars are required to purchase foreign exchange

Selected Answer: explains how the balance-of-payments deficit or surplus was
financed
financed

Selected Answer: More U.S. citizens vacation in Austria

Selected Answer: fewer dollars are required to purchase foreign exchange

Selected Answer: flows of capital investments between nations

Selected Answer: shifted to the final consumer


Selected Answer: its cost of collection is small relative to the revenue collected


Selected Answer: tax base

A direct tax
Selected Answer: cannot be shifted



success in

Selected Answer: incidence of the tax

Selected Answer: cover the cost of government services

A national sales tax is a form of
Selected Answer: consumption tax

The financial burden entailed in the paying of a tax is known as
Selected Answer: the impact of the tax
Correct Answer: the impact of the tax

Selected Answer: benefit received
Selected Answer: indirect tax

tax?
Selected Answer: equality

The most-favored-nation clause was created in the
Selected Answer: Reciprocal Trade Agreements Act of 1934
Correct Answer: Reciprocal Trade Agreements Act of 1934

advantage?

The highest tariff rates in U.S. history were the result of the
Selected Answer: Hawley-Smoot Tariff of 1930
Correct Answer: Hawley-Smoot Tariff of 1930
generally
Selected Answer: in favor of free trade since the 1930s

Selected Answer: protect U.S. firms from foreign competition



Import quotas are
Selected Answer: methods for reducing imports by limiting the quantity of goods
that can enter the country each year
Selected Answer: specialization and exchange


Selected Answer: was the first in a series of Congressional acts reducing tariffs

cost
cost

Selected Answer: selling a product abroad at a price below cost or below the
domestic price
domestic price
the
Selected Answer: tariff quota

Selected Answer: domestic consumers of the good

classified as
Selected Answer: a protective tariff

Selected Answer: give preference to North American nations in all trade matters
nations

Paying off the national debt would redistribute income from the
Selected Answer: taxpayers to the major recipients of transfer payments
Correct Answer: taxpayers to the debt holders
Selected Answer: incidence of the tax

Selected Answer: can have an expansionary effect on the economy if the
government finances spending with taxes on idle funds
Correct Answer: can have an expansionary effect on the economy if the government
finances spending with taxes on idle funds


The federal government’s ability to repay the national debt is limited only by the
Selected Answer: incidence of taxes
Correct Answer: total assets of the economy

The United States has had little success with the surplus aspect of balancing the
budget over the period of a business cycle.
When the federal budget is used as a tool for economic stabilization, the ideal goal is
to
Selected Answer: balance the budget each year
Correct Answer: balance the budget over the entire business cycle

groups.

Interest on the U.S. national debt adds to the federal deficit.

The U.S. national debt has declined continuously as a percentage of GDP since World
War II.

Selected Answer: shifted to the final consumer
a(n)
Selected Answer: greater sacrifice on lower-income households

A deficit budget adds to the national debt.

According to the concept of the full-employment balanced budget,
Selected Answer: tax rates and government spending programs should be set up so
as to balance the budget at the full-employment income level
Correct Answer: tax rates and government spending programs should be set up so as
to balance the budget at the full-employment income level

The best example of a direct tax is a(n)
Selected Answer: income tax
Correct Answer: income tax

Selected Answer: benefit received


One factor that definitely did not contribute to the deficit in the U.S. balance of
payments during 2005 was
Selected Answer: sales of military equipment to foreign nations
Correct Answer: sales of military equipment to foreign nations

Selected Answer: only merchandise exports and imports

The Bretton Woods system included the idea of fixed exchange rates.

If the rate of exchange between the U.S. dollar and the British pound were 1.00 to
$2.00, then a U.S. tourist buying a British product costing 600 would need to
exchange dollars in the amount of

Selected Answer: fixed exchange rates in terms of U.S. dollars
Correct Answer: fixed exchange rates in terms of U.S. dollars

Foreign exchange refers to
Selected Answer: the goods and services of other countries
Correct Answer: the currencies of other countries

dollar shortage.
The United States was running a large balance-of-trade deficit
Selected Answer: in the years following World War II
Correct Answer: from the late 1970s throughout the 1990s

The balance of payments is more like an income statement than a balance sheet.

One signal that the U.S. dollar was overvalued in the early 1970s was the
Selected Answer: volume of international trade
Correct Answer: recurring balance-of-trade deficits in the U.S.

Under the gold standard, a country experiencing a gold outflow
Selected Answer: experienced a decline in output
Correct Answer: experienced a decline in output

financed
financed

United States
Selected Answer: devalued the dollar, which made foreign exchange more
expensive

The Maastricht Agreement calls for a common currency and a single central bank in
the European Union.

Selected Answer: specialization and exchange

The French franc is the common currency of the Economic Monetary Union.

A tariff is a

example of
Selected Answer: dumping

The newest trade association of which the United States is a member is
Selected Answer: WTA
Correct Answer: CAFTA

The rule of origin defines the maximum percentage of a country’s exported product
Import quotas are



The argument that the government should impose tariffs in order to protect domestic
jobs ignores the impact of tariff policy on
Selected Answer: employees in domestic industries that compete with imports
Correct Answer: the country’s export-producing industries

Tariff protection
Selected Answer: prevents the optimum use of scarce resources
Correct Answer: prevents the optimum use of scarce resources

As a result of a tariff, domestic consumers buy
Selected Answer: more units at a lower price
Correct Answer: fewer units at a higher price

Selected Answer: when the industry has matured

the

One of the main purposes of the 1947 General Agreement on Tariffs and Trade was to
Selected Answer: promote free trade among nations
Correct Answer: promote free trade among nations

A tariff is a
Selected Answer: abolish tariffs and import quotas among the member nations

Import quotas are


Selected Answer: furniture industry

Selected Answer: an escape clause
Which of the following, if successful, always results in a complete cessation of trade
in a certain product?
Selected Answer: a trading bloc

In rank order, the nations exporting the highest dollar value of merchandise into the
U.S. in 2005 were
Selected Answer: Canada, Japan, and China
Correct Answer: Canada, China, and Mexico

Selected Answer: a technical barrier

The North American Free Trade Agreement is likely to lead to
Selected Answer: increased employment in all U.S. industries
Correct Answer: decreased employment in some U.S. industries

example of

The common currency of the Economic Monetary Union is the
Selected Answer: euro
Correct Answer: euro

If Mexico levies an import quota on U.S. cars, the price of automobiles in the United
States is likely to rise.



the


A direct tax

Selected Answer: the money supply to rise


Selected Answer: having creditors forgive part of the debt

Selected Answer: decreased and then increased

Selected Answer: total assets of the economy

The actual deficit is a poor measure of fiscal policy.


Selected Answer: remains the same but changes individually

A direct tax is one that cannot be shifted.

Automobile license fees and gasoline taxes are based on the benefit-received theory
of taxation.


