Trade agreements are enforced a) militarily by the United States. b) militarily by the United Nations. c) by the consent of the parties to abide by the judgment of the arbitrators. d) only by the willingness of the parties to respond favorably to each other.
> The underlying reason that there are unattainable points on a production possibilities frontier diagram is that there a) is government. b) are always choices that have to be made? c) is a scarcity of resources within a fixed level of technology. d) is u
> Suppose a firm has $1,000,000 in fixed costs and variable costs equal to $100; for every unit they produce, a) their marginal costs are decreasing. b) their fixed costs are decreasing. c) their average costs are decreasing. d) the marginal costs are
> A monopolistic competitor’s brand identity is protected by a a) trademark. b) patent. c) copyright. d) bond.
> An example of an externality that we see every day is a) people paying high prices for gasoline. b) people enjoying their ability to drive to work. c) oil companies making record profits. d) the emissions from a car’s tailpipe.
> Which concept from Chapter 1 can be used to explain how it is possible for it to be in the individual interest of each nation to engage in protectionist policies but for everyone to be worse off if they all engage in protectionist policies? a) The falla
> In order to sustain economic growth in a developed economy, it is important for a) taxes to continuously decrease. b) government spending to continuously increase. c) worker productivity to increase. d) worker productivity to decrease.
> The dollar to yuan exchange rate will equal a) the yuan to dollar exchange rate. b) the reciprocal of the yuan to dollar exchange rate. c) the yuan to euro exchange rate. d) the square of the yuan to dollar exchange rate.
> Theoretically speaking, all trade is based on a) comparative advantage. b) absolute advantage. c) numerical advantage. d) political advantage.
> Using a higher rate of discount a) makes no difference when calculating the present value of future liabilities. b) raises the present value of future liabilities. c) lowers the present value of future liabilities.
> Gasoline prices in early 2007 were above $2.25. They were a) the highest nominal prices and highest inflation-adjusted prices in American history. b) the highest nominal prices but were not the highest inflation-adjusted prices in American history. c)
> Gasoline prices _______ in late 2007 through mid-2008. a) spiked b) increased relatively slowly c) remained constant d) plunged
> The most precise tool of monetary policy is a) the adjustment of the federal funds target. b) the adjustment of the discount rate. c) the adjustment of the reserve requirement. d) the use of open-market operations.
> When evaluating whether or not to make an investment one should focus on the _____ because doing so takes into account anticipated inflation. a) nominal interest rate b) real interest rate c) exchange rate d) junk bond rate
> Inflation is measured using _________ in a price index. a) the absolute increase b) a multiyear weighted average increase c) the percentage year-to-year increase d) logarithm-adjusted absolute increase
> If a crime prevention mechanism works initially, but increasing it further has no additional impact that is an example of a) diminishing returns. b) downward sloping demand. c) the division of labor. d) economic loss.
> Orphan drug laws were created because the motivation to invent drugs for these diseases was a) much greater than normal because prices could be high. b) much less than normal because prices would be too low. c) much less than normal because firms anti
> When a program like Medicaid is introduced, the market demand curve for health care will a) increase and flatten. b) increase and become more steep. c) decrease and flatten. d) decrease and become more steep.
> The government, in the form of Medicare, Medicaid and the Children’s Health Insurance Program pay for ____ of health care costs. a) less than 10 percent b) slightly less than half c) about 75 percent d) all
> If you became convinced that marijuana was neither addictive nor contributed to externalities, then banning it creates a) a social benefit without social cost. b) what economists call deadweight loss. c) what economists call a vacuum. d) a social ben
> The proximate cause of the Greek problem was a) vast overspending during the previous decade. b) lax tax collections during the previous decade. c) a burst housing bubble. d) Both a) and b).
> Which of the following would immediately be more valuable for most people? a) A $1,000 increase in the child credit b) A decrease in the degree to which brackets are inflation-indexed c) An indexing of the alternative minimum tax d) A $2,500 increas
> The impact of slowing economic growth over a long period of time is a) negligible. b) the lost growth times the number of years. c) substantial because of the exponential aspect of growth.
