MANAGEMENT SERVICES

2023
ECONOMICS

URO
 LPU REVIEW
Contents
M U L T I P L E C H O I C E Q U E S T I O N S ..................................................................................... 3
Microeconomics ………………………………………………………………………………………………..1 - 201
Macroeconomics ………………………………………………………………………………………………..1 - 115

2023 Uro
 MULTIPLE CHOICE QUESTIONS 5 Chubby Inc. manufactures 100,000 bearings
yearly that it uses in its generators. The
accountant recorded the following costs of the
bearings:
Materials P40,000
1. Economics is a social science that primarily Direct labor 90,000
study Variable overhead 80,000
a. human greed. Fixed overhead 180,000
b. how firms compete for profits in the Total costs P390,000
marketplace.
c. how limited resources are allocated to Thin Co., offered to supply the bearings at P3.10
satisfy unlimited wants. each. If Chubby Inc., will outsource instead of
d. unemployed resources. manufacturing the bearings, it will be able to
e. how successful investors make money in rent out the plant to Fudgy Co., for P20,000 or
the stock market. another alternative is to convert the plant into a
parking space that can earn P19,000 profit per
2. The problem of scarcity: year and will avoid paying supervision salary for
a. exists because resources are limited P50,000. What is the opportunity cost to make
relative to wants. the bearing?
b. exists because resources are unlimited a. P390,000
relative to wants. b. P20,000
c. is solved by economists using abstract c. P280,000
models. d. P50,000
d. can be eliminated through appropriate
government intervention into markets. 6. The basic difference between macroeconomics
e. does not exist in communist societies. and microeconomics is:
a. microeconomics concentrates on individual
3. The fundamental concepts of economics are: markets while macroeconomics focuses
a. marginal analysis primarily on international trade.
b. opportunity cost b. microeconomics concentrates on the
c. efficient markets behavior of individual consumers while
d. all of the above macroeconomics focuses on the behavior of
firms.
4 Chubby Inc. manufactures 100,000 bearings c. microeconomics concentrates on the
yearly that it uses in its generators. The behavior of individual consumers and firms
accountant recorded the following costs of the while macroeconomics focuses on the
bearings: performance of the entire economy.
Materials P40,000 d. microeconomics explores the causes of
Direct labor 90,000 inflation while macroeconomics focuses on
Variable overhead 80,000 the causes of unemployment.
Fixed overhead 180,000
Total costs P390,000 7. An economy's resources:
a. consist of land, labor, capital, and
Thin Co., offered to supply the bearings at P3.10 entrepreneurial skills.
each. If Chubby Inc., will outsource instead of b. are classified as current and non-current.
manufacturing the bearings, it will be able to c. are always efficiently utilized in wealthy
rent out the plant to Fudgy Co., for P20,000 or nations.
another alternative is to convert the plant into a d. consist of land, labor, and entrepreneurial
parking space that can earn P19,000 profit per skills but not capital.
year and will avoid paying supervision salary for
P50,000. What is the cost to make for each 8. Opportunity cost includes
bearing? a. monetary costs only.
a. P3.90 b. non-monetary costs only.
b. P3.10 c. both monetary and non-monetary costs.
c. P2.80 d. neither monetary nor non-monetary costs.
d. P3.00
9.The opportunity cost of an item is:
a. greater during periods of inflation and lower
during periods of deflation.
b. the highest valued alternative you give up
to get that item.
c. the value of all available alternatives you
sacrifice to get that item.
d. always equal to the peso value of the item.
e. always less than the peso value of the item.
c. If Philippines traded one pound of bananas
to China for between three and five pounds
of coffee, both countries could enjoy
greater consumption and be better off.
d. Philippines should not trade with China
because it’s a loss for the Philippines.
e. results in a., b. and c.
Figure 1

10. The ability to produce at a lower opportunity

cost than someone else is referred to as:
a. absolute advantage.
b. comparative advantage.
c. absolute superiority.
d. competitive disadvantage.
e. comparative disadvantage.

11. To obtain the greatest gains from trade, a

country should specialize in and ____ those
goods for which it has a comparative advantage
and ____ those goods for which other countries
have a comparative advantage.
a. export; export
b. import; import
c. export; import
d. import; export
14. Refer to Figure 1. Currently, Point ____ is
12. Specialization: impossible to achieve.
a. leads to greater self-sufficiency. a. A
b. can lead to an increase in overall b. C
production. c. E
c. is always the result of an inefficient use of d. F
resources. e. G
d. allows workers to develop skills by working
on a large number of tasks. 15. Refer to Figure 1. Which point corresponds to
e. results in both a. and b. an economy experiencing significant
unemployment and/or producing inefficiently?
13. Assume that China can produce 1,000 pounds a. Point A
of rice in one day or produce 200 pounds of b. Point C
bananas in one day. In addition, assume that c. Point E
Philippines can produce 300 pounds of rice in d. Point F
one day or produce 100 pounds of bananas in e. Point G
one day. Which country has the comparative
advantage in rice and which has the 16. Refer to Figure 1. Considering only points on
comparative advantage in bananas? Determine the frontier, the economy will experience the
a pattern of trade regarding these countries and least amount of economic growth over time
these goods that would benefit both countries. (ceteris paribus) if it chooses to produce at:
a. Point A.
a. China has the comparative advantage in b. Point C.
rice because its opportunity cost of one c. Point E.
pound of rice is only 0.2 pounds of bananas d. Point F.
while Philippines 's is 0.33 pounds of e. Point G.
bananas.
b. Philippines has the comparative advantage 17. Refer to Figure 1. Other things being equal, the
in bananas because its opportunity cost of economy will achieve the greatest economic
one pound of bananas is only three pounds growth over time if it currently operates at:
of rice while China 's is five pounds of rice. a. Point B.
b. Point C.
 c. Point D.
d. Point E. 23. Refer to Figure 1. The opportunity cost of one
e. Point F. more unit of a consumption good is greater at
Point ____ than at Point ____.
18. Refer to Figure 1. For this economy, the most a. D; E
preferred point at which to produce is: b. E; D
a. Point C. c. B; A
b. Point D. d. None of the above. The opportunity cost of
c. Point E. a good is constant everywhere along the
d. Point F. production possibilities curve.
e. It cannot be determined without 24. Refer to Figure 1. The opportunity cost of one
information about society's preferences. more unit of a capital good is greater at Point
____ than at Point ____.
19. Refer to Figure 1. The movement from Point D a. D; E
to Point E: b. E; D
a. results in an increase in the production of c. B; A
capital goods but a decrease in the d. None of the above. The opportunity cost of
production of consumption goods this a good is constant everywhere along the
period. production possibilities curve.
b. does not change the level of output
produced since both points are on the 25. The production possibilities curve illustrates:
production possibilities curve. a. the minimum quantity of two resources
c. results in an increase in the production of necessary to produce a given level of
both capital and consumption goods this output.
period. b. that when resources are currently being
d. results in an increase in the production of used inefficiently, it is possible to increase
consumption goods but a decrease in the production of one good only by sacrificing
production of capital goods this period. some of another good.
e. results in none of the above. c. that when resources are currently being
used efficiently, it is possible to increase
20. Refer to Figure 1. Moving from Point ____ to production of one good only by sacrificing
Point ____ will result in an increase in the some of another good.
quantity of both capital and consumption goods d. the minimum quantities of output that can
produced this period. be produced using available resources.
a. B; A e. the maximum amount of output that can be
b. F; A produced when resources are used
c. D; F inefficiently.
d. F; D
e. E; G Figure 2

21. Refer to Figure 1. Moving from Point ____ to

Point ____ will result in an increase in the
production of capital goods, but a decrease in
the production of consumption goods this
period.
a. B; A
b. D; G
c. A; B
d. C; E
e. E; D