Selected Answer: progressive

As interest rates rise,
Selected Answer: the likelihood of a surplus budget increases
Correct Answer: the cost of carrying the national debt rises


Selected Answer: early 1970s

Special Drawing Rights are
Correct Answer: a collectively managed asset of the International Monetary Fund

financed
financed



A nation on the gold standard would convert its currency into gold on demand.





Selected Answer: more U.S. citizens vacation in Chile




to a U.S.
Selected Answer: deficit on capital account

Which of the following countries is not a member of the European Union?
Selected Answer: Switzerland
Correct Answer: Switzerland

For nations with relatively high wage rates,
Selected Answer: tariffs would improve the allocation of scarce resources
Correct Answer: the wage rates often reflect relatively high labor productivity


The Trade Expansion Act of 1974 restricted the authority of the president of the
United States to reduce tariffs.

Maquiladoras are export-oriented plants, often along the U.S.-Mexico border, that are
exempt from paying import duties on raw materials and parts used in making final
products.
Using tariffs to support diversification of a nation’s industrial structure
Selected Answer: is based on the need to make the economy less vulnerable to
Correct Answer: is based on the need to make the economy less vulnerable to

cost
cost

If the United States exports wheat to foreign countries that levy tariffs on wheat
imports, the probable result is that the price of wheat will
Selected Answer: rise in foreign countries
Correct Answer: rise in foreign countries

generally
Selected Answer: in favor of free trade since the 1930s

Tariff protection
Selected Answer: prevents the optimum use of scarce resources
Correct Answer: prevents the optimum use of scarce resources

Only in developing nations would one expect the value of either exports or imports to
exceed 200 percent of gross national product.


CAFTA is an organization comprised of six South American countries.

advantage?

In dollar value, the United States is the largest importer in the world.

Tariffs bring about a transfer of income from the consumer of the protected product
to domestic producers of the product.

Selected Answer: makes U.S. dollars available to foreigners

The capital account includes income earned on investments made in prior years.

Balance-of-payments accounts are out of balance
Selected Answer: when exports are either greater or less than imports
Correct Answer: never

After World War II, most nations adopted some type of fixed or controlled exchange
rate system.


The dollar shortage in international exchange markets in the early 1950s was related
to
Selected Answer: large deficits in the U.S. balance of trade
Correct Answer: large surpluses in the U.S. balance of trade

Selected Answer: flows of capital investments between nations

payments?
Selected Answer: sale of IBM stock to a foreign investor

Selected Answer: put the world on a system of fixed exchange rates
Correct Answer: put the world on a system of fixed exchange rates

Appreciation of the U.S. dollar encourages travel abroad by U.S. citizens.

dollar shortage.

As the price of foreign exchange increases in terms of the U.S. dollar, U.S. products
become cheaper for foreigners to buy.

Selected Answer: the currencies of other countries

Selected Answer: 10 pesos

If the cost of collecting a tax is low relative to the revenue generated, the tax is said
to be economical.

The financial burden entailed in the paying of a tax is known as the
Selected Answer: impact of the tax
Correct Answer: impact of the tax

A national sales tax is a form of a(n)
Selected Answer: consumption tax




Unlike corporate debt, national debt possesses no productivity aspect.

Paying off the national debt brings about a(n)
Selected Answer: redistribution of income
Correct Answer: redistribution of income

Selected Answer: tax base

If the primary purpose of taxes was to raise sufficient revenue to cover the costs of
government-provided services, a balanced budget would be an ongoing target.

Which of the following taxes is not collected from the consumer on the final sale of
goods and services?
Selected Answer: value-added tax
Correct Answer: value-added tax


Selected Answer: remains unchanged as the tax base rises

Using the budget as an economic stabilizer requires maintaining a continuous deficit.


Selected Answer: the cost of carrying the national debt rises
Name Exam 5
Status Completed
incorrect.

A tariff is a

Import quotas are


Selected Answer: furniture industry

Selected Answer: a trading bloc

In rank order, the nations exporting the highest dollar value of merchandise into the
U.S. in 2005 were
Selected Answer: Canada, Japan, and China
Correct Answer: Canada, China, and Mexico


The North American Free Trade Agreement is likely to lead to
Selected Answer: increased employment in all U.S. industries
Correct Answer: decreased employment in some U.S. industries

example of
The common currency of the Economic Monetary Union is the
Selected Answer: euro
Correct Answer: euro

If Mexico levies an import quota on U.S. cars, the price of automobiles in the United
States is likely to rise.



the


A direct tax

Selected Answer: the money supply to rise


Selected Answer: having creditors forgive part of the debt

Selected Answer: decreased and then increased






A direct tax is one that cannot be shifted.

of taxation.



Selected Answer: progressive

Selected Answer: the likelihood of a surplus budget increases


Selected Answer: early 1970s

Special Drawing Rights are
Correct Answer: a collectively managed asset of the International Monetary Fund

financed
financed



A nation on the gold standard would convert its currency into gold on demand.









to a U.S.
Selected Answer: deficit on capital account

Name Exam 5
Status Completed
incorrect.

Appreciation of the U.S. dollar encourages travel abroad by U.S. citizens.


Under the gold standard, a nation’s domestic economic policy
Selected Answer: was unrelated to balance-of-payments adjustments
Correct Answer: was subordinate to balance-of-payments adjustments



payments?
Selected Answer: sale of IBM stock to a foreign investor


The summary of the flows of goods, services, assets, and currency in and out of a
country in a particular year is the
Selected Answer: balance of trade
Correct Answer: balance of payments

Under the gold standard, a country with a trade deficit should expect
Selected Answer: the value of its currency to appreciate
Correct Answer: gold to flow out of the country to other countries

When the United States was under the gold standard,
Selected Answer: the value of the dollar floated against gold

A credit in the U.S. balance of payments occurs when
Selected Answer: U.S. consumers send money to foreign companies
Correct Answer: U.S. companies sell merchandise abroad

The course of international monetary policy is directed primarily by the
Selected Answer: International Monetary Fund
Correct Answer: leaders of the Group of Seven nations

Selected Answer: the currencies of other countries

The capital account of the balance of payments includes the purchase and sale of

Under the gold standard, a country that is experiencing a gold outflow
Selected Answer: is experiencing a fall in output

Selected Answer: was the first in a series of Congressional acts reducing tariffs

Tariffs bring about a transfer of income from the consumer of the protected product
to domestic producers of the product.


Devices that set up multiple exchange rates between the currencies of two nations are
known as
Selected Answer: exchange controls
Correct Answer: exchange controls

The French franc is the common currency of the Economic Monetary Union.
Selected Answer: income is transferred from consumers to protected producers

If trade between the United States and Canada were totally free of restrictions, the
incomes of most Canadian workers would decrease.

Selected Answer: extend concessions made in bilateral trade agreements to all other
nations
nations

The U.S.-Canada Free Trade Agreement
Selected Answer: seeks to phase out remaining tariffs
Correct Answer: seeks to phase out remaining tariffs

The General Agreement on Tariffs and Trade (GATT) was replaced by the World
Trade Organization (WTO).