> In which type of mortgage do you neither build nor lose equity? a) A zero-down mortgage b) A traditional constant-payment, zero-down mortgage c) An interest-only mortgage d) A negative-amortization mortgage
> The U.S. budget a) is required to be balanced. b) is never truly balanced, but historically surpluses are more common than deficits. c) is never truly balanced but historically surpluses are less common than deficits. d) is typically balanced except
> Disagreements between the Congress and the president about the federal budget occur frequently. When they cannot agree on a budget but want to keep the government running, they a) use the president’s budget. b) use Congress’s budget. c) use a budget c
> Discretionary fiscal policy is the purview of a) Congress only. b) the president only. c) Congress and the president collectively through law. d) the Federal Reserve.
> Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher aggregate output. a) A tax increase b) A spike in world oil prices c) A cut in interest rates d) A cut in government spending
> Owing to its usefulness and relative simplicity, the supply and demand model is often used a) because nearly every major industry in the United States is governed by perfect competition. b) because nearly every major industry in the United States is go
> Suppose you observe that minor changes in supply seem to cause dramatic changes in price, you would conclude that a) demand is unit elastic. b) demand is elastic. c) demand is inelastic. d) demand is perfectly inelastic.
> When an economics student draws a supply and demand diagram to model an increase in the income, she is assuming this change happens a) semper fidelis. b) ceteris paribus. c) ipso facto. d) defacto.
> A change in the price of eggs will impact a) the demand for eggs. b) the supply of eggs. c) the quantity demanded and the quantity supplied of eggs but neither demand nor supply. d) both the supply and demand for eggs.
> When compared to people of your grandparents’ generation, you can expect the net present value of Social Security to be a) much better. b) about the same. c) slightly worse. d) much worse.
> An industry in which there are a very limited number of large firms is likely to be characterized by a) monopoly. b) oligopoly. c) monopolistic competition. d) perfect competition.
> The proximate cause of the Spanish problem was a) vast overspending during the previous decade. b) lax tax collections during the previous decade. c) a burst housing bubble. d) Both a & b.
> From one country’s perspective a strong currency is a) always good. b) always bad. c) good for some people and bad for others.
> In terms of when these fiscal shortfalls are likely to require significant changes to budgets or program rules, which of the following is likely to occur first? a) State pension funds b) Local pension funds c) Medicare d) Social Security
> Per capita real economic growth during the Industrial Revolution through the mid-1970s was a) negative. b) zero. c) 1 percent. d) 2 percent.
> In the years prior to the recession the economy was growing a) at about its typical rate. b) at a rate much slower than typical. c) at a rate much faster than typical.
> The FY 2016 federal budget was around a) $4 million. b) $4 billion. c) $4 trillion. d) $4 quadrillion.
> In the market for loanable dollars, an increase in the profitability of investments overall will be revealed in a) an increase in the supply of loanable dollars. b) an increase in the demand for loanable dollars. c) a decrease in the supply of loanab
> The optimal level of police protection would compare the _______ with the ________. a) marginal cost of hiring an additional officer; marginal benefit of crime reduction b) average cost of all officers; average benefit per officer of crime reduction c
> The type of private property that is protected by a copyright or patent is a) land. b) financial capital. c) intellectual property. d) personal property.
> The intermediate-term external benefits of Head Start a) focus on reducing the likelihood of the children ending up in prison. b) focus on reducing the likelihood that the children will become pregnant as teenagers. c) are significant if you not that
> Federal spending is typically ___ percent of GDP. a) less than 10 b) between 18 and 22 c) between 25 and 30 d) more than 30
> A patent is necessary to motivate innovation in areas where the innovation is a) costly to figure out and easily copied. b) cheap to figure out and difficult to copy. c) costly to figure out and difficult to copy. d) cheap to figure out and cheap to
> When a 65-year-old goes to the hospital, the part of Medicare that pays for the hospital bill is a) Part A. b) Part B. c) Part C. d) Part D.
> The risk-averse person will buy health insurance a) only if the expected health costs equal the insurance premium. b) only if the expected health costs are greater than the insurance premium. c) even if the expected health costs are less than the insu
> If a chemical does environmental damage but is used in the production of a good that provides satisfaction to the consumer and profit to the producer an economist a) will insist that the market be left alone. b) will insist that the chemical be complet
> When discussing an addictive drug, an economist is likely to focus on a) both the external costs and the “information problem” associated with addiction. b) the moral costs totally. c) the cost of the drug to the user. d) the costs of production.
