1. In the theory of comparative advantage, a good should be produced in that nation where
A. the production possibilities line lies further to the right than the trading possibilities line.
B. its cost is least in terms of alternative goods that might otherwise be produced.
C. its absolute cost in terms of real resources used is least.
D. its absolute money cost of production is least.
2. A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
A. the likelihood of collusion.
B. high entry barriers.
C. product differentiation.
D. mutual interdependence in decision making
3. Research for industrially advanced countries indicates that
A. the more independent the central bank, the lower the average annual rate of inflation.
B. the more independent the central bank, the higher the average annual rate of inflation.
C. there is no relationship between the degree of independence of a country's central bank and its inflationrate.
D. the more independent the central bank, the higher the average annual rate of unemployment
4. All else equal, a large decline in the real interest rate will shift the
A. investment-demand curve leftward.
B. investment-demand curve rightward.
C. investment schedule upward.
D. investment schedule downward.
5. If an unintended increase in business inventories occurs at some level of GDP, then GDP
A. entails a rate of aggregate expenditures in excess of the rate of aggregate production.
B. may be either above or below the equilibrium output.
C. is too low for equilibrium.
D. is too high for equilibrium
6. The business cycle depicts:
A. fluctuations in the general price level.
B. the phases a business goes through from when it first opens to when it finally closes.
C. the evolution of technology over time.
D. short-run fluctuations in output and employment.
7. Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that
A. their marginal utilities are the same.
B. their total utilities are the same.
C. their marginal and total utilities are proportionate.
D. the income and substitution effects associated with each are equal
8. The two basic markets shown by the simple circular flow model are
A. capital goods and consumer goods.
B. free and controlled.
C. product and resource.
D. household and business.
9. Macroeconomics approaches the study of economics from the viewpoint of
A. individuals or specific markets.
B. the operation of the Federal Reserve.
C. economy wide effects
D. the national economy.
10. If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
A. nominal and real GDP would both rise.
B. nominal and real GDP would both be unchanged.
C. real GDP would rise, but nominal GDP would be unchanged.
D. nominal GDP would rise, but real GDP would be unchanged
11. Pure monopolists may obtain economic profits in the long run because
A. of advertising.
B. marginal revenue is constant as sales increase.
C. of barriers to entry.
D. of rising average fixed costs
12. Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that
A. the two commodities are substitute goods.
B. Mrs. Arnold should spend more on pretzels and less on soda.
C. Mrs. Arnold should spend more on soda and less on pretzels.
D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts
13. The primary gain from international trade is
A. tariff revenue
B. increased employment in the domestic export sector
C. more goods than would be attainable through domestic production alone
D. increased employment in the domestic import sector
14. The simple circular flow model shows that
A. households are on the buying side of both product and resource markets.
B. businesses are on the selling side of both product and resource markets.
C. households are on the selling side of the resource market and on the buying side of theproduct market.
D. businesses are on the buying side of the product market and on the selling side of theresource market
15. Contractionary fiscal policy is so named because it:
A. involves a contraction of the nation's money supply.
B. necessarily reduces the size of government.
C. is aimed at reducing aggregate demand and thus achieving price stability.
D. is expressly designed to contract real GDP.
16. If the Federal Reserve System buys government securities from commercial banks and the public:
A. commercial bank reserves will decline.
B. commercial bank reserves will be unaffected.
C. it will be easier to obtain loans at commercial banks.
D. the money supply will contract
17. The term "recession" describes a situation where
A. inflation rates exceed normal levels.
B. output and living standards decline.
C. an economy's ability to produce is destroyed.
D. government takes a less active role in economic matters
18. Normal profit is
A. Covers the full opportunity cost of the resources used by the firm.
B. Is an above average rate of return.
C. Is the accounting profit earned when economic profits are greater than zero.
D. Is sufficient to induce entry into the industry
19. Which of the following will generate a demand for country X's currency in the foreign exchange market?
A. travel by citizens of country X in other countries
B. the desire of foreigners to buy stocks and bonds of firms in country X
C. the imports of country X
D. charitable contributions by country X's citizens to citizens of developing nations
20. Buyers will opt out of markets in which
A. there are significant negative externalities.
B. standardized products are being produced.
C. there is inadequate information about sellers and their products.
D. there are only foreign sellers.
21. Which of the following statements best describes the 12 Federal Reserve Banks?
A. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
B. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.
C. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.
D. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
22. Two major virtues of the market system are that it:
A. eliminates discrimination and minimizes environmental pollution
B. results in price level stability and a fair personal distribution of income
C. allocates resources efficiently and allows economic freedom
D. results in an equitable personal distribution of income and always maintains full employment
23. Which of the following have substantially equivalent effects on a nation's volume of exports and imports?
A. Exchange rate depreciation and domestic inflation
B. Exchange rate depreciation and domestic deflation
C. Exchange rate appreciation and domestic deflation
D. Exchange rate appreciation and a decrease in the domestic supply of money
24. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:
A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.
B . directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.
C . directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.
D . directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million
25. Why are economists concerned about inflation?
A. Inflation generally causes unemployment rates to rise
B. Real GDP is necessarily falling when there is inflation
C. Inflation increases the value of peoples' saving and encourages overspending on goods and services
D. Inflation lowers the standard of living for people whose income does not increase as fast as the price level
26. Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:
A. the adverse selection problem.
B. the moral hazard problem.
C. a failure of the market for externalities.
D. the existence of positive externalities.
27. In order for mutually beneficial trade to occur between two otherwise isolated nations:
A. each nation must be able to produce at least one good absolutely cheaper than the other.
B. each nation must be able to produce at least one good relatively cheaper than the other.
C. each nation must face constant costs in the production of the good it exports.
D. one nation’s production must be labor-intensive while the other nation’s production is capital- intensive
28. As output increases, total variable cost:
A. Increases at a constant rate
B. Increases at a decreasing rate and then at an increasing rate
C. Increases more rapidly than does total cost
D. Increases continuously at a decreasing rate
29. Countercyclical discretionary fiscal policy calls for:
A. Surpluses during recessions and deficits during inflationary periods
B. Deficits during recessions and surpluses during inflationary periods
C. Surpluses during both recessionary and inflationary periods
D. Deficits during both recessionary and inflationary periods
30. The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:
A. the production possibilities curve of any two nations are identical.
B. a nation's production possibilities and trading possibilities lines coincide.
C. a nation's trading possibilities line lies to the right of its production possibilities line.
D. a nation's production possibilities line lies to the right of its trading possibilities line.