For an antidumping tariff to be imposed in the United States, competitive damage
from dumping must be shown.



The only factor determining whether a country can develop a comparative advantage
in production is the degree to which it has a highly skilled labor force.

If a tariff is increased to a level high enough to prevent any imports from entering the
country, the tariff has the same effect as
Selected Answer: an embargo

classified as

success in


a(n)


A sales tax is sometimes said to be regressive because the rate at which it is assessed
declines as more and more taxable items are purchased.



Refunding the debt refers to
Selected Answer: selling new bonds to raise money to pay off maturing bonds
Correct Answer: selling new bonds to raise money to pay off maturing bonds
The U.S. Treasury often sells new bonds in order to raise money to pay off maturing
bonds.



Selected Answer: the cost of carrying the national debt rises

Which of the following taxes is not collected from the consumer on the final sale of
goods and services?
Selected Answer: value-added tax
Correct Answer: value-added tax

of taxation.

groups.

A flat tax is a form of sales tax.
Name Exam 5
Status Completed
incorrect.

Selected Answer: Lloyd’s of London makes an insurance payment to a U.S.
resident
Correct Answer: Lloyd’s of London makes an insurance payment to a U.S. resident

Under a fixed or controlled exchange rate system, if the United States wanted to
increase the value of the dollar, it could buy foreign currencies with dollars.

financed
financed

Under the gold standard, a country that is experiencing a gold outflow

Selected Answer: causes foreigners to use up their U.S. dollars

The IMF was
Selected Answer: created at Bretton Woods to facilitate international exchange
Correct Answer: created at Bretton Woods to facilitate international exchange

Under a system of floating exchange rates, increased demand of U.S. citizens for
Japanese goods will cause
Selected Answer: the Japanese yen to appreciate against the U.S. dollar
Correct Answer: the Japanese yen to appreciate against the U.S. dollar

Selected Answer: makes U.S. dollars available to foreigners



United States
Selected Answer: devalued the dollar, which made foreign exchange more
expensive


dollar shortage.

U.S. balance-of-payments deficits can be financed either through changes in U.S.
official reserve assets or through changes in foreign official dollar holdings.
One signal that the U.S. dollar was overvalued in the early 1970s was the
Selected Answer: recurring balance-of-trade deficits in the U.S.
Correct Answer: recurring balance-of-trade deficits in the U.S.

Selected Answer: agricultural products



Selected Answer: domestic consumers of the good

The newest trade association of which the United States is a member is
Selected Answer: CAFTA
Correct Answer: CAFTA

A tariff is a
Selected Answer: tax on imports

Selected Answer: an embargo

The Export-Import Bank is owned by 150 nations, including the United States.

The argument that the government should impose tariffs in order to protect domestic
jobs ignores the impact of tariff policy on
Selected Answer: the country’s export-producing industries
Correct Answer: the country’s export-producing industries

The value of U.S. exports is less than 10 percent of its GDP.


For nations with relatively high wage rates,
Selected Answer: the wage rates often reflect relatively high labor productivity
Correct Answer: the wage rates often reflect relatively high labor productivity

classified as

The revenue and protective purposes of a tariff are largely incompatible.
by the
Selected Answer: North American Free Trade Agreement




a(n)

In the past few decades, the tax system of the United States has been used to
redistribute income.

Selected Answer: its cost of collection is small relative to the revenue collected



The U.S. income tax is based on the principle of
Selected Answer: ability to pay
Correct Answer: ability to pay



A national sales tax would be considered regressive in relation to income.


The effect of a tax is the same thing as the incidence of the tax.

If the cost of collecting a tax is low relative to the revenue generated, the tax is said
to be economical.



(ECON125-HK2) > EXAMS > REVIEW ASSESSMENT: EXAM 5
User Hon Fai Yeung
Name Exam 5
Status Completed
incorrect.
Correct If a tariff is increased to a level high enough to prevent any imports from
entering the country, the tariff has the same effect as
Question 1 answers
Selected Answer: Correct an embargo
Correct Answer: Correct an embargo

Incorrect A tariff is a
Question 2 answers
Selected Answer: Incorrect tax on exports
Correct Answer: Correct tax on imports

Correct During times of recession, retaining the domestic economy’s money at
home is a valid argument for restricting imports.
Question 3 answers

Correct The newest trade association of which the United States is a member is
Question 4 answers
Selected Answer: Correct CAFTA
Correct Answer: Correct CAFTA

Correct Who does not gain when a tariff is imposed?
Question 5 answers
Selected Answer: Correct domestic consumers of the good
Correct Answer: Correct domestic consumers of the good

Correct The Byrd Amendment
Question 6 answers
Selected Answer: Correct allows companies to share tariff revenues
Correct Answer: Correct allows companies to share tariff revenues
Correct The principle of comparative advantage holds that nations should
Question 7 answers
Selected Answer: Correct specialize in activities for which they have the lowest
opportunity cost
Correct Answer: Correct specialize in activities for which they have the lowest
opportunity cost

Correct A provision that permits raising tariffs if domestic producers are suffering
under an existing tariff is known as
Question 8 answers
Selected Answer: Correct an escape clause
Correct Answer: Correct an escape clause

Correct The only factor determining whether a country can develop a comparative
advantage in production is the degree to which it has a highly skilled labor force.
Question 9 answers

Correct An argument for tariffs that has some validity is the
Question 10 answers
Selected Answer: Correct infant-industry argument
Correct Answer: Correct infant-industry argument

Correct As a result of a tariff, domestic consumers buy
Question 11 answers
Selected Answer: Correct fewer units at a higher price
Correct Answer: Correct fewer units at a higher price

Correct A trading block that includes the United States, Mexico, and Canada was
established by the
Question 12 answers
Selected Answer: Correct North American Free Trade Agreement
Correct Answer: Correct North American Free Trade Agreement

Correct If trade between the United States and Canada were totally free of
restrictions, the incomes of most Canadian workers would decrease.
Question 13 answers

Incorrect All members of the European Union are members of the Economic
Monetary Union.
Question 14 answers

Incorrect Theoretically, a tariff imposed to protect an infant industry should be
removed
Question 15 answers
Selected Answer: Incorrect when the industry becomes sufficiently diversified
Correct Answer: Correct when the industry has matured

Correct If a tariff is used to protect U.S. jobs,
Question 16 answers
Selected Answer: Correct income is transferred from consumers to protected
producers
Correct Answer: Correct income is transferred from consumers to protected
producers

Correct In rank order, the nations exporting the highest dollar value of merchandise
into the U.S. in 2005 were
Question 17 answers
Selected Answer: Correct Canada, China, and Mexico
Correct Answer: Correct Canada, China, and Mexico
Correct Passing the debt on to future generations has a different impact on
individuals than it does on the total economy.
Question 18 answers

Correct The U.S. Treasury often sells new bonds in order to raise money to pay off
maturing bonds.
Question 19 answers