> For developed economies sustained increases in aggregate supply, absent increases in aggregate demand, will result in a) growth for a while, but ultimately it will result in only inflation. b) continuous economic growth. c) deflationary risks. d) a b
> In 2015, which country had the largest trade surplus with the United States? a) Saudi Arabia b) Canada c) China d) Japan
> In which type of mortgage to you build equity the fastest? a) A zero-down mortgage b) A traditional constant-payment, 20 percent-down mortgage c) An interest-only mortgage d) A negative-amortization mortgage
> The off-budget – on-budget distinction a) is important because two large programs, Social Security and Medicare, largely run off-budget. b) is a historical fiction. c) deals with long-lasting products of government (like roads and bridges). d) is im
> The evidence is that welfare reform in 1996 resulted in ____ welfare rolls. a) a substantial increase in b) a slight increase in c) a substantial decrease in d) no impact on
> When engaging in monetary policy, the impact of expansionary policy on an aggregate demand – aggregate supply model is to a) increase aggregate demand. b) increase aggregate supply. c) decrease aggregate demand. d) decrease aggregate supply.
> Adjustments to tax and spending policies serve as primary elements of a) discretionary fiscal policy. b) nondiscretionary fiscal policy. c) monetary policy. d) exchange rate policy.
> Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher prices. a) A tax increase b) A fall in world oil prices c) An increase in interest rates d) An increase in government spending
> Gross domestic product is counted using two methods: one which counts all the ways people _____ money and another which counts all the ways people _____ money. a) earn, spend b) spend, save c) earn, save d) loan, borrow
> When firms add workers and find that the additional workers add less to output than their predecessors did, they are experiencing a) the division of labor. b) diminishing returns. c) the law of large numbers. d) diminishing marginal utility.
> Suppose a firm cannot figure out whether the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines. Their a) demand is unit elastic. b) demand is elastic. c) demand is inela
> The elasticity of demand is related to the slope of the demand curve a) and only the slope of the demand curve. b) but also the (price, quantity) position on the demand curve. c) but also the slope of the supply curve. d) and whether the good is norm
> The supply and demand model examines how prices and quantities are determined a) in markets. b) by governments. c) by churches. d) by monopolists.
> The cause of the European financial crisis had its origins in a) the creation of the euro. b) vast overspending in Germany. c) uncompetitive tax collections in Greece. d) speculative home buying in Belgium.
> What two numbers “balance”? a) The current account and exports. b) The capital account and the current account. c) Exports and imports. d) Short term investment income and short term investment payments.
> If anti-scalping laws are perfectly enforced, it will result in a) deadweight loss. b) a significant increase in consumer surplus. c) a significant increase in producer surplus. d) a significant loss to people who are going to the event.
> America’s most significant trading partner is a) Saudi Arabia. b) Canada. c) China. d) Japan.
> Per capita real economic growth during the pre–Revolutionary War era was a) negative. b) zero. c) 1 percent. d) 2 percent.
> In measuring gross domestic product, goods produced by foreign firms in the United States are a) counted, and so are goods produced by American firms in foreign countries. b) counted, but goods produced by American firms in foreign countries are not co
> When firms add workers and get more efficient, they are benefiting from a) the division of labor. b) diminishing returns. c) the law of large numbers. d) diminishing marginal utility.
> If judges had to be trained as economists before taking their position, they might use ____ analysis when deciding on the right sentence. a) marginal b) punitive c) religious d) average
> For a market economy to function, economists insist that government must protect a) private property. b) rights to free speech. c) freedom of assembly. d) free access to health care.
> The prescription drug industry is characterized by products that have a) low fixed costs and low marginal costs. b) low fixed costs and high marginal costs. c) high fixed costs and low marginal costs. d) high fixed costs and high marginal costs.
> In 2014, unless a state was willing to forgo all federal money for Medicaid, a member of a family earning less than 133 percent of the poverty line is a) ineligible for any health care assistance. b) eligible for Medicare’s prescription drug plan only.
> 1. The primary motivation for the purchase of any insurance lies in the fact that most people are a) risk lovers. b) risk averse. c) risk neutral. d) risk tolerant.