22. Refer to Figure 1. Based on the production

possibilities curve above, which of the following
points are inefficient?
a. A only
26. Refer to Figure 2. Assume the economy is
b. B only
operating at Point D in the figure. The
c. A and B only
opportunity cost of moving to Point B is:
d. A, B, and G only
a. about 200 bushels of wheat.
e. C, D, E, and F only
 b. about 200 bushels of soybeans.
c. infinite, as Point B cannot be produced at
any cost.
d. zero.
27. Refer to Figure 2. In order for the economy to
move from Point B to Point E, it would have to:
a. save additional money.
b. stop wasting resources.
c. sacrifice soybeans in favor of more wheat.
d. reduce the level of unemployment to zero.
e. Discover new resources and invent new
technology.
28. Refer to Figure 2. In order to move from Point
D to Point C, the economy will have to give up:
a. 200 bushels of wheat.
b. nothing.
c. 200 bushels of soybeans.
d. 100 bushels of wheat.
e. none of the above. (Point C cannot be
produced with available resources.)
29. Refer to Figure 2. In order to move from Point
B to Point C, the economy will have to:
a. give up 200 bushels of soybeans.
b. give up 200 bushels of wheat.
c. give up 300 bushels of wheat.
d. give up 100 bushels of soybeans.
e. shift resources around, but sacrifice
nothing.
30. A virulent disease spreads throughout the
population of an economy, causing death and
disability. This can be portrayed as:
a. a movement from a point on the production
possibilities curve to a point inside the
production possibilities curve.
b. a movement from a point on the production
possibilities curve to the northeast.
c. a movement along the production
possibilities curve to the southeast.
d. an outward shift of the production
possibilities curve.
e. an inward shift of the production
possibilities curve.
31. A production possibilities curve will be concave
as opposed to straight line if
a. the law of increasing opportunity costs
applies.
b. some resources cannot be easily adapted to
different tasks.
c. the opportunity cost of the production of a
good decreases as less of it is produced.
d. the opportunity cost of the production of a
good increases as more of it is produced.
e. all of the above
32. If additional units of output could be produced
at constant opportunity cost, the production
possibilities curve would be:
a. bowed inward toward the origin.
b. bowed outward away from the origin.
c. positively sloped.
d. a straight line with a negative slope.
33. In a market economy, resources are allocated:
a. by central planners using a price system.
b. by decentralized planners at the local level.
c. by individual decision makers responding to
market prices.
d. by government bureaucracies because of
the absence of a price system.
34. The economic system of which of the following
countries can be treated as an example of a
command economy?
a. United States
b. Canada
c. United Kingdom
d. Cuba
35. In a command economy, resources are
allocated:
a. by central planners using a price system.
b. by decentralized planners at the local level.
c. by individual decision makers responding to
market prices.
d. by government bureaucracies because of
the absence of a price system.
36. Which of the following is an example of a pure
market economy?
a. Russia
b. United States
c. Switzerland
d. Singapore
e. No nation has a pure market economy
37. The law of demand refers to the:
a. decrease in price that results as more units
of a product are demanded.
b. increase in price that results from an
increase in demand for a good of limited
supply.
c. inverse relationship between the price of a
good and the quantity demanded.
d. increase in the quantity of a good made
available when its price increases.
38. The demand schedule for a good:
a. indicates the quantity that people will buy
at the prevailing price.
b. indicates the quantities that suppliers will
sell at various market prices.
c. indicates the quantities that will be
purchased at alternative market prices.
 d. is determined primarily by the cost of
producing the good.
39. A downward-sloping demand curve shows:
a. the direct relationship between price and
quantity supplied; as price increases, the
quantity supplied increases.
b. the inverse relationship between price and
quantity supplied; as price increases, the
quantity supplied decreases.
c. the direct relationship between price and
quantity demanded; as price increases, the
quantity demanded increases.
d. the inverse relationship between price and
quantity demanded; as price increases, the
quantity demanded decreases.
e. how supply varies with demand.
40. When the price of a good falls relative to other
goods and the consumer consequently buys
more of this good, it is called the:
a. income effect.
b. substitution effect.
c. complement effect.
d. net effect.
e. demand effect.
41. According to the income effect, an increase in
the price of oranges will:
a. cause consumers to consume more apples
because of greater savings on that good.
b. cause consumers to spend more on oranges
because a higher price signals that oranges
are better than apples.
c. cause consumers to replace some oranges
with other fruit that is now relatively
cheaper than oranges.
d. leave consumers with less money to spend
on all goods.
42. The difference between a change in quantity
demanded and a change in demand is that a
change in:
a. quantity demanded is caused by a change
in a good's own current price, while a
change in demand is caused by a change in
some other variable, such as income,
tastes, or expectations.
b. demand is caused by a change in a good's
own current price, while a change in
quantity demanded is caused by a change
in some other variable, such as income,
tastes, or expectations.
c. quantity demanded is a change in the
amount people actually buy, while a change
in demand is a change in the amount they
want to buy.
d. A change in demand and a change in
quantity demanded are the same thing.
Figure 3
43. Refer to Figure 3. The University Theater faces
market demand curve D0 and has begun
charging P10, up from P5, for tickets for Friday
and Saturday night shows. As a result, students
have:
a. increased their demand for tickets to Q4.
b. increased their quantity of tickets
demanded to Q4.
c. decreased their demand for tickets to Q1.
d. decreased their quantity of tickets
demanded to Q1.
44. Refer to Figure 3. Everyone has been raving
about the newest summer blockbuster film.
Since your Aunt Finola just sent you a nice letter
with P20 enclosed, you decide to see the movie
even though ticket prices have risen to P10 per
ticket. You are not alone, as many students are
waiting in line at the theater, shifting the
demand curve to D1. The theater owners are
now selling:
a. Q1 tickets.
b. Q2 tickets.
c. Q3 tickets.
d. Q4 tickets.
e. Given the above information, it is not
possible to identify the number of tickets
sold.
Figure 4
45. Refer to Figure 4. A change from Point A to
Point B represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
 46. Refer to Figure 4. A change from Point A to
Point C represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
47. Refer to Figure 4. A change from Point A to
Point D represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
48. Refer to Figure 4. A change from Point A to
Point E represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
49. If an increase in the price of Product X causes
an increase in the demand for Product Y, we can
conclude that:
a. Products X and Y are complements.
b. Products X and Y are substitutes.
c. Products X and Y are normal goods.
d. The price of Product Y will decrease.
e. Products X and Y are inferior goods.
50. Whenever the price of Good A decreases, the
demand for Good B increases. Good A and B
appear to be:
a. complements.
b. substitutes.
c. inferior goods.
d. normal goods.
e. inverse goods.
51. A decrease in consumer incomes will:
a. decrease the demand for an inferior good.
b. decrease the supply of an inferior good.
c. increase the demand for a normal good.
d. increase the supply of a normal good.
e. do none of the above.
52. Which of the following would most likely cause
a decrease in the current demand for a normal
good?
a. An increase in the price of the good.
b. An increase in incomes.
c. An increase in the expected future price of
the good.
d. A decrease in the price of a complement for
the good.
e. None of the above would be likely to cause
a decrease in current demand for a normal
good.
53. According to the law of supply:
a. there is an inverse relationship between
price and quantity demanded.
b. there is a direct relationship between price
and quantity demanded.
c. there is an inverse relationship between
price and the quantity supplied.
d. there is a direct relationship between price
and the quantity supplied.
e. there is a direct relationship between
quantity demanded and quantity supplied.
54. An upward-sloping supply curve shows that:
a. buyers are willing to pay more for
particularly scarce products.
b. suppliers expand production as the product
price falls.
c. suppliers are willing to increase production
of their goods if they receive higher prices
for them.
d. buyers are willing to buy more as the
product price falls.
e. buyers are not affected either directly or
indirectly by the sellers' costs of production.
55. A supply schedule shows:
a. projected sales as ad spending varies.
b. how many units producers are willing and
able to sell at various prices.
c. possible combinations of output as input
prices vary.
d. how many units consumers would like to
buy at various prices.
56. The difference between a change in quantity
supplied and a change in supply is that a change
in:
a. quantity supplied is caused by a change in
a good's own, current price, while a change
in supply is caused by a change in some
other variable, such as input prices, prices
of related goods, expectations, or taxes.
b. supply is caused by a change in a good's
own, current price, while a change in the
quantity supplied is caused by a change in
some other variable, such as input prices,
prices of related goods, expectations, or
taxes.
c. quantity supplied is a change in the amount
people want to sell, while a change in
supply is a change in the amount they
actually sell.
d. supply and a change in the quantity
supplied are the same thing.
 Figure 5
57. Refer to Figure 5. A change from Point A to
Point B represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
58. Refer to Figure 5. A change from Point A to
Point C represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
59. Refer to Figure 5. A change from Point A to
Point D represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
60. Upward shifts are
a. increases in both demand and supply.
b. decreases in both demand and supply.
c. increases in demand and decreases in
supply.
d. increases in supply and decreases in
demand.
61. Downward shifts are
a. increases in both demand and supply.
b. decreases in both demand and supply.
c. increases in demand and decreases in
supply.
d. increases in supply and decreases in
demand.
62. Refer to Figure 5. A change from Point A to
Point E represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
Figure 6
The diagram below represents the market for
butter.
63. Refer to Figure 6. The equilibrium price of
butter is:
a. P5.
b. P3. (quantity demanded = quantity
supplied)
c. P2.
d. P1.
e. 50 cents.
64. Refer to Figure 6. If the current price of butter
equals P5, you would expect to find:
a. the market in equilibrium at 2,000 pounds
per year.
b. the market in equilibrium at 8,000 pounds
per year.
c. that the market is not in equilibrium, and
that the quantity supplied is greater than
the quantity demanded.
d. that the market is not in equilibrium, and
that the quantity demanded is greater than
the quantity supplied.
65. Refer to Figure 6. If the current price of butter
equals P2, you would expect to find:
a. the market in equilibrium at 3,000 pounds
per year.
b. the market in equilibrium at 8,000 pounds
per year.
c. that the market is not in equilibrium, and
that the quantity supplied is greater than
the quantity demanded.
d. that the market is not in equilibrium, and
that the quantity demanded is greater than
the quantity supplied.
66. Refer to Figure 6. At a market price of P4, there
exists a:
a. shortage equal to 4,000 pounds of butter.
b. surplus equal to 4,000 pounds of butter.
c. shortage equal to 7,000 pounds of butter.
d. surplus equal to 7,000 pounds of butter.
e. market equilibrium.
67. Refer to Figure 6. At a market price of P1, there
exists a:
a. shortage equal to 5,000 pounds of butter.
b. surplus equal to 5,000 pounds of butter.
c. shortage equal to 11,000 pounds of butter.
d. surplus equal to 11,000 pounds of butter.
 e. market equilibrium. d. increase, increasing the quantity supplied
and increasing the quantity demanded.
68. Refer to Figure 6. If a price floor of P4 is e. decrease, decreasing the quantity supplied
imposed, ____ units of butter will be sold. and increasing the quantity demanded.
a. 7,000
b. 5,000 74. A shortage exists in the market for corn at the
c. 4,000 prevailing price. The shortage will be eliminated
d. 3,000 by a price:
e. 2,000 a. increase, increasing the supply and
decreasing the demand.
69. Refer to Figure 6. If a price ceiling of P2 is b. decrease, increasing the supply and
imposed, ____ units of butter will be sold. decreasing the demand.
a. 8,000 c. decrease, increasing the quantity supplied
b. 5,000 and decreasing the quantity demanded.
c. 4,000 d. increase, increasing the quantity supplied
d. 3,000 and decreasing the quantity demanded.
e. 2,000 e. increase, increasing the supply and
decreasing the quantity demanded.
70. Refer to Figure 6. If a price ceiling of P4 is
imposed, we would expect that ____ units of 75. The general consensus on minimum wage laws
butter will be sold. is that they:
a. 7,000 a. do create some unemployment.
b. 5,000 b. affect workers at all skill levels.
c. 4,000 c. lead to extremely low rates of
d. 3,000 unemployment.
e. 2,000 d. increase employment possibilities for
teenagers.
71. A surplus will result whenever the:
a. government imposes a price floor below the Figure 7
equilibrium price.
b. government imposes a price ceiling below
the equilibrium price.
c. government imposes a price floor above the
equilibrium price.
d. government imposes a price ceiling above
the equilibrium price.
e. quantity demanded exceeds the quantity
supplied.

