Economics is best described as
the study of how scarce material wants are allocated between unlimited resources.
the study of how scarce labor can be replaced by unlimited capital.
the study of how to choose the best way to satisfy their unlimited material wants with a scarce supply of resources.
the study of how unlimited material wants can best be satisfied by allocating limitless amounts of productive resources.
the study of how capitalism is superior to any other economic system
Ray and Dorothy can both cook and can both pull weeds in the garden on a Saturday afternoon. Ray can pull 50 weeds and Dorothy can pull 100 weeds.
Ray pulls weeds, since he has absolute advantage in cooking.
Dorothy pulls weeds, since she has absolute advantage in cooking.
Dorothy cooks, since she has comparative advantage in cooking.
Ray cooks, since he has comparative advan tage in cooking.
Dorothy pulls weeds, since she has comparative advantage in cooking.
When the price of pears increases, we expect the following:
Quantity demanded of pears rises.
Quantity supplied of pears falls.
Quantity demanded of pears falls.
Demand for pears falls.
Supply of pears rises.
Suppose that aluminum is a production input in the production of bicycles. If the price of alu minum falls, and all other variables are held constant, we expect
the demand for aluminum to rise.
the supply of bicycles to rise.
the supply of bicycles to fall.
the demand for bicycles to rise.
the demand for bicycles to fall.
Suppose we observe that apple growers are using more pesticides and at the same time, we hear that the price of pears, a substitute for apples, is rising.
Price rises, but quantity is ambiguous.
Price falls, but quantity is ambiguous.
Price is ambiguous, but quantity rises.
Price is ambiguous, but quantity falls.
Both price and quantity are ambiguous.
6. Which of the following transactions would be counted in GDP?
The cash you receive from babysitting your neighbor’s kids
The sale of illegal drugs
The sale of cucumbers to a pickle manufacturer
The sale of a pound of tomatoes at a super market
The eBay resale of a sweater you received from your great aunt at Christmas
GDP is $10 million, consumer spending is $6 million, government spending is $3 million, exports are $2 million, and imports are $3 million. Investments will be
$0 million
$1 million
$2 million
$3 million
$4 million
Total population = 2000. Total employed adults = 950. Total unemployed adults = 50. What is the size of the labor force?
2000
950
900
1000
1950
Total population = 2000. Total employed adults = 950. Total unemployed adults = 50. What is the official unemployment rate?
5 percent
2.5 percent
5.5 percent
7 percent
Unknown, as we do not know the number of discouraged workers
You work at a supermarket bagging groceries, but you are unhappy about your wage, so you quit and begin looking for a new job at a competing grocery store.
Cyclical
(B) Structural
Seasonal
Frictional
Discouraged
When disposable income increases by $X,
consumption increases by more than $X.
saving increases by less than $X.
saving increases by exactly $X.
saving remains constant.
saving decreases by more than $X.
Which of the following is true about the consumption function?
The slope is equal to the MPC.
The slope is equal to the MPS.
The slope is equal to MPC + MPS.
It shifts upward when consumers are more pessimistic about the future.
It shifts downward when consumer wealth increases in value.
Which of the following events most likely increases real GDP?
An increase in the real rate of interest
An increase in taxes
A decrease in net exports
increase in government spending
A lower value of consumer wealth
Which of the following choices is most likely to create the greatest decrease in real GDP?
The government decreases spending, matched with a decrease in taxes.
The government increases spending with no increase in taxes.
The government decreases spending with no change in taxes.
The government holds spending constant while increasing taxes.
The government increases spending, matched with an increase in taxes.
The tax multiplier increases in magnitude when
the MPS increases.
the MPC increases.
the spending multiplier falls.
government spending increases.
taxes increase.
What happens in the short run to real GDP, the price level, and unemployment with more consumption spending (C )? REAL GDP, PRICE LEVEL, UNEMPLOYMENT
Increases, Decreases, Decreases
Increases, Increases, Decreases
Decreases, Increases, Increases
Decreases, Decreases, Decreases
Decreases, Decreases, Increases
Which is the best way to describe the AS curve in the long run?
Always vertical in the long run.
Always upward sloping because it follows the Law of Supply.
Always horizontal.
Always downward sloping.
Without more information we cannot predict how it looks in the long run.
Stagflation most likely results from
increasing AD with constant SRAS.
decreasing SRAS with constant AD.
decreasing AD with constant SRAS.
a decrease in both AD and SRAS.
an increase in both AD and SRAS.
Equilibrium real GDP is far below full employment, and the government lowers household taxes. Which is the likely result?
Unemployment falls with little inflation.
Unemployment rises with little inflation.
Unemployment falls with rampant inflation.
Unemployment rises with rampant inflation.
No change occurs in unemployment or inflation.
What is the difference between the short run Phillips curve (SRPC) and the longrun Phillips curve (LRPC)?
The SRPC is downward sloping and the LRPC is horizontal.
The SRPC is upward sloping and the LRPC is downward sloping.
The SRPC is vertical and the LRPC is horizontal.
The SRPC is downward sloping and the LRPC is vertical.
The SRPC is downward sloping and the LRPC is upward sloping.
The effect of the spending multiplier is lessened if
the price level is constant with an increase in aggregate demand.
the price level falls with an increase in aggregate supply.
the price level is constant with an increase in long-run aggregate supply.
the price level falls with an increase in both aggregate demand and aggregate supply.
the price level rises with an increase in aggregate demand.
Which of the following would not be an example of contractionary fiscal policy?
Decreasing money spent on social programs
Increasing income taxes
Canceling the annual cost of living adjustments to the salaries of government employees
Increasing money spent to pay for government projects
Doing nothing with a temporary budget surplus
In a long period of economic expansion the tax revenue collected ____ and the amount spent on welfare programs ____ , creating a budget ____ .
increases, decreases, surplus
increases, decreases, deficit
decreases, decreases, surplus
decreases, increases, deficit
increases, increases, surplus