> 1. The notion of “clean enough” is a) appealing to an economist thinking about average benefit and average cost. b) appealing to an economist thinking about marginal benefit and marginal cost. c) appealing to an economist thinking about total benefit
> The argument that employers would actually not lose money if the minimum wage were raised is based on a) the idea that workers would spend the extra money buying goods from their employer. b) the idea that workers would work overtime without having to
> When examining the question of tobacco taxes, economists focus almost entirely on a) the cost to cigarette companies of production. b) the cost to cigarette smokers for the cigarettes themselves. c) the cost to cigarette smokers for their extra health
> Trade agreements are often necessary because a) free trade is in no one’s best interest. b) limiting trade is in no one’s best interest. c) limiting trade helps those doing the limiting but typically by less than it hurts those who are limited. d) li
> For developed economies, sustained increases in aggregate demand, absent increases in aggregate supply, will result in a) growth for a while, but ultimately it will result in only inflation. b) continuous economic growth. c) deflationary risks. d) a
> In terms of magnitude, which of the following has the greatest fiscal shortfall? a) State pension funds b) Local pension funds c) Medicare d) Social Security
> Which of the following was not likely a contributing factor to the recession of 2007-2009? a) The bursting of the housing bubble b) The 2008 tax rebates c) The failure of major financial service companies d) The drop in oil prices from $150 to $40 pe
> The type of mortgage that allows you to make the lowest possible payment is called a(n) a) zero-down mortgage. b) traditional constant-payment, 20 percent-down mortgage. c) interest-only mortgage. d) negative-amortization mortgage.
> In 2015 the national debt was approximately a) $18 million. b) $18 billion. c) $18 trillion. d) $18 quadrillion.
> The Constitution of the United States grants to Congress the power of monetary policy in Article 1, Section 8. Since 1913, Congress has a) jealously guarded this power. b) granted this power to the president. c) delegated this power to the Federal Re
> The existence of the federal income tax and the welfare system serve as the primary elements of a) discretionary fiscal policy. b) nondiscretionary fiscal policy. c) monetary policy. d) exchange rate policy.
> Any event that creates a “crisis in confidence” is likely to lead to a) higher aggregate prices. b) higher aggregate output. c) lower aggregate prices. d) inflation.
> The notion that the United States is the “land of opportunity” where who your parents are and how much they earn is unrelated to your income is (relative to other industrial powers) a) clearly shown in the data to be accurate. b) clearly shown in the d
> When evaluating a business decision, an economist will often resort to the use of present value because a) the profits may not be large enough to warrant the time and attention of the investor. b) the investment occurs in one-time period and the profit
> An industry in which there are many competitors with specific marketing niches is likely to be characterized by a) monopoly. b) oligopoly. c) monopolistic competition. d) perfect competition.
> A production possibilities frontier is a simple model of a) scarcity and allocation. b) prices and output. c) production and costs. d) inputs and outputs.
> Scarcity implies that the allocation scheme chosen by society can a) not make more of any one good. b) always make more of any good. c) typically make more of a good but at the expense of making less of another. d) always make more of all goods simultan
> Social discord resulting from income inequality can be lessened if there is (are) a) high levels of intergenerational income mobility. b) high levels of income mobility of individuals. c) belief that the economic system is rigged in favor of the rich.
> Under many economic models of terrorism, the terrorist is assumed to act a) without regard for incentives, costs, or benefits. b) in a predictable way, since they maximize costs subject to minimizing benefits. c) in a predictable way, since they maxim
> The benefits of income inequality are a) always greater than the costs. b) always less than the costs. c) associated with rewarding hard work and work that society values. d) associated with the social discord that it creates.
> The negative externality associated with self-protection from terrorism suggests that a) terrorists cause more damage than they think they will. b) people engage in less self-protection than they should. c) people engage in the right amount of self-pr
> The question of whether Social Security increases or decreases savings depends mostly on whether the _________ effect outweighs the ________ effect or visa versa. a) bequest; asset substitution b) bequest; induced retirement c) asset substitution; in
> The most obvious pattern in poverty rates is the degree to which they are higher during a) Democratic administrations. b) wars. c) odd years. d) recessions.
> Affirmative action a) can take many forms. b) is almost always a racial quota. c) applies only to women. d) has been typically been declared unconstitutional.
> In most school districts, all other characteristics held constant, an excellent teacher earns ____ a poor teacher. a) the same as b) more than c) less than
> In most school districts, all other characteristics held constant, an excellent teacher earns ____ a poor teacher. a) the same as b) more than c) less than