72. A shortage will result whenever:

a. the government imposes a price floor below
equilibrium price. 76. Refer to Figure 7. At a market price of P4,
b. the government imposes a price ceiling which of following conditions exist?
above equilibrium price. a. Shortage
c. the government imposes a price floor above b. Surplus
equilibrium price. c. Equilibrium
d. the government imposes a price ceiling d. Any of the above
below equilibrium price. 77. Refer to Figure 7. The equilibrium price is:
e. both a. and d. occur. a. P3
b. P1
73. A surplus exists in the market for corn at the c. P4
prevailing price. The surplus will be eliminated d. Indeterminate
by a price:
a. increase, decreasing the supply and 78. Refer to Figure 7. At a market price of P2,
increasing the demand. which of following conditions exist?
b. decrease, decreasing the supply and a. Shortage
increasing the demand. b. Surplus
c. decrease, increasing the quantity supplied c. Equilibrium
and increasing the quantity demanded. d. Either a or b
79. Assuming that the demand and supply of a good
have moved in the same direction, and by the
same amount, the new equilibrium would
represent:
a. an increase in price and an increase in
quantity exchanged.
b. no change in price and an increase in
quantity exchanged.
c. a decrease in price and a decrease in
quantity exchanged.
d. no change in price and a decrease in
quantity exchanged.
e. no change in price, and an indeterminate
change in quantity exchanged.
80. Assuming that the demand and supply of a good
have moved in opposite directions, but by the
same amount, the new equilibrium would
represent:
a. an increase in price and an increase in
quantity exchanged.
b. no change in price and an increase in
quantity exchanged.
c. a decrease in price and a decrease in
quantity exchanged.
d. no change in price and a decrease in
quantity exchanged.
e. an indeterminate change in price, but no
change in quantity exchanged.
81. Which of the following is not a supply curve
determinant?
a. Government policies.
b. Changes in technology.
c. Consumer population.
d. Changes in price of inputs.
82. Price elasticity of demand is defined as:
a. the slope of the demand curve.
b. the slope of the demand curve divided by
the price.
c. the relative responsiveness of the change
in price to a change in quantity demanded.
Is d. the relative responsiveness of the change in
quantity demanded to a change in price.
e. the inverse of the price elasticity of supply.
83. Price elasticity of demand is defined as:
a. the slope of the demand curve.
b. the slope of the demand curve divided by
the price.
c. the percentage change in price divided by
the percentage change in quantity
demanded.
d. the percentage change in quantity
demanded divided by the percentage
change in price.
e. the inverse of the price elasticity of supply.
84. Hidilyn manage a business that provides
personal fitness training services. She knows
that after raising prices from P50 to P75 per
hour, the quantity of hours spent delivering
training services only fell from 45 to 40 hours
per week. The demand for the services is:
a. elastic, with a price elasticity coefficient
greater than one.
b. elastic, with a price elasticity coefficient less
than one.
c. inelastic, with a price elasticity coefficient
greater than one.
d. inelastic, with a price elasticity coefficient
less than one.
e. unit elastic, with a price elasticity coefficient
equal to one.
85. A price increase will increase the total revenue
a firm receives if the demand for its product is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
86. The price of a new toy increases from P5 to P7
and the quantity demanded decreases from
12,000 to 6,000 per month as a result. Based
on this information, the price elasticity of
demand (in absolute terms) is estimated to be
equal to:
a. 0.5, indicating relatively elastic demand.
b. 0.5, indicating relatively inelastic demand.
c. 2.0, indicating relatively elastic demand.
d. 2.0, indicating relatively inelastic demand.
e. 1.0. indicating relatively unit elastic
demand.
87. A price cut will increase the total revenue a firm
receives if the demand for its product is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
88. Aside from inelastic demand what are other
types of price elasticity:
a. perfectly elastic demand = ∞
b. demand is elastic = > 1 .
c. demand is unit elastic =1.
d. demand is perfectly inelastic = 0.
e. All of the above.
 Exhibit 8

89. Refer to Exhibit 8. With reference to Graph A,

at a price of P10, total revenue equals:
a. P200.
b. P400.
c. P500.
d. P1,000.
94. Refer to Exhibit 9. The graph that best
90. Refer to Exhibit 8. With reference to Graph A, illustrates a perfectly inelastic demand curve is:
at a price of P5, total revenue equals: a. Graph A.
a. P200. b. Graph B.
b. P400. c. Graph C.
c. P500. d. Graph D.
d. P1,000. 95. Refer to Exhibit 9. The graph that best
illustrates a perfectly elastic demand curve is
91. Refer to Exhibit 8. Graph A represents a a. Graph A.
demand curve that is relatively ____. Total b. Graph B.
revenue ____ as the price decreases from P10 c. Graph C.
to P5. d. Graph D.
a. inelastic; decreases
b. elastic; decreases 96. Refer to Exhibit 9. The graph that best
c. elastic; increases illustrates a relatively inelastic (but not perfectly
d. inelastic; increases inelastic) demand curve is:
a. Graph A.
92. Refer to Exhibit 8. With reference to Graph B, b. Graph B.
at a price of P5, total revenue equals: c. Graph C.
a. P200. d. Graph D.
b. P300.
c. P250. 97. What type of demand curve is depicted by the
d. P150. graph below?

93. Refer to Exhibit 8. Graph B represents a

demand curve that is relatively ____. Total
revenue ____ as the price decreases from P10
to P5.
a. inelastic; decreases
b. elastic; decreases
c. elastic; increases
d. inelastic; increases
ANS: A
a. perfectly inelastic
Exhibit 9
 b. perfectly elastic c. a 6% decrease in the quantity of bicycles
c. unit elastic supplied.
d. relatively inelastic d. a 6% increase in the quantity of bicycles
supplied.
98. Which of the following is associated with e. a 1.5% decrease in the quantity of bicycles
relatively elastic demand? supplied.
a. Few substitutes; large portion of income;
short time span 104. Supply is said to be ____ when the quantity
b. Many substitutes; large portion of income; supplied is not very responsive to changes in
long time span price.
c. Few substitutes; small portion of income; a. independent
short time span b. inelastic
d. Many substitutes; small portion of income; c. unit elastic
long time span d. elastic
e. flexible
99. A "war on drugs" is waged, and, as a result, a
larger quantity of drugs flowing into the United 105. Ceteris paribus, if an 8% increase in price leads
States is seized and more drug traffickers are to a 6% increase in the quantity supplied, then:
arrested. If demand for drugs is inelastic, one a. supply is elastic.
would expect the total expenditure on drugs to: b. supply is unit elastic.
a. decrease. c. supply is inelastic.
b. increase. d. the supply curve is perfectly vertical.
c. stay constant. e. the supply curve is perfectly horizontal.
d. There is not enough information available
to make a determination. 106. In the graph below, a tax increase would be
paid:
100. The elasticity of supply is defined as the ____
change in quantity supplied divided by the ____
change in price.
a. total; percentage
b. percentage; marginal
c. marginal; percentage
d. percentage; percentage
e. total; total

101. Supply is said to be ____ when the quantity

supplied is very responsive to changes in price. a. largely by the sellers.
a. independent b. largely by the buyers.
b. inelastic c. equally by the sellers and buyers.
c. unit elastic d. by the government.
d. elastic
e. flexible 107. In the graph below, a tax increase would be
102. Ceteris paribus, if a 4% increase in price leads paid:
to a 6% increase in the quantity supplied, then:
a. supply is elastic.
b. supply is unit elastic.
c. supply is inelastic.
d. the supply curve is perfectly vertical.
e. the supply curve is perfectly horizontal.

103. The elasticity of supply coefficient for bicycles is

estimated to be equal to 1.5. It is expected,
therefore, that a 4% increase in price would lead
to: a. largely by the sellers.
a. a 4% decrease in the quantity of bicycles b. largely by the buyers.
supplied. c. equally by the sellers and buyers.
b. a 4% increase in the quantity of bicycles d. by the government.
supplied.
108. In the graph below, a tax increase would be 114. Based on the graph below, what is the
paid: consumer surplus of the 10th unit
bought/sold?

a. largely by the sellers.

b. largely by the buyers.
c. equally by the sellers and buyers.
d. by the government.