Correct A consumption tax is usually collected on
Question 20 answers
Selected Answer: Correct none of the above
Correct Answer: Correct none of the above

Correct The tax base is the percentage at which the tax is levied.
Question 21 answers

Correct According to the equality-of-sacrifice doctrine, proportional income taxes
impose a(n)
Question 22 answers
Selected Answer: Correct greater sacrifice on lower-income households
Correct Answer: Correct greater sacrifice on lower-income households

Correct Which of the following is not a necessary characteristic for a tax to qualify
as a good tax?
Question 23 answers
Selected Answer: Correct equality
Correct Answer: Correct equality

Correct A direct tax
Question 24 answers
Selected Answer: Correct cannot be shifted
Correct Answer: Correct cannot be shifted

Correct A direct tax is one that cannot be shifted.
Question 25 answers

Correct A flat tax is a form of sales tax.
Question 26 answers

Correct Paying off the national debt would redistribute income from the
Question 27 answers
Selected Answer: Correct taxpayers to the debt holders
Correct Answer: Correct taxpayers to the debt holders

Correct The major advantage of the flat tax is its
Question 28 answers
Selected Answer: Correct simplicity
Correct Answer: Correct simplicity

Incorrect Value-added tax rates in Europe usually range between 5 and 10 percent.
Question 29 answers
Correct Unlike corporate debt, national debt possesses no productivity aspect.
Question 30 answers

Correct The value of an object on which a tax is levied is known as the
Question 31 answers
Selected Answer: Correct tax base
Correct Answer: Correct tax base

Correct When the federal budget is used as a tool for economic stabilization, the
ideal goal is to
Question 32 answers
Selected Answer: Correct balance the budget over the entire business cycle
Correct Answer: Correct balance the budget over the entire business cycle

Correct If the tax increases as the tax base increases, the tax is said to be
Question 33 answers
Selected Answer: Correct progressive
Correct Answer: Correct progressive

Correct A sales tax is sometimes said to be regressive because the rate at which it is
assessed declines as more and more taxable items are purchased.
Question 34 answers

Incorrect Under the gold standard, a country with a trade deficit should expect
Question 35 answers
Selected Answer: Incorrect gold to flow into the country to other countries
Correct Answer: Correct gold to flow out of the country to other countries
Correct The International Monetary Fund was established to stabilize exchange
rates and to provide temporary assistance to nations with deficit balance of payments.
Question 36 answers

Correct Although prices in the United States and France may be stable, changes in
the exchange rate between dollars and francs can make the actual cost of trade more
Question 37 answers

Correct The balance of payments and the balance of trade are
Question 38 answers
Selected Answer: Correct two different things, but one is a part of the other
Correct Answer: Correct two different things, but one is a part of the other

Correct In the 1970s, the value of the U.S. dollar in world financial markets
declined significantly.
Question 39 answers

Correct The dollar shortage in international exchange markets in the early 1950s
was related to
Question 40 answers
Selected Answer: Correct large surpluses in the U.S. balance of trade
Correct Answer: Correct large surpluses in the U.S. balance of trade

Correct As the price of U.S. dollars decreases, more foreign currency is required to
purchase dollars.
Question 41 answers

Correct Foreign citizens have been increasing their ownership of U.S. assets. This
contributes to a U.S.
Question 42 answers
Selected Answer: Correct surplus on capital account
Correct Answer: Correct surplus on capital account

Correct The capital account of the balance of payments includes the purchase and
sale of physical assets but not of financial assets.
Question 43 answers

Correct Under the gold standard, a country that is experiencing a gold outflow
Question 44 answers

Incorrect Appreciation of the dollar means that
Question 45 answers
Selected Answer: Incorrect more dollars are required to purchase foreign exchange
Correct Answer: Correct fewer dollars are required to purchase foreign exchange

Correct Under a fixed or controlled exchange rate system, if the United States
wanted to increase the value of the dollar, it could buy foreign currencies with dollars.
Question 46 answers
Correct A decrease in the U.S. balance-of-payments surplus results when
Question 47 answers
Selected Answer: Correct more U.S. citizens vacation in Chile
Correct Answer: Correct more U.S. citizens vacation in Chile

Correct Which of the following would cause a debit entry in the U.S. balance of
payments?
Question 48 answers
Selected Answer: Correct more U.S. citizens vacation in Austria
Correct Answer: Correct more U.S. citizens vacation in Austria

Incorrect Special Drawing Rights are issued by the
Question 49 answers
Selected Answer: Incorrect World Bank
Correct Answer: Correct International Monetary Fund

Correct The best way to describe the international position of the U.S. dollar during
the 1980s is
Question 50 answers
Selected Answer: Correct rising sharply during the first half of the decade, and
then falling
Correct Answer: Correct rising sharply during the first half of the decade, and
then falling
OK


User Kit Wah Lam
Name Exam 5
Status Completed
Incorrect Under a system of floating exchange rates, exchange rates are allowed to rise or fall
according to supply and demand.
Question 1 answers
Correct When a U.S. citizen invests in foreign assets, the transaction is recorded in the balance
of payments as a
Question 2 answers
Selected Answer: Correct debit in the capital account
Correct Answer: Correct debit in the capital account
Correct In the balance of payments, the settlement account
Question 3 answers
Selected Answer: Correct must exactly offset the net deficit or surplus in the other accounts
Correct Answer: Correct must exactly offset the net deficit or surplus in the other accounts

Correct Floating exchange rates are determined by the
Question 4 answers
Selected Answer: Correct forces of supply of and demand for currencies
Correct Answer: Correct forces of supply of and demand for currencies
Correct If the price of 1 peso in dollars is 10 cents, the price of 1 dollar in pesos is
Question 5 answers
Selected Answer: Correct 10 pesos
Correct Answer: Correct 10 pesos
Correct Special Drawing Rights are issued by the International Monetary Fund and are a
principal source of international reserves.
Question 6 answers
Correct Depreciation of the dollar means that
Question 7 answers
Selected Answer: Correct more dollars are required to purchase foreign exchange
Correct Answer: Correct more dollars are required to purchase foreign exchange
Correct The balance of payments is an accounting statement that shows, between one nation
Question 8 answers
Selected Answer: Correct total values of goods, services, and payments flows
Correct Answer: Correct total values of goods, services, and payments flows
Correct The best way to describe the international position of the U.S. dollar during the 1980s
is
Question 9 answers
Selected Answer: Correct rising sharply during the first half of the decade, and then falling
Correct Answer: Correct rising sharply during the first half of the decade, and then falling
Correct The IMF was
Question 10 answers
Selected Answer: Correct created at Bretton Woods to facilitate international exchange
Correct Answer: Correct created at Bretton Woods to facilitate international exchange
Correct Appreciation of the dollar means that
Question 11 answers
Selected Answer: Correct fewer dollars are required to purchase foreign exchange
Correct Answer: Correct fewer dollars are required to purchase foreign exchange
Correct The course of international monetary policy is directed primarily by the
Question 12 answers
Selected Answer: Correct leaders of the Group of Seven nations
Correct Answer: Correct leaders of the Group of Seven nations

