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1) Stabilizing a nation's price level and the purchasing power of its money can be achieved:

            A.     with neither fiscal nor monetary policy.

            B.     only with fiscal policy.

            C.     with both fiscal and monetary policy.

            D.     only with monetary policy.


2) Non-price competition refers to:

            A.     reductions in production costs that are not reflected in price reductions.

            B.     price increases by a firm that is ignored by its rivals.

            C.     advertising, product promotion, and changes in the real or perceived characteristics of a product.

            D.     competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.


3) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

            A.     reduce taxes by $200 billion.

            B.     reduce taxes by $50 billion.

            C.     increase government expenditures by $50 billion.

            D.     increase government expenditures by $100 billion.



4) If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:

            A.     price level would necessarily rise.

            B.     price level would necessarily fall.

            C.     output would fall.

            D.     output would rise.


5) Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:

            A.     expenditures curve will shift downward.

            B.     supply curve will shift leftward.

            C.     supply curve will shift rightward.

            D.     demand curve will shift leftward.


6) Which of the following is not a possible source of natural monopoly?

            A.     rent-seeking behavior

            B.     greater use of specialized inputs

            C.     simultaneous consumption

            D.     large-scale network effects


7) Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

            A.     no inference can be made as to the elasticity of demand for peanuts.

            B.     the demand for peanuts is elastic.

            C.     the demand curve for peanuts has shifted to the right.

            D.     the demand for peanuts is inelastic.



8) Oligopoly is difficult to analyze primarily because:

            A.     neither allocative efficiency nor productive efficiency is achieved.

            B.     the price and output decisions of any one firm depend on the reactions of its rivals.

            C.     output may be either homogenous or differentiated.

            D.     the number of firms is too large to make collusion understandable.


9) Firm X develops a new product and gets a head start in its production. Other firms try to produce a similar product but discover they have higher average total costs than the existing firm. This situation illustrates:

            A.     spillover costs.

            B.     learning-by-doing.

            C.     diminishing marginal returns.

            D.     diseconomies of scale.

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