109. The difference between the value of a good a. P1.25

to consumers and its price is known as: b. P2.25
a. demand. c. P2.75
b. marginal utility. d. P3.50
c. total utility. e. P6.25
d. opportunity cost
e. consumer surplus. 115. Based on the graph below, what is the
producer surplus of the 10th unit bought/sold?
110. The difference between the value of a good
to sellers and its price is known as:
a. consumer surplus.
b. producer surplus.
c. total utility.
d. demand.
e. supply.

111. Graphically, consumer surplus is measured by:

a. the area below the demand curve.
b. the area below the demand curve, but
above the upward-sloping supply curve.
c. the area below the demand curve, but
above the market price.
d. the area below the market demand curve, a. P1.25
but above the supply curve. b. P2.25
c. P2.75
112. The area between the market price and the d. P3.50
supply curve provides a measure of: e. P6.25
a. consumer surplus.
b. producer surplus. 116. Based on the graph below, what is the sum of
c. consumer surplus plus producer surplus. consumer surplus and producer surplus for
d. marginal utility. the 10th unit bought/sold?
e. the deadweight loss arising from free trade.

113. Total welfare gains from trade to the economy

can be measured:
a. as the sum of consumer and producer
surpluses.
b. as the difference between producer surplus
and consumer surplus.
c. as the sum of consumer and producer
surpluses minus taxes
 b. quantity exchanged increases to Q1.
c. the tax reduces the quantity exchanged
below the original output level.
d. the size of the total surplus realized from
trade increases.

120. Refer to Figure 10. The amount of consumer

surplus after the tax is area:
a. f
b. a
c. - (b + c)
d. - d

a. P3.50 121. Refer to Figure 10. The amount of producer

b. P5.00 surplus after the tax is area:
c. P6.25 a. f
d. P25.00 b. a
e. P50.00 c. b + d
d. b + c + d + e
117. A tax in an industry would result in:
a. a decrease in consumer surplus. 122. Refer to Figure 10. The amount of tax
b. a decrease in producer surplus revenue after the tax is area:
c. a decrease in the gains from trade. a. a + b + d + f
d. all of the above. b. b + d
e. both a. and b., but not c. c. c + e
d. d + e + f
Figure 10
123. Refer to Figure 10. The total welfare after
the tax is the area:
a. a + b + d + f
b. b + d
c. c + e
d. d + e + f

124. A subsidy in an industry would result in:

a. an increase in consumer surplus.
b. an increase in producer surplus
c. an increase in the gains from trade.
d. all of the above.
e. both a. and b., but not c.

Figure 11

118. Refer to Figure 10. The deadweight loss of a

tax is area:
a. - (a + b + c)
b. - (d + e + f)
c. - (c + e)
d. - (a + b + d + f)

119. Refer to Figure 10. Deadweight loss occurs

because:
a. the price to buyers is lower than before the
tax.
125. Refer to Figure 11. The consumer surplus
before the subsidy is area
a. c + d 133. An externality occurs when:
b. a + b + e a. people other than those making the
c. a + b demand and supply decisions share the
d. a + b benefits or the costs of an activity.
b. only the people making the demand and
126. Refer to Figure 11. The consumer surplus supply decisions share the benefits or the
after the subsidy is area costs of an activity.
a. a + b + c c. private costs of production equal the full
b. a + b + c + g social costs associated with production of a
c. a + b + c + d good.
d. c + g d. private costs of production are ignored.

127. Refer to Figure 11. The producer surplus 134. Which of the following activities, if any,
before the subsidy is area represents an external cost?
a. a + b a. The reduction in the incidence of chicken
b. a + b + c + d pox when children are inoculated against
c. c + d the disease.
d. a + b + e b. The damage to a person's health from
secondhand smoke.
128. Refer to Figure 11. The producer surplus c. The increase in local property values when
after the subsidy is area the city creates a neighborhood park.
a. c + d + b + g d. The price you pay for the prime rib that you
b. a + b + c + d consume at a local restaurant.
c. c + g
d. c + d + b + e 135. Which of the following activities, if any,
represents an external cost?
129. Refer to Figure 11. The cost to government a. The benefits that accrue to society when an
(tax payers) after the subsidy is area individual receives a college education.
a. - (b + e) b. The increase in property values of vacant
b. - (b + e + f) lots in an area near where a new
c. - (b + e + f + c + g) amusement park is constructed.
d. zero c. The pollination of apple trees that occurs
when a beekeeper locates next door to an
130. Refer to Figure 11. The total welfare after the apple orchard.
subsidy is the area: d. The price you pay for a slice of pizza.
a. - (b + e) e. None of the above
b. a + b + c + d 136. Which of the following activities, if any,
c. a + b + c - f represents an external benefit?
d. a + b + c + d - f a. The benefit to a consumer from consuming
a Caesar salad.
131. Refer to Figure 11. The deadweight loss from b. The damage to a person's health from
the subsidy is area secondhand smoke.
a. - (e + f + g) c. The reduction in tourist revenues at a beach
b. - (b + e + f + c + g) resort caused by an oil spill.
c. - f d. The reduction in property values caused by
d. zero the construction of a bar next to your home.
e. None of the above
132. The total social costs of production are:
a. private costs plus private benefits. 137. The law of diminishing marginal utility
b. private benefits minus private costs. states that:
c. private costs plus external costs. a. total utility decreases as consumption of a
d. private costs minus external costs. good increases.
b. total utility increases as consumption of a
(Social costs are those that accrue to the good increases.
total population; private costs refer to those c. the increase in total utility from consuming
costs incurred only by the producer or an additional unit decreases as
consumer of the good or service.) consumption increases.
 d. the increase in total utility from consuming
an additional unit increases as consumption 143. Assume Brad worked as a contractor for a year
increases. and had revenues of P120,000 and explicit cost
of P70,000. If he could have been paid P80,000
138. The total utility from consuming five cups of working for a computer company, his:
coffee is 15, 27, 37, 46, and 54 utils, a. accounting profit equaled P10,000 and he
respectively. The marginal utility of the fourth would be rational to stop working as a
cup of coffee is: contractor.
a. 48. b. accounting profit equaled P50,000 and he
b. 54. would be rational to continue working as a
c. 9. contractor.
d. 6. c. economic profit equaled P50,000 and he
e. 12. would be rational to continue working as a
contractor.
139. An economist's measurement of profit differs d. economic profit equaled -P30,000 and he
from an accountant's in that: would be rational to stop working as a
a. accountants calculate total revenue contractor.
differently than do economists.
b. economists do not always include all of the 144. When there are economies of scale in
opportunity costs when calculating total production:
production costs. a. long-run average total cost declines as
c. accountants do not always include all of the output expands.
opportunity costs when calculating total b. long-run average total cost increases as
production costs. output expands.
d. economic profit generally exceeds c. marginal cost increases as output expands.
accounting profit. d. the marginal product of an input diminishes
with increased utilization.
140. A firm has P300 million in revenues and explicit
costs of P100 million. If its owners have 145. When there are diseconomies of scale in
invested P150 million in the company at an production:
opportunity cost of 10 percent a year, the firm's a. long-run average total cost declines as
accounting profit is: output expands.
a. P50 million. b. long-run average total cost increases as
b. P150 million. output expands.
c. P185 million. c. average fixed cost increases as output
d. P200 million. expands.
e. P215 million. d. marginal cost decreases as output expands.
e. the marginal product of an input diminishes
141. A firm has P350 million in revenues and explicit with increased utilization.
costs of P150 million. If its owners have
invested P150 million in the company at an 146. Constant returns to scale indicate that a firm
opportunity cost of 10 percent a year, the firm's is experiencing:
economic profit is: a. per unit costs of production that are
a. P50 million. decreasing as the scale of output expands.
b. P150 million. b. per unit costs of production that remain
c. P185 million. stable as the scale of output expands.
d. P200 million. c. per unit costs of production that are
e. P215 million. increasing as the scale of output expands.
d. an increasing marginal product.
142. Assume Brad worked as a contractor for a year
and had revenues of P120,000 and explicit cost Figure 12
of P70,000. If he could have been paid P80,000
working for a computer company, his
accounting profit as a contractor was ____ and
his economic profit was ____.
a. P50,000; -P30,000
b. P10,000; P50,000
c. P40,000; P50,000
d. P50,000; P40,000
 c. vertical and perfectly inelastic.
d. vertical and perfectly elastic.