Correct Since World War II, the importance of gold in international exchange has increased.
Question 13 answers
Correct The capital account of the balance of payments includes the purchase and sale of
Question 14 answers
Correct The settlement account of the balance of payments
Question 15 answers
Selected Answer: Correct explains how the balance-of-payments deficit or surplus was
financed
Correct Answer: Correct explains how the balance-of-payments deficit or surplus was financed
Correct A nation on the gold standard would convert its currency into gold on demand.
Question 16 answers
Correct The government’s ability to repay the national debt is governed only by the total
Question 17 answers
Correct The federal government’s ability to repay the national debt is limited only by the
Question 18 answers
Selected Answer: Correct total assets of the economy
Correct Answer: Correct total assets of the economy
Correct The effect of a tax is the same thing as the incidence of the tax.
Question 19 answers
Correct As interest rates rise,
Question 20 answers
Selected Answer: Correct the cost of carrying the national debt rises
Correct Answer: Correct the cost of carrying the national debt rises
Correct A national sales tax is a form of a(n)
Question 21 answers
Selected Answer: Correct consumption tax

Correct Answer: Correct consumption tax
Correct If the cost of collecting a tax is low relative to the revenue generated, the tax is said to
be economical.
Question 22 answers
Correct A proportional tax rate
Question 23 answers
Selected Answer: Correct remains unchanged as the tax base rises
Correct Answer: Correct remains unchanged as the tax base rises
Correct Which of the following is not a necessary characteristic for a tax to qualify as a good
tax?
Question 24 answers
Selected Answer: Correct equality
Correct Answer: Correct equality
Incorrect The value-added tax is a(n)
Question 25 answers
Selected Answer: Incorrect income tax
Correct Answer: Correct indirect tax

Correct A good tax must possess the characteristic of equality.
Question 26 answers
Correct The value of an object on which a tax is levied is known as the
Question 27 answers
Selected Answer: Correct tax base
Correct Answer: Correct tax base
Correct Paying off the national debt brings about a(n)
Question 28 answers
Selected Answer: Correct redistribution of income
Correct Answer: Correct redistribution of income
Correct In using taxes as a tool for the redistribution of income and wealth in the U.S.
Question 29 answers
Correct An excise tax can be shifted relatively easily.
Question 30 answers
Correct If the tax increases as the tax base increases, the tax is said to be
Question 31 answers
Selected Answer: Correct progressive
Correct Answer: Correct progressive
Correct Passing the debt on to future generations has a different impact on individuals than it
does on the total economy.
Question 32 answers
Incorrect Compared to the national debts of major European countries as a percentage of national
incomes, the U.S. national debt
Question 33 answers
Selected Answer: Incorrect falls in the highest ten percent
Correct Answer: Correct is at the lower end
Correct Devices that set up multiple exchange rates between the currencies of two nations are
known as
Question 34 answers
Selected Answer: Correct exchange controls

Correct Answer: Correct exchange controls
Correct The French franc is the common currency of the Economic Monetary Union.
Question 35 answers
Correct The principle of comparative advantage is associated with
Question 36 answers
Selected Answer: Correct specialization and exchange
Correct Answer: Correct specialization and exchange
Correct In 2003, Japan restricted imports of beef from the United States because of fear of
Question 37 answers
Selected Answer: Correct a technical barrier
Correct Answer: Correct a technical barrier
Correct The North American Free Trade Agreement is likely to lead to
Question 38 answers
Selected Answer: Correct decreased employment in some U.S. industries
Correct Answer: Correct decreased employment in some U.S. industries

Correct The Trade Expansion Act of 1962 was not intended to
Question 39 answers
Selected Answer: Correct protect U.S. firms from foreign competition
Correct Answer: Correct protect U.S. firms from foreign competition
Correct Which of the following countries is not a member of the European Union?
Question 40 answers
Selected Answer: Correct Switzerland
Correct Answer: Correct Switzerland
Correct The United States has used export subsidies to encourage the exportation of
Question 41 answers
Selected Answer: Correct agricultural products
Correct Answer: Correct agricultural products
Correct In rank order, the nations exporting the highest dollar value of merchandise into the
U.S. in 2005 were
Question 42 answers
Selected Answer: Correct Canada, China, and Mexico
Correct Answer: Correct Canada, China, and Mexico
Correct The rule of origin defines the maximum percentage of a country’s exported product
Question 43 answers
Correct If the United States exports wheat to foreign countries that levy tariffs on wheat
Question 44 answers
Selected Answer: Correct rise in foreign countries
Correct Answer: Correct rise in foreign countries
Correct Chile has been invited to join the European Union.
Question 45 answers
Correct The revenue and protective purposes of a tariff are largely incompatible.
Question 46 answers
Correct Countries engage in trade because
Question 47 answers
Selected Answer: Correct the exchange is mutually beneficial
Correct Answer: Correct the exchange is mutually beneficial

Correct An argument for tariffs that has some validity is the
Question 48 answers
Selected Answer: Correct infant-industry argument
Correct Answer: Correct infant-industry argument
Correct The primary function of the Export-Import Bank is to assist in
Question 49 answers
Selected Answer: Correct financing exports from the United States
Correct Answer: Correct financing exports from the United States
Correct Which of the following, if successful, always results in a complete cessation of trade in
a certain product?
Question 50 answers
Selected Answer: Correct an embargo
Correct Answer: Correct an embargo
OK


User Ka Yan Li
Name Exam 2
Status Completed
Score90 out of 100 points
Correct One reason firms in monopolistic competition can charge different prices is that their
products are
Question 1 answers
Selected Answer: Correct differentiated
Correct Answer: Correct differentiated
Correct In monopolistic competition, there is no need for advertising.
Question 2 answers
Correct Suppose that a monopolist is producing an output level of 10,000 units. At that output
level, both MR and MC equal $5, AR equals $7, and ATC equals $6. Which of the following
statements is correct?
Question 3 answers

Incorrect In 1911, the Supreme Court established the rule of reason. This rule held that
Question 4 answers
Correct Answer: Correct the Sherman Antitrust Act made only unreasonable restraints of trade
illegal
Correct Oligopoly is a market structure in which
Question 5 answers
Selected Answer: Correct there are relatively few producers
Correct Answer: Correct there are relatively few producers
Correct Under conditions of monopolistic competition, a firm maximizes profits where
Question 6 answers
Selected Answer: Correct MR equals MC
Correct Answer: Correct MR equals MC
Incorrect The greater the product differentiation,
Question 7 answers
Selected Answer: Incorrect the less the price difference between competing firms
Correct Answer: Correct the less elastic a firm’s demand curve
Correct The marginal revenue curve of a monopolist is

Question 8 answers
Selected Answer: Correct below the AR line
Correct Answer: Correct below the AR line
Correct Public utilities are often called natural monopolies.
Question 9 answers
Correct A monopolist must produce a good for which there are no close substitutes.
Question 10 answers
Correct Firms in monopolistic competition sell a similar but differentiated product.
Question 11 answers
Correct No U.S. firm has ever obtained sufficient control over raw materials to develop a
monopoly or near monopoly on that basis.
Question 12 answers

Correct The maximum profit of a monopolist occurs
Question 13 answers
Selected Answer: Correct where MR equals MC
Correct Answer: Correct where MR equals MC
Correct Which of the following statements concerning the circular flow model is (are) correct?
Question 14 answers
Selected Answer: Correct planned investment spending is an injection into the circular flow
Correct Answer: Correct planned investment spending is an injection into the circular flow
Correct A deficit federal budget always raises prices.
Question 15 answers
Correct In the simple circular flow model, if planned I exceeds planned S, then
Question 16 answers
Correct A balanced federal budget may affect the composition of total output by replacing
Question 17 answers
Correct To have an increase in investment, consumption must decrease.
Question 18 answers
Correct An increase in planned savings, all else held constant, will always result in
Question 19 answers
Selected Answer: Correct a slowdown in the circular flow of income
Correct Answer: Correct a slowdown in the circular flow of income
Correct According to the simple circular flow concept, whenever planned investment is greater
than planned saving during periods of full employment, there is a tendency for
Question 20 answers
Selected Answer: Correct prices to rise
Correct Answer: Correct prices to rise
Correct During times of full employment, the only way a firm can obtain additional resources is
to bid the resources away from other firms.
Question 21 answers
Correct The level of total output and the price level can be affected by changes in consumption.
Question 22 answers
Correct The total payment of resource income in the economy is equal to
Question 23 answers
Selected Answer: Correct the total value or cost of the output
Correct Answer: Correct the total value or cost of the output
Correct Which of the following are injections into the circular flow of income?
Question 24 answers
Selected Answer: Correct investment, government spending, and exports
Correct Answer: Correct investment, government spending, and exports
Correct A surplus federal budget always results in a decrease in total output.
Question 25 answers

Correct Inventory accumulation occurs whenever
Question 26 answers
Selected Answer: Correct output exceeds spending
Correct Answer: Correct output exceeds spending
Correct Under perfect competition, market price is determined by market demand and supply.
Question 27 answers
Correct If new firms enter a perfectly competitive industry, the market price of the finished
product will rise.
Question 28 answers
Correct The long-run average cost curve indicates
Question 29 answers
Selected Answer: Correct the lowest average costs of production at each level of output
Correct Answer: Correct the lowest average costs of production at each level of output
Correct If one firm in a perfectly competitive industry is somehow able to produce at a lower
cost than competing firms in the short run,
Question 30 answers
Selected Answer: Correct the competing firms will adopt similar production techniques in
the long run
Correct Answer: Correct the competing firms will adopt similar production techniques in the long
run
Incorrect Under conditions of perfect competition, marginal revenue
Question 31 answers
Selected Answer: Incorrect exceeds average revenue
Correct Answer: Correct equals average revenue
Correct Under conditions of perfect competition, if a firm is suffering a loss but AR is above
Question 32 answers
Correct Under conditions of perfect competition, if losses occur in an industry, market forces
Question 33 answers
Selected Answer: Correct reduce supply
Correct Answer: Correct reduce supply
Correct If economies of scale are present, a firm can enhance its profits by
Question 34 answers
Selected Answer: Correct operating at any larger scale up to the optimal scale
Correct Answer: Correct operating at any larger scale up to the optimal scale
Incorrect Elaine’s firm is in a perfectly competitive industry. Why doesn’t Elaine try to sell
Question 35 answers
Selected Answer: Incorrect doing so would be considered unethical price chiseling
Correct Answer: Correct she can sell all she wants at the market price
Correct Consider a perfectly competitive firm for which MC equals ATC at the $10 level. If the
market price is $10,
Question 36 answers
Selected Answer: Correct the best the firm can do is to break even
Correct Answer: Correct the best the firm can do is to break even
Correct The lowest possible ATC curve is attained at the optimal scale of output.
Question 37 answers
Correct In a perfectly competitive industry, if TR exceeds TC, then in the long run
Question 38 answers
Selected Answer: Correct new firms will enter the industry
Correct Answer: Correct new firms will enter the industry

Correct If the firm produces one more unit of output and total cost rises from $1,000 to $1,050,
marginal cost is
Question 39 answers
Selected Answer: Correct $50
Correct Answer: Correct $50
Correct The principle which states that as more and more units of a variable resource are added
to a set of fixed resources, the resulting additions to output eventually become increasingly smaller,
is the principle of
Question 40 answers
Selected Answer: Correct diminishing marginal returns
Correct Answer: Correct diminishing marginal returns
Correct If output changes in fixed proportion to a change in all of a firm’s productive

Question 41 answers
Selected Answer: Correct constant returns to scale
Correct Answer: Correct constant returns to scale
Correct If you are a sole proprietor of a firm, the value of the wage you could have earned
elsewhere is
Question 42 answers
Selected Answer: Correct an implicit cost

Correct Answer: Correct an implicit cost
Correct Whenever marginal revenue exceeds marginal cost,
Question 43 answers
Selected Answer: Correct profit increases if output increases
Correct Answer: Correct profit increases if output increases
Correct Marginal revenue is the increase in total revenue per additional unit of input.
Question 44 answers
Incorrect Under perfectly competitive conditions, marginal revenue is
Question 45 answers
Selected Answer: Incorrect greater than average revenue
Correct Answer: Correct equal to average revenue
Correct The amount of payment necessary to attract a given productive resource away from its
best alternative use is the
Question 46 answers
Selected Answer: Correct opportunity cost
Correct Answer: Correct opportunity cost

Correct A firm’s break-even point occurs where
Question 47 answers
Selected Answer: Correct total revenue equals total cost
Correct Answer: Correct total revenue equals total cost
Correct So long as marginal cost is rising, average variable cost must rise.
Question 48 answers
Correct Marginal cost can be determined best by observing changes in
Question 49 answers
Selected Answer: Correct total variable cost
Correct Answer: Correct total variable cost
Correct A graph of total fixed cost
Question 50 answers
Selected Answer: Correct is a straight horizontal line
Correct Answer: Correct is a straight horizontal line
OK
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ECON 125 Midterm Exam Please be sure to save at least every 15 minutes! 提交
Please be sure to save at least once every 15 minutes. If you leave this page without saving, or if y
our session times out, any answers you have not saved will be lost. The Submit for Grading button
will become available once you've answered all questions. Exams are not timed; you do not have t
o finish an exam in one sitting as long as you have saved your answers.
Q1. Economists divide productive resources into which of the following four broad categories?
CORRECT b. land, labor, capital, enterprise
Q2. Economics is the study of
CORRECT b. how people make choices and use resources
Q3. Which of the following is an example of marginal analysis?
CORRECT a. a fast food restaurant that only serves lunch and dinner trying to determine if it s
hould open for breakfast
Q4. The idea that what?s good for one person may not be good for all people is known as the
CORRECT b. fallacy of composition
Q5. The stock of labor talents and skills is known as
CORRECT c. human capital
Q6. An economy?s production possibilities curve could shift outward as a result of a(n)
CORRECT a. Increase in labor and capital
Q7. The ability to produce a good or service using fewer resources than other producers use is kno
wn as
CORRECT a. absolute advantage
Q8. Which of the following would shift a nation?s entire production possibilities curve outward?
CORRECT b. developing a more efficient technology
Q9. Which of the following is true of scarcity?
CORRECT d. it is a basic problem of economics that affects all nations
Q10. The opportunity cost of a choice is defined as the value of
CORRECT a. the next best alternative that must be sacrificed