Exhibit 13

147. Refer to Figure 12. Point A refers to:

a. break-even point.
b. efficient equilibrium.
c. minimum efficient scale.
d. zero economic profit.
154. Refer to Exhibit 13. In Graph A, the market
148. Refer to Figure 12. The region 'x' refers to:
demand has increased from d0 to d1, and as a
a. diseconomies of scale.
result:
b. constant returns to scale.
a. both the market price and the price of the
c. minimum efficient scale.
price-taking firm have risen to P6.
d. economies of scale.
b. both the market price and the price of the
149. Refer to Figure 12. The region 'z,' where the
price-taking firm have fallen to P5.
long-run ATC rises at the higher levels of output,
c. the quantity of goods transacted in the
refers to:
market has fallen from Q1 to Q0.
a. diseconomies of scale.
d. at the new equilibrium price, the firm will
b. constant returns to scale.
be unable to sell any of its output.
c. minimum efficient scale.
e. the market price has increased to P6, but
d. economies of scale.
the price of the price-taking firm remains
equal to P5.
150. Refer to Figure 12. The region 'y' refers to:
a. diseconomies of scale.
155. Refer to Exhibit 13. In Graph B, the market
b. constant returns to scale.
demand has decreased from d0 to d1, and as a
c. minimum efficient scale.
result:
d. economies of scale.
a. both the market price and the price of the
e. both b. and c. above
price-taking firm have increased to P5.
b. both the market price and the price of the
151. Which market structure is characterized by
price-taking firm have fallen to P4.
many sellers, easy entry, and
c. the quantity of goods transacted in the
homogeneous products?
market has fallen from Q1 to Q0.
a. perfect competition
d. at the new equilibrium price, the firm will
b. monopolistic competition
be unable to sell any of its output.
c. oligopoly
d. monopoly
156. Refer to Exhibit 13. Graphs A and B together
e. none of the above
demonstrate the effect that a change in market
demand has on the demand curve faced by a
152. A perfectly competitive firm is a:
firm that is:
a. price giver.
a. producing a homogeneous product.
b. price taker.
b. very small relative to the market output as
c. price maker.
a whole.
d. price leader.
c. a price taker.
d. all of the above.
153. A perfectly competitive firm faces a
demand curve that is:
157. In the short run, a perfectly competitive firm will
a. horizontal and perfectly inelastic.
maximize profit by producing where:
b. horizontal and perfectly elastic.
 a. MC = MR.
b. MC = ATC.
c. ATC = MR.
d. AVC = MC.
158. At the level of output where marginal revenue
equals marginal cost, price is less than average
total cost but greater than average variable
cost. In this instance, a profit-maximizing firm
should:
a. cease production as it is incurring an
economic loss.
b. continue operating at that output level in
the short term, since total revenue will
cover all of the firm's variable costs and
some of its fixed costs.
c. continue operating at that output level in
the short term, since total revenue will
cover all of the firm's fixed costs and a
portion of its variable costs.
d. decrease output to where marginal revenue
exceeds marginal cost by the greatest peso
amount.
e. increase the production of output.
160. Which of the following best resembles a
perfectly competitive market?
a. a stock market
b. the book publishing industry
c. the steel industry
d. the used car industry
161. Which of the following most closely resembles a
perfectly competitive market?
a. the airline industry
b. the soft drink industry
c. the wheat market
d. long-distance telephone service
162. Pure monopoly:
a. is characterized by a single supplier.
b. is a market structure in which no close
substitute products are available.
c. exists when entry and survival of potential
competitors is extremely unlikely.
d. is characterized by all of the above.
163. A monopolistic firm is a:
a. price taker that faces the market supply
curve.
b. price taker that faces the market demand
curve.
c. price maker that faces the market supply
curve.
d. price maker that faces the market demand
curve.
164. Which of these contributes to the existence of
monopoly power?
a. the control of critical resources
b. legal barriers
c. patents
d. All of the above contribute to the existence
of monopoly power.
165. Why does the government allow some markets
to be monopolized by granting patents?
a. to promote a more equal distribution of
income
b. to correct for negative externalities
c. to promote technological progress
d. to ensure lower prices for consumers in the
short run
166. The DeBeers Diamond Company, which owns
most of the South African diamond production,
has market power over the diamond trade. This
market power was obtained through:
a. illegal means.
b. control of a scarce resource.
c. patent protection.
d. government licensing.
167 . Which of the following accurately describes a
major difference between a monopolist and
firms in perfectly competitive markets?
a. The monopolist maximizes profit; firms in
perfectly competitive markets maximize
sales.
b. The monopolist may earn long-run
economic profit; firms in perfectly
competitive markets cannot.
c. The monopolist is a price taker; firms in
other markets are price searchers.
d. The monopolist may earn short-run profit;
firms in perfectly competitive markets
cannot.
168. Profit-maximizing monopolists choose a level of
output such that:
a. average total cost is minimized.
b. price equals marginal revenue but exceeds
average variable cost.
c. price equals marginal cost but exceeds
average variable cost.
d. marginal revenue equals marginal cost.
Figure 14
 c. DFQ2Q1.
d. EGQ3Q1.
e. EFG.

175. Characteristics of a monopolistically competitive

market include all of the following except:
a. some influence over price.
b. a large number of sellers.
c. barriers to entry.
d. differentiated products.

176. Which of the following conditions distinguishes

perfect competition from monopolistic
competition?
169. Refer to Figure 14. The profit-maximizing firm a. the number of sellers
will produce at what level of output? b. freedom of entry and exit
a. 0Q1 c. homogeneity of the product
b. 0Q2 d. none of the above
c. 0Q3
d. None of the above. 177. A monopolistically competitive firm derives its
ability to influence price from:
170. Refer to Figure 14. If the firm is profit a. the perfectly elastic demand curve it faces.
maximizing, the region bounded by CADE b. barriers to entry.
represents: c. its product, which is differentiated in some
a. total costs. way from competing products.
b. total losses. d. its position as the sole supplier in the
c. total profits. market.
d. total consumer surplus.
178. Monopolistic competitors and perfect
171. Refer to Figure 14. The socially efficient level competitors are alike in:
of output equals: a. facing horizontal demand curves.
a. 0Q1. b. earning zero economic profit in the short
b. 0Q2. run.
c. 0Q3. c. earning zero economic profit in the long
d. none of the above. run.
d. relying on advertising to attract buyers to
172. Refer to Figure 14. The profit-maximizing their products.
firm's total revenue is indicated in the diagram
as area: 179. Based on the graph below, what is the
a. 0CEQ1. maximum amount of profit this firm could earn?
b. 0BFQ2.
c. 0ADQ1.
d. CADE.
e. 0CGQ3.

173. Refer to Figure 14. Total cost when the

monopolist is maximizing profits is indicated by
area:
a. 0CEQ1.
b. 0BFQ2.
c. 0ADQ1.
d. CADE.
e. 0CGQ3.

174. Refer to Figure 14. The welfare loss due to

monopoly is indicated in the diagram as area: a. P150
a. DGE. b. P210
b. DFH. c. P245
 d. P315
184. The key characteristic of oligopoly markets is
180. Based on the graph below, what would total "interdependence among firms." This means
revenue equal at the profit maximizing level of that:
output? a. the demand curve faced by each firm is
perfectly elastic.
b. each firm produces a product identical to its
rivals.
c. each firm must consider how its decisions
will affect its competitors.
d. firms will be able to earn above-normal
profits in the long run.

185. High barriers to entry are generally found in:

a. perfectly competitive markets.
b. monopolistically competitive markets.
c. oligopolistic markets.
d. monopolistic markets.
e. both c. and d.

a. P245 186. An example of an oligopoly is:

b. P350 a. the commercial airline industry.
c. P875 b. a stock market.
d. P1,050 c. the video rental industry.
d. the market for eyeglasses.
181. Based on the graph below, what would total cost
be at the profit maximizing level of output? 187. If the firms in an oligopoly collude, the results
will represent what other type of industry?
a. perfect competition
b. monopolistic competition
c. monopoly
d. none of the above

188. In the kinked demand oligopoly model, if one

firm were to increase its price, competitors
would be expected to:
a. refrain from raising their prices, hoping to
take away part of the firm's market share.
b. follow their lead and raise their prices.
c. decrease their prices in response.
a. P560 d. get together with the firm and convince it
b. P665 to lower its prices.
c. P875
d. P900 189. A cartel is:
a. a group of oligopolists who try to behave
182. Monopolistic competition is common in: like a single monopolist and split the
a. retail selling. benefits among themselves.
b. farming. b. a government-approved organization for
c. basic manufacturing. the exchange of technical information
d. electric power generation. among firms.
c. an industry trade group formed to lobby
183. Which of the following is characteristic political leaders.
of an oligopolistic industry? d. a regulated industry manufacturers
a. homogeneous or differentiated products association that is officially permitted to set
b. few firms the price of its product above long-run
c. interdependence average total cost.
d. large barriers to entry
e. all of the above
190. Overt cartels are relatively rare because: Bonnie
Each
a. they are illegal in some countries, including goes free
sentence
the United States. Remain Clyde
d to 1
b. members find it difficult to agree on key silent sentence
year in
decisions. d to 20
prison
c. members frequently have an incentive to years
cheat on the cartel.
d. of all the above reasons. 195. Refer to Figure 15. Given the above prisoner's
dilemma table, if Bonnie and Clyde each make
191. Cartels are thought to be inherently unstable self-interested decisions in a noncooperative
because: game, how much time will each spend in jail?
a. the costs of enforcing cartel agreements are a. Bonnie goes free; Clyde gets 20 years
very low. b. 1 year each
b. each cartel member can privately profit c. 8 years each
from increasing production beyond agreed- d. Bonnie gets 20 years; Clyde goes free
upon levels.
c. customers force cartel members to increase
production and reduce prices. 196. Refer to Figure 15. If Bonnie and Clyde could
d. cartel agreements are legally binding and successfully collude regarding their decisions,
can be upheld in court. how much time will each spend in jail?
a. Bonnie goes free; Clyde gets 20 years
192. If firms meet together to decide on prices and b. 1 year each
outputs, it is called: c. 8 years each
a. overt collusion. d. Bonnie gets 20 years; Clyde goes free
b. tacit collusion.
c. price leadership. Figure 16
d. a pricing conglomerate. Kellogg's
Price Price
193. A successful cartel ____ supply so that member High Low
firms earn ____ profits. GM: P50 GM: P10
a. restricts; monopoly Price mil mil
b. expands; monopoly High K: P60 K: P110
c. restricts; no economic General mil mil
d. expands; no economic Mills Price GM: GM: P25
Low P100 mil mil
194. Predatory pricing: K: P20 K: P30
a. occurs when a firm increases price in order mil mil
to exploit inelastic demand by consumers.
b. occurs when a firm prices below its 197. Refer to Figure 16. In the game depicted,
competitors but above average variable between two cereal producers is:
cost in order to increase its market share. a. unlike the "Prisoners' Dilemma" game.
c. occurs when a firm prices below average b. a game in which neither firm has a
variable cost in order to drive competitors dominant strategy.
out of the market. c. a game in which both firms would be better
d. is difficult to distinguish from vigorous off if they could collude and price high.
competition in practice. d. a game in which both firms would be better
e. is characterized by both c. and d. off if they could collude and price low.

Figure 15 198. Refer to Figure 16. In the game:

Bonnie's Decision a. if General Mills prices high, Kellogg's is
Confess Remain better off pricing high.
silent b. if General Mills prices high, Kellogg's is
Bonnie better off pricing low.
Each
sentence c. if Kellogg's prices high, General Mills is
Clyde's sentence
Confes d to 20 better off pricing high.
Decisio d to 8
s years d. the Nash equilibrium is for both firms to
n years in
Clyde price high.
prison
goes free e. a., c. and d. are correct.
 d. oligopoly - perfect competition -monopoly -
199. Refer to Figure 16. In the game: monopolistic competition
a. the dominant strategy of General Mills is to
set a high price.
b. the dominant strategy of Kellogg's is to set
a low price.
c. the dominant strategy of Kellogg's is to set
a high price.
d. neither firm has a dominant strategy.
e. both a. and c. are correct.

200. Refer to Figure 16. The payoffs to General Mills

and Kellogg's in the Nash equilibrium are:
a. P50 million and P60 million, respectively.
b. P10 million and P110 million, respectively.
c. P100 million and P20 million, respectively.
d. P25 million and P30 million, respectively.

201. Which of the following is a correct listing of

industry models ordered from most
competitive to least competitive?
a. perfect competition - monopolistic
competition - oligopoly - monopoly
b. perfect competition - oligopoly -
monopolistic competition - monopoly
c. perfect competition - oligopoly - monopoly
- monopolistic competition