Q11. The shifting or returning of government economic functions to individuals and firms in the ec
onomy is known as
CORRECT d. privatization
Q12. Government intervention becomes necessary when self-interest leads to
CORRECT c. the undermining of competition
Q13. Money that can be used to purchase capital goods is known as
CORRECT a. financial capital
Q14. The stronger the consumer demand is for a good or service,
CORRECT a. the higher its price
Q15. If shortages or surpluses exist in a market, what helps guide the market back to equilibrium?
CORRECT a. the invisible hand of competition
Q16. There are no government-regulated markets in the U. S. economy.
CORRECT b. false
Q17. If a good has perfectly inelastic demand,
CORRECT b. the same amount would be purchased regardless of price
Q18. An increase in demand will cause the demand curve to

CORRECT a. move to the right
Q19. A change in demand would be illustrated by
CORRECT c. a change in people?s preferences that causes them to buy either more or less than
before
Q20. The total quantity of a good that all buyers in the market would buy at various prices at a giv
en time is known as
CORRECT c. market demand
Q21. The law of supply states that
CORRECT d. Quantity offered by sellers of good or service is directly related to price
Q22. It is possible for a change in the price of one commodity to lead to a change in the demand fo
r another commodity.
CORRECT a. true
Q23. The quantity of goods demanded is a function of price alone.
CORRECT b. false
Q24. If demand and supply increase by the same amount, equilibrium price will rise.
CORRECT b. false
Q25. The change to total output resulting from using an additional unit of a productive resource is t
he
CORRECT d. marginal product
Q26. Implicit cost is an opportunity cost of doing business.
CORRECT a. true
Q27. A production function is
CORRECT b. the relationship between resource inputs and product output
Q28. Under perfectly competitive conditions, marginal revenue is equal to the price at which a goo
d is sold.
CORRECT a. true
Q29. Marginal product can never fall below zero.
CORRECT b. false
Q30. If the entry of new firms in a perfectly competitive industry substantially increases the market
demand for resources,
CORRECT b. this raises the market price of resources
Q31. Under perfect competition in the short run,
CORRECT b. more efficient firms can earn higher profits than less efficient firms
Q32. In the long run, under conditions of perfect competition, market forces come into play to
CORRECT c. eliminate profits
Q33. Perfect competition assumes free entry into a business or industry.
CORRECT a. true
Q34. If marginal cost is less than marginal revenue, a firm should
CORRECT a. expand output
Q35. In first degree price discrimination,
CORRECT b. all consumer surplus is captured by the seller
Q36. Which of the following is always true of monopolists?
CORRECT d. they charge a price higher than marginal cost
Q37. A firm that is a price maker can
CORRECT a. limit output and raise prices
Q38. A monopoly can sell all that it desires at any given price.
CORRECT b. false
Q39. A monopolist that charges different prices to different buyers based on their elasticities of de
mand is practicing
CORRECT c. third degree price discrimination

Q40. In an oligopoly, the pricing policy of each firm is independent of that of other firms.
CORRECT b. false
Q41. Under conditions of monopolistic competition, a firm maximizes profits where
CORRECT d. MR equals MC
Q42. Monopolistic competition is a structure where,
CORRECT c. there are many firms
Q43. The Federal Trade Commission
CORRECT d. polices deceptive advertising
Q44. Selling at unreasonably low prices in order to destroy competing firms is known as
CORRECT d. predatory pricing
Q45. As the wage rate increases,
CORRECT c. the quantity demanded for labor decreases
Q46. The amount of unemployment that arises because workers are temporarily between jobs or ne
w entrants to the labor force is known as
CORRECT c. frictional unemployment
Q47. Most illegal immigrants are found in occupations

CORRECT d. that require little formal education
Q48. The wage below which a worker will not work is
CORRECT d. the reservation wage
Q49. Unemployment caused by an imbalance between the skills possessed by workers and the skill
s demanded in labor markets is known as
CORRECT a. structural unemployment
Q50. If sales in an industry decline,
CORRECT a. demand for additional labor also declines

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ECON 125 Final Exam
Question: Q3. The international organization that replaced the General Agreement on Tariffs and
Trade (GATT) is the
Correct Answer: c. World Trade Organization
Given Answer: b. Export-Import Bank
Question: Q8. Studies of income mobility show
Correct Answer: c. many of the lower-income households climb to middle-income and even to
upper-income classes over time
Given Answer: b. a welfare trap exists over time
four major sectors?

Question: Q26. The U. S. money supply measure that consists of currency plus travelers checks
and checkable deposits is referred to as
Correct Answer: a. M1
Given Answer: d. M1 + M2
Question: Q28. Included in the official U. S. money supply are
Correct Answer: c. checkable deposits
Given Answer: a. U. S. government bonds
Question: Q49. An appreciation of the U. S. dollar would
Correct Answer: b. discourage foreigners from buying U. S. goods
Given Answer: a. encourage foreigners to invest in the United States

ECON 125 Final Exam
Question: Q3. If a tariff is used to protect U. S. jobs,
Correct Answer: a. income is transferred from consumers to protected producers
Given Answer: d. the effect is neutral since imports are replaced by domestic goods
four major sectors?
Question: Q29. Money is defined as
Correct Answer: b. anything that is commonly accepted in exchange for other goods and services
Given Answer: d. notes issued by the U. S. Treasury and backed by gold
monetary policy.
Question: Q37. A decrease in the economy?s capacity utilization rate
Correct Answer: b. tends to increase the unemployment rate
Given Answer: d. tends to have an unpredictable effect on the unemployment rate
Question: Q48. Appreciation of the U. S. dollar encourages travel abroad by U. S. citizens.
ECON 125 Final Exam
Question: Q3. If a tariff is used to protect U. S. jobs,
Correct Answer: a. income is transferred from consumers to protected producers
Given Answer: d. the effect is neutral since imports are replaced by domestic goods
four major sectors?
Question: Q29. Money is defined as
Correct Answer: b. anything that is commonly accepted in exchange for other goods and services
Given Answer: d. notes issued by the U. S. Treasury and backed by gold
monetary policy.
Question: Q37. A decrease in the economy?s capacity utilization rate
Correct Answer: b. tends to increase the unemployment rate
Given Answer: d. tends to have an unpredictable effect on the unemployment rate
Question: Q48. Appreciation of the U. S. dollar encourages travel abroad by U. S. citizens.
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ECON 125 Exam 1
Question: Q22. In exercising the principle of comparative advantage, a nation with no absolute
advantage should produce a commodity in which it faces a lower opportunity cost than its trading
partners face.
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ECON 125 Exam 2
Question: Q1. An example of an implicit cost is
Correct Answer: d. forgone interest when investing one's savings in one's own business
Given Answer: a. rent
Question: Q2. The concept of choosing the least-cost combination of resources for a given
amount of output is known as
Correct Answer: c. economic efficiency
Given Answer: b. the principle of diminishing marginal returns
Question: Q5. The principle which states that as more and more units of a variable resource are
added to a set of fixed resources, the resulting additions to output eventually become increasingly
smaller, is the principle of
Correct Answer: c. diminishing marginal returns
Given Answer: a. increasing production
Question: Q7. Marginal cost is equal to the increase in total cost per unit of input divided by
marginal product.
Question: Q15. The long-run average cost curve indicates
Correct Answer: a. the lowest average costs of production at each level of output
Given Answer: b. the lowest average costs of production for each plant size