MACROECONOMICS
1.A major macroeconomic goal of nearly every society
is:
a. maintaining stability of prices.
b. maintaining high levels of employment.
c. achieving high rates of economic growth.
d. all of the above.
e. none of the above.
2. Real gross domestic product is the total value of
all:
a. goods and services adjusted for inflation.
b. goods and services without an adjustment
for inflation.
c. final goods and services adjusted for
inflation.
d. final goods and services without
adjustment for inflation.
e. intermediate goods and services without
adjustment for inflation.
3. The unemployment rate is calculated as:
a. the number of unemployed persons divided
by the number of employed persons.
b. the number of employed persons divided
by the number of unemployed persons.
c. the number of unemployed persons divided
by the number of employed plus
unemployed persons.
d. the number of unemployed persons divided
by the population.
4. If the numbers of employed and unemployed do
not change but the size of the population
increases by 10%, what would be the effect?
a. an increase in the unemployment rate and
an increase in the labor force participation
rate
b. an increase in the unemployment rate and
no change in the labor force participation
rate
c. an increase in the unemployment rate and
a decrease in the labor force participation
rate
d. no change in the unemployment rate and a
decrease in the labor force participation
rate
5. The unemployment rate may underestimate the
true extent of unemployment if:
a. many part-time employees would like to
work full-time, but are unable to get the
additional work.
b. employees increase the number of hours
they work overtime.
c. there are a large number of people working
in the underground economy.
d. any of the above occur.
 6. The unemployment rate may overestimate the
true extent of unemployment if:
a. many part-time employees would like to
work full-time, but are unable to get the
additional work.
b. many people become discouraged and
cease looking for work.
c. people falsely claim that they are actively
seeking work in order to receive
unemployment benefits.
d. many people who claim to be unemployed
actually work in the underground economy.
e. either c. or d. occurs.
7. The most significant real economic cost of high
unemployment is:
a. the money cost of unemployment
insurance payments to the unemployed.
b. the lost tax revenue that might have been
paid by persons if they had worked.
c. the money cost of retraining persons to
obtain new jobs.
d. the difference in income between a
person's lost job and new job.
e. the potential goods and services that might
have been produced but weren't.
8. A discouraged worker is:
a. one who opts to quit work to attend
college.
b. one who opts to quit searching for work
after unsuccessfully seeking employment.
c. a part-time worker who would like to work
more hours.
d. none of the above.
9. Which of the following individuals are
considered officially unemployed?
a. a discouraged worker
b. an individual who quits his job to raise a
child
c. an individual who is not looking for a job
because he works in the underground
economy
d. None of the above
10. A person who works part-time is considered to
be:
a. employed.
b. unemployed.
c. out of the labor force.
d. overemployed.
e. none of the above.
11. Persons who do not hold a job, but are actively
seeking work are considered:
a. out of the labor force.
b. unemployed.
c. unemployable, and not counted in official
statistics.
d. underemployed.
12. Suppose that everyone who has looked for a job
for more than six months gave up in despair and
stopped looking. What would happen to the
unemployment rate?
a. It would increase.
b. It would fall.
c. It would change, but the effect cannot be
predicted.
d. It would not change.
13. Persons who do not have jobs and who do not
look for work are considered:
a. unemployed.
b. out of the labor force.
c. underemployed.
d. overemployed.
e. part of the underground economy.
14. Structural unemployment includes:
a. unemployment caused by workers who
leave positions to seek better jobs.
b. unemployment caused by automation that
displaces workers from their jobs.
c. unemployment caused by a decline in the
economy's total production.
d. unemployment caused by the geographical
and occupational mobility of the labor
force.
e. all of the above.
15. Cyclical unemployment arises when:
a. business activity in the macroeconomy
declines.
b. the business cycle enters an expansionary
phase.
c. labor unions strike for higher wages.
d. the agriculture sector completes the cycle
of planting, cultivating, and harvesting the
nation's food supply.
16. According to Okun's law, a 2 percent increase in
cyclical unemployment reduces output by
almost:
a. 1 percent.
b. 2 percent.
c. 0.5 percent
d. 4 percent.
17. Unemployment caused by a contraction in the
economy is called:
a. frictional unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. seasonal unemployment.
18. Unemployment that results from technological
changes is called:
a. frictional unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. seasonal unemployment.
19. An individual who voluntarily leaves one job and
spends a period of time seeking another is
considered:
a. frictionally unemployed.
b. cyclically unemployed.
c. structurally unemployed.
d. seasonally unemployed.
20. Unemployment resulting from normal turnover
in the labor market is called:
a. frictional unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. season unemployment.
21. The category of unemployment that is a
byproduct of geographic and occupational
mobility and not generally considered to be a
serious problem is:
a. frictional unemployment.
b. underemployment.
c. cyclical unemployment.
d. structural unemployment.
22. The development of a nationwide computerized
job bank listing of all job openings would be
most likely to reduce:
a. structural unemployment.
b. frictional unemployment.
c. seasonal unemployment.
d. cyclical unemployment.
23. When unemployment rises above the natural
rate it reflects the existence of ____
unemployment.
a. frictional
b. structural
c. seasonal
d. cyclical
24. The natural rate of unemployment:
a. is the sum of both frictional and structural
unemployment when they are at a
maximum.
b. includes only frictional unemployment.
c. includes only structural unemployment.
d. includes only cyclical unemployment.
25. The term full employment implies an
unemployment rate of:
a. zero
b. approximately 5%
c. approximately 10%
d. 100%
26. Inflation exists whenever:
a. the price of a good increases.
b. the price of a good decreases.
c. the economy experiences a contraction.
d. the overall price level is rising.
e. the overall price level is falling.
27. Deflation exists whenever:
a. the overall price level falls.
b. the overall price level rises.
c. the economy experiences a contraction.
d. the price of a good decreases.
e. either a. or d. occurs.
28. During an inflationary period, those most likely
to suffer reduced wealth are those who are
holding their wealth in:
a. gold.
b. real estate.
c. currency.
d. stocks.
29. Why are creditors harmed by unexpected
inflation?
a. Creditors receive lower nominal rates of
interest when prices rise.
b. Creditors are paid back with more valuable
dollars.
c. Creditors receive higher nominal rates of
interest when prices rise.
d. Creditors are paid back money with less
spending power than when it was originally
loaned out.
30. Inflation:
a. can cause a redistribution of income from
creditors to borrowers.
b. may discourage investment and economic
growth.
c. can decrease the value of a nation's
currency relative to other nations.
d. may result in any of the above.
31. The difference between the nominal interest
rate and the rate of inflation is:
a. the prime rate.
b. the real interest rate.
c. the discount rate.
d. coupon rate.
32. If the nominal interest rate is 6% and the
inflation rate is 3%, the real interest rate is
a. 2%
b. 3%
c. 6%
d. 9%
e. 18%
33. Say that initially the nominal interest rate is 6%
and prices are stable, but the inflation rate the
following year rises to 3%. If the real rate of
interest is to remain unchanged, the nominal
interest rate in the second year must:
a. rise by 9 percentage points.
b. rise by 6 percentage points.
c. rise by 3 percentage points.
d. remain unchanged.
e. fall by 3 percentage points.
34. The costs imposed on a firm from changing
listed prices is termed:
a. the nominal cost of inflation.
b. the shoe-leather cost of inflation.
c. the menu cost of inflation.
 d. the implied cost of inflation. 42. Unemployment rises in ____, and falls in ____.
35. The cost incurred when individuals reduce their a. peaks; troughs
money holdings because of inflation is termed b. booms; recessions
as the: c. expansions; contractions
a. nominal cost. d. contractions; expansions
b. shoe-leather cost. 43. The existence of discouraged workers:
c. menu cost. a. increases the size of the labor force, but
d. implied cost. does not affect the unemployment rate.
36. Which of the following refers to extremely high b. reduces the size of the labor force, but does
rates of inflation for sustained periods of time? not affect the unemployment rate.
a. deflation c. may cause the official unemployment rate
b. hyperinflation to understate the true amount of
c. bust unemployment.
d. depression d. may cause the official unemployment rate
e. expansion to overstate the true amount of
unemployment.
37. An unanticipated increase in inflation will:
a. redistribute income from employers to 44. Which of the following groups would not tend to
workers. lose from unexpected inflation?
b. redistribute income from lenders to a. Retirees on fixed pensions.
borrowers. b. Creditors.
c. redistribute income from borrowers to c. Those whose incomes are tied to long-term
lenders. contracts
d. do none of the above. d. Those whose wages have cost of living
adjustment clauses in their contracts.
38. An unanticipated period of deflation will:
e. All of the above would tend to lose from
a. redistribute income from workers to
unexpected inflation
employers.
b. redistribute income from lenders to 45. A country's currency unit changes in purchasing
borrowers. power:
c. redistribute income from borrowers to a. only when there is inflation.
lenders. b. only when there is deflation.
d. do none of the above. c. when there is either inflation or deflation.
d. in none of the above cases.
39. Economists use the term "business cycle" to
refer to: 46. In the expansion phase of the business cycle
a. the growth of small businesses into major a. output is rising.
corporations. b. unemployment is falling.
b. qualitative changes in products resulting c. consumer and business confidence is high.
from improved technology. d. investment is rising.
c. fluctuations in economic activity, measured e. all of the above are true.
by GDP or unemployment. 47. Which of the following observations concerning
d. periods of increase or decrease in the rate phases of a business cycle is incorrect?
of inflation. a. Maximum amount of unemployment occurs
40. The period of declining growth in real GDP, exactly at the trough.
between the peak of the business cycle and the b. Expansion phase is measured from the
trough, is called the: trough to the peak.
a. contractionary phase. c. Trough is the point in time when output
b. boom. stops declining.
c. expansionary phase. d. The contraction phase is also called
d. static phase. recession.
41. Economists usually use the term "recession" to 48. Which of the following observations concerning
refer to: leading economic indicators is true?
a. any slowdown in the growth of real GDP. a. They provide warnings of likely downturns.
b. zero real GDP growth. b. They provide accurate information on the
c. two or more consecutive quarters of depth of a downturn.
declining real GDP. c. They provide accurate information on the
d. a reduction in nominal GDP lasting more duration of a downturn.
than six months. d. Both b. and c. are true.
49. Underemployment occurs when:
a. a firm hires fewer than the required
number of workers, to save costs.
b. a firm hires workers who do not possess
the required skills that the job demands.
c. a worker is over qualified and possesses
more skills than what his job demands.
d. a firm hires more than the required number
of workers.
e. a worker who is looking to work full-time
has to settle for a part-time job.
51. Aggregate demand can be defined as:
a. the total spending by all consumers, business
firms, government agencies, and foreigners in
the United States.
b. the total amounts that all consumers, business
firms, government agencies, and foreigners
wish to spend on all final goods and services at
various price levels.
c. the total spending by consumers, business
firms, and government agencies in one year.
d. the total spending by consumers, business
firms, and government agencies on final goods
and services.
52. If private consumption in the United States was 69
percent of GDP, investment was 18 percent,
government purchases were 18 percent, exports
were 9 percent, and imports were 14 percent, net
exports were equal to ____ percent of GDP.
a. -5
b. 5
c. -23
d. 23
53. If consumption in the United States was 68 percent
of GDP, investment was 19 percent, government
purchases were 13 percent, exports were 14
percent, and imports were 14 percent, net exports
were equal to ____ percent of GDP.
a. -1
b. 0
c. -28
d. 28
54. As the price level increases, the quantity of RGDP
demanded ____, and when the price level
decreases, the quantity of RGDP demanded in the
economy ____.
a. decreases, decreases
b. increases, increases
c. increases, decreases
d. decreases, increases
55. In an open economy, as the price level increases,
a(n) ____ in demand for domestic goods results in
a(n) ____ in the quantity of RGDP demanded.
a. increase, decrease
b. increase, increase
c. decrease, decrease
d. decrease, increase
50. Which of the following is not a leading economic
indicator?
a. Prices of common stock
b. Number of new businesses formed
c. Unemployment rate
d. New orders for plants and equipment
56. Which of the following will not cause consumption,
and as a result, aggregate demand, to increase?
a. an optimistic business forecast of future income
growth
b. a tax cut
c. an increase in consumer confidence
d. a tax increase
e. increased consumer wealth
57. Which of the following will cause consumption, and
as a result, aggregate demand, to shift to the right?
a. an optimistic business forecast of future income
growth
b. increased consumer wealth
c. an increase in consumer confidence
d. a tax cut
e. All of the above.
58. Investment will increase if business taxes ____, real
interest rates ____, or if business confidence ____.
a. increase, increases, increases
b. decrease, decrease, decreases
c. increase, increases, decreases
d. decrease, decrease, increases
59. If the stock market continues a steady climb
upwards, this ____ consumer confidence and
wealth, leading to ____ consumption, and ____
aggregate demand.
a. increases, decreased, increased
b. decreases, decreased, decreased
c. increases, increased, increased
d. increases, increased, decreased
60. If both imports and exports fell,
a. AD would fall.
b. AD would rise.
c. AD would be unaffected.
d. AD would rise if exports fell more than imports.
e. AD would fall if exports fell more than imports.
61. Along the long-run aggregate supply curve, the level
of RGDP supplied ____ with increases in the price
level.
a. does not change
b. increases
c. decreases
d. None of the above.
62. The aggregate supply curve slopes: 69. If the marginal propensity to consume is 4/5, the
a. downward because firms can sell more, and multiplier is:
hence, will produce more when prices are a. 20.
lower. b. 5.
b. downward because firms find it costs less to c. 1.
purchase labor and other inputs when prices d. 1/5.
are lower and hence, they produce more. e. 5/4.
c. upward because firms normally can purchase 70. If unemployment is the most significant problem in
some labor and other inputs at fixed costs for the economy, which of the following actions would
some period of time. be an appropriate fiscal policy response?
d. upward because firms find that it costs more to a. decrease taxes
purchase labor and other inputs when prices b. decrease transfer payments
are higher and hence they must produce and c. increase government purchases
sell more in order to make a profit. d. all of the above
63. Which of the following would lead to stagflation? e. both A and C above
a. demand-pull inflation 71. Which of the following is an appropriate fiscal policy
b. cost-push inflation response to high inflation?
c. both of the above a. increase interest rates
d. none of the above b. increase government purchases
64. Demand-pull inflation is caused by: c. increase transfer payments
a. an increase in aggregate demand. d. none of the above
b. a decrease in aggregate demand. 72. To achieve a P500 billion increase in AD, if the MPC
c. an increase in short-run aggregate supply. is 0.8, what increase in government purchases
d. a decrease in short-run aggregate supply. would be called for?
65. Cost-push inflation is caused by: a. P625 billion
a. an increase in aggregate demand. b. P500 billion
b. a decrease in aggregate demand. c. P400 billion
c. an increase in aggregate supply. d. P100 billion
d. A decrease in aggregate supply. 73. If the marginal propensity to consume is 0.8, the
marginal propensity to save is:
66. The government's fiscal policy is its plan to regulate a. 0.8
aggregate demand by manipulating: b. 0.4
a. the money supply. c. 0.2
b. taxation and spending. d. 0.3
c. the treasury. e. Data insufficient
d. the energy department.
Figure 26-1
67. Expansionary fiscal policy consists of:
a. increased government purchases, increased
taxes, increased transfer payments.
b. decreased government purchases, decreased
taxes, decreased transfer payments.
c. increased government purchases, increased
taxes, decreased transfer payments.
d. increased government purchases, decreased
taxes, increased transfer payments.