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ECON 125 Exam 3
Question: Q4. In dollars, the nominal GDP in the United States is in 2005 was between:
Correct Answer: d. 11 and 13 trillion
Given Answer: b. 11 and 13 billion
Question: Q8. If nominal GDP is reported at $10,000 billion and the GDP implicit price deflator
is 150, the GDP in constant dollars is
Correct Answer: a. $6,667 billion
Given Answer: c. $5,650 billion
Question: Q18. Nominal wages can be converted into real wages by
Correct Answer: d. dividing the nominal wages by the CPI
Given Answer: a. multiplying the nominal wages by the CPI
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ECON 125 Exam 4
Question: Q5. An increase in the number of inexperienced workers in the labor force is likely to
increase the unemployment rate relative to the level of output.
Question: Q18. In discussing the distribution of income among families, the term "lowest fifth"
indicates
Correct Answer: b. the poorest twenty percent of families
Given Answer: c. the smallest twenty percent of families
Question: Q38. Which of the following is an example of an automatic stabilizer?
Correct Answer: b. unemployment compensation
Given Answer: d. highway spending
Question: Q39. During the 1960s, tax cuts were used to promote economic expansion in the
United states.

Question: Q40. In the late 1960s, during President Johnson's administration,
Correct Answer: c. a 10 percent income tax surcharge was imposed
Given Answer: b. rationing was imposed
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ECON 125 Exam 5
Question: Q14. A balanced federal budget
Correct Answer: b. can have an expansionary effect on the economy if the government finances
spending with taxes on idle funds
Given Answer: a. cannot have an expansionary effect on the economy
Question: Q41. A credit item on the U.S. balance of payments is an item that
Correct Answer: b. causes foreigners to use up their U.S. dollars
Given Answer: a. makes U.S. dollars available to foreigners
Question: Q47. Meetings among the leaders of the Group ofÂ Eight nations have directed the
course of international monetary policy in the last decade.




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Question: Q1. In Economics, Utility refers to
Correct Answer: b. the ability of a good to satisfy a want
Given Answer: a. the amount of electricity generated
Question: Q5. The idea that what's good for one person may not be good for all people is known
as the
Correct Answer: b. fallacy of composition

Given Answer: a. cause-effect fallacy
Question: Q35. A market structure in which two firms control the market is a
Correct Answer: d. duopoly
Given Answer: b. monopolistic competition
Question: Q39. The monopolist's demand curve
Correct Answer: a. coincides with the market demand curve
Given Answer: c. is above the market demand curve
Question: Q45. When unions cause wages to rise above the equilibrium wage,
Correct Answer: a. a surplus of labor results
Given Answer: b. a shortage of labor results
Question: Q47. The demand for a productive resource is
Correct Answer: b. derived from the demand for the good or service it produces
Given Answer: c. unrelated to the output it produces
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ECON 125 Final Exam
Question: Q22. Classical economists believed that
Correct Answer: b. occasional problems of unemployment could occur but would be quickly
eliminated by the system of self-regulating markets
Given Answer: d. the economy had several possible equilibrium output levels


ECON 125 Exam 2
Question: Q30. The major characteristic of a monopoly is
Correct Answer: a. the degree of control over price it can exercise
Given Answer: c. its price elasticity of demand
Question: Q45. A balanced federal budget
Correct Answer: c. may alter the composition of total output by substituting government spending
for private spending
Given Answer: d. can never have an expansionary effect on total output

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ECON 125 Exam 3

Question: Q33. Each Federal Reserve Bank

Correct Answer: b. is controlled by its own Board of Governors

Given Answer: a. is directly responsible to the U.S. President

Question: Q34. Changing the discount rate

Correct Answer: a. true

Given Answer: b. false

Correct Answer: a. true

Given Answer: b. false

ECON 125 Exam 5

Correct Answer: a. 10 pesos

Given Answer: d. 100 pesos

Correct Answer: a. gold to flow out of the country to other countries

Given Answer: b. gold to flow into the country to other countries

Question: Q42. If domestic income is rising,

Correct Answer: c. imports will increase

Correct Answer: a. true

Given Answer: b. false

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Privacy Policy | Contact Us | Copyright © 1998-2016 University of Management and Technology

ECON 125 Midterm Exam

Question: Q19. A change in demand would be illustrated by

Given Answer: a. a drop in price, which causes people to buy more

Correct Answer: d. demand curve to the right

Given Answer: b. demand curve leftward

Correct Answer: b. at first increases, then eventually decreases

Given Answer: a. increases throughout

Correct Answer: c. wages

Given Answer: b. property taxes

Question: Q37. The individual supply of a monopolist

Correct Answer: d. coincides with the market supply curve

Given Answer: a. coincides with the market demand curve

Question: Q41. The oligopolist?s dilemma is similar to the

Correct Answer: c. prisoner?s dilemma

Correct Answer: a. exporting of domestic jobs

Given Answer: b. exporting of domestic goods

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ECON 125 Final Exam

Question: Q6. Labor market discrimination refers to

Correct Answer: c. differing economic opportunities based on personal characteristics

Given Answer: a. differing economic opportunities offered to persons according to their

Correct Answer: c. 8. 33 percent

Given Answer: a. 30 percent

Correct Answer: c. $0. 67

Given Answer: a. $1. 50

Correct Answer: d. the bank would be $12,500 short of required reserves

Given Answer: b. excess reserves would be decreased to $12,500

Question: Q46. If domestic income is rising,

Correct Answer: c. imports will increase

Given Answer: d. imports will decrease

Correct Answer: d. surplus on financial account

Given Answer: b. deficit on financial account

ECON 125 Exam 3

Correct Answer: a. true

Given Answer: b. false

Correct Answer: b. $2.50

Given Answer: d. $7.50