68. Contractionary fiscal policy consists of:

a. increased government purchases, increased
taxes, increased transfer payments.
b. decreased government purchases, decreased
taxes, decreased transfer payments.
c. decreased government purchases, increased
taxes, decreased transfer payments.
d. increased government purchases, decreased
taxes, increased transfer payments.
74. Refer to Figure 26-1. If the economy is at full 75. Refer to Figure 26-1. The expansionary fiscal policy
employment real GDP, expansionary fiscal policy, will result in the new long-run equilibrium:
which increases aggregate demand from AD0 to AD1, a. E2 and RGDP1.
will result in the new short-run equilibrium: b. E2 and RGDPNR.
a. E2 and RGDP1. c. E1 and RGDP1.
b. E2 and RGDPNR. d. E0 and RGDPNR.
c. E1 and RGDP1.
d. E0 and RGDPNR.
Figure 26-2
76.Refer to Figure 26-2. In order for the economy pictured to get back to RGDPNR, this
economy could use:
a. decreased taxes and increased government
purchases.
b. increased taxes and increased government
purchases.
c. decreased taxes and decreased government
purchases.
d. increased taxes and decreased government
purchases.
77. If the government sought to end a recession, which of the following would be an
appropriate policy?
a. Increase taxes.
b. Decrease government purchases.
c. Decrease transfer payments.
d. Decrease taxes and increase transfer payments.
e. Increase taxes and decrease transfer payments.
78. Expansionary fiscal policy, other things being equal, will tend to:
a. increase interest rates.
b. increase investment.
c. increase net exports.
d. do both a. and c.
e. do both b. and c.
79. Supply-side advocates believe that when taxes and regulations are too
burdensome, people will:
a. save less.
b. work less.
c. provide less investment capital.
d. do all of the above.
80. Which of the following tax changes would a supply-side economist be most likely
to favor?
a. eliminating an investment tax credit
b. an increase in the capital gain tax
c. lower marginal income tax rates
d. an increase in the personal income tax rate for
high-income individuals
e. All of the above except a.
81. Based on the situation depicted in the graph below, which of the following would
be an appropriate fiscal policy response?

a. increase taxes
b. decrease taxes
c. decrease government purchases
d. all of the above
e. both A and C above
82. Based on the situation depicted in the graph below, which of the following would
be an appropriate fiscal policy response?

a. increase taxes
b. decrease taxes
c. decrease government purchases
d. both A and C above
e. all of the above
83. If Melanie had P200,000 of income and spent P180,000 on consumption in 2003
and had P300,000 of income and spent P240,000 on consumption in 2004:
a. her APC in 2003 was 0.8.
b. her APC in 2004 was 0.9.
c. her MPC was 0.6.
d. her MPC was 0.8.
e. her MPC was 0.9.
84. The crowding-out effect implies that:
a. increases in government purchases will reduce
consumption purchases.
b. higher taxes reduce both consumption and
saving.
c. fiscal policy effects on interest rates will be
offset by monetary policy.
d. increases in government purchases may
increase interest rates and thereby reduce
investment.
85. After legislation is signed into law, the time it takes before actual fiscal stimulus is
noticed is termed as:
a. signal lag.
b. implementation lag.
c. impact lag.
d. recognition lag.

86. If inflation is the major problem in the economy, which of the following would be
an appropriate monetary policy response?
a. decreasing reserve requirements
b. increasing the discount rate
c. buying government bonds
d. none of the above
87. If inflation is the major problem in the economy, which of the following would be
an appropriate monetary policy response?
a. decreasing government spending
b. decreasing the discount rate
c. decreasing reserve requirements
d. none of the above
88. Velocity can be defined as:
a. the turnover rate of money
b. the speed at which economic activity takes
place.
c. the speed at which multiplier effect takes place.
d. the speed at which tax cuts are spent.
e. the speed at which money creation takes place.
89. In the equation of exchange, an increase in M of 8 percent could be accompanied
by changes in velocity, the price level and real GDP of:
a. 8%, 0%, 0%.
b. 0%, 8%, 0%.
c. 0%, 0%, 8%.
d. 0%, 4%, 4%.
e. any of the above except a.
90. If the velocity of money (V) and real output (Q) were increasing at approximately
the same rate, then:
a. it would be impossible for monetary authorities
to control inflation.
b. monetary acceleration would not lead to
inflation.
c. inflation would be closely related to the long-run
rate of monetary expansion.
d. the money supply would not need to increase in
order to maintain stable prices as output rose
over time.
e. both c. and d. would be true.
91. If the amount of money in circulation is P50 million and nominal GDP is P150 million,
then the velocity of money is:
a. 0.33.
b. 2.
c. 3.
d. impossible to determine from the information
provided.
92. When the Central bank wants to expand the money supply through open market
operations, it:
a. sells government securities to banks.
b. purchases government securities from member
banks.
c. purchases government securities from the
Treasury.
d. sells government securities to the Treasury.
93. The money supply contracts when the Central bank:
a. gathers up worn and ripped Central bankeral
Reserve notes.
b. sells government securities.
c. borrows from the COUNTRY Treasury.
d. purchases equities in major COUNTRY
corporations.
94. Which of the following is most frequently used when the Central bank is attempting
to adjust the money supply?
a. Changing reserve requirements
 b. Open market operations
c. Changing the discount rate
d. Moral suasion
e. all of the above
95. The Central bank's purchases and sales of government securities are called:
a. margin operations.
b. open market operations.
c. small-dealer transactions.
d. intermediary transactions.
96. Which of the following actions of the Central bank is likely to lead to a decrease in
the money supply?
a. A decrease in the discount rate
b. An increase in reserve requirements
c. A decrease in reserve requirements
d. A purchase of government securities by the
Central bank in the open market
97. Which of the following would constitute contractionary monetary policy by the
Central bank?
a. An increase in income tax rates, a cut in
government spending, and an elimination of the
investment tax credit
b. Open market sales of government securities, an
increase in the discount rate, and an increase in
reserve requirements
c. An increase in tariffs on imported goods and a
decrease in foreign aid
d. Open market purchases of government
securities, a cut in the discount rate, and an
increase in reserve requirements
98. Rising reserve requirements, other things being equal, would tend to:
a. increase the dollar volume of loans made by the
banking system.
b. increase the money supply.
c. increase aggregate demand.
d. do all of the above.
e. do none of the above.
99. A combination of a decrease in the discount rate and an increase in reserve
requirements would:
a. increase the money supply.
b. decrease the money supply.
c. leave the money supply unchanged.
d. have an indeterminate effect on the money
supply.
100. A combination of an increase in the discount rate and an open market sale of
government securities by the Central bank would:
a. increase the money supply.
b. decrease the money supply.
c. leave the money supply unchanged.
d. have an indeterminate effect on the money
supply.
101. An increase in the money supply:
a. will definitely result in inflation if unemployment
is high and there is much unused industrial
capacity.
b. shifts the aggregate demand curve to the left.
c. will probably result in inflation if the economy is
fully employed.
d. causes interest rates to rise.
102. If interest rates rise, what will happen to demand for money?
a. It will increase.
b. It will decrease.
c. Nothing; the economy will move to a new
quantity demanded at a new interest rate.
d. It depends on what happens to other
determinants of demand for money like prices
or income.
103. Expansionary monetary policy will tend to have what effect?
a. Increase the money supply and lower interest
rates
b. Increase the money supply and increase
interest rates
c. Decrease the money supply and lower interest
rates
d. Decrease the money supply and increase
interest rates
104. When the economy is in a recession,
a. expansionary monetary policy can potentially
result in increased real output, but only in the
short run.
b. expansionary monetary policy can potentially
result in increased real output in both the short
run and long run.
c. contractionary monetary policy can potentially
result in increased real output, but only in the
short run.
d. contractionary monetary policy can potentially
result in increased real output in both the short
run and long run.
105. When the economy is initially at full employment:
a. contractionary monetary policy can result in
increased real output, but only in the short run.
b. contractionary monetary policy can result in
increased real output in both the short run and
long run.
c. contractionary monetary policy can result in
decreased real output, but only in the short run.
d. contractionary monetary policy can result in
decreased real output in both the short run and
long run.
106. Based on the situation depicted in the graph below, which of the following would
be an appropriate monetary policy response?

a. increase reserve requirements

b. increase the discount rate
c. sell government bonds
d. none of the above
107. Based on the situation depicted in the graph below, which of the following would
be an appropriate monetary policy response?
 a. decrease reserve requirements
b. decrease the discount rate
c. sell government bonds
d. none of the above
108. Which is potentially the most powerful tool available to the Central bank to control
the supply of money?
a. open market operations
b. moral suasion
c. changes in reserve requirements
d. discount rate changes
109. The discount rate's main significance is that:
a. changes in the rate are commonly viewed as a
signal of the Central bank's intentions with
respect to monetary policy.
b. changes in the rate are a sign that monetary
policy has swung strongly in a new direction.
c. it can be done quietly, without a lot of political
debate or a public announcement.
d. a small change in the rate can make a huge
change in the number of dollars that are in
excess reserves in banks all over the country.
110. What can the Central bank increase to increase the supply of money?
a. Open market purchases of government bonds.
b. Reserve requirements
c. The discount rate.
d. Any of the above.
e. b. or c.
111. Moral suasion involves:
a. increasing the discount rate
b. persuading the banks to follow a particular
course of action
c. increasing the margin requirements for the
purchase of common stock.
d. increasing the reserve requirement
112. Hyperinflation exists when the rate of inflation exceeds:
a. 10 percent.
b. 50 percent.
c. 20 percent.
d. 35 percent.
113. Which of the following is true about the equation of exchange?
a. The equation of exchange can be presented as:
M ´ V = P ´ Q.
b. Velocity represents the average number of
times that a dollar is used in purchasing final
goods or services in a one-year period.
c. If M increases, and V remains constant, then P
must rise, Q must rise, or P and Q must each
rise.
d. An increase in the interest rates will cause
people to hold less money, which, in turn,
means that the velocity of money increases.
e. All of the above are true about the equation of
exchange.
114. If M increases, and V remains constant:
a. P must rise.
b. Q must rise.
c. P and Q must each rise.
d. Any of the above may happen, but none of the
above must happen.
115. Higher rates of anticipated inflation would tend to:
a. increase velocity and decrease nominal GDP.
b. increase velocity and increase nominal GDP.
c. decrease velocity and decrease nominal GDP.
d. decrease velocity and increase nominal GDP.

**end of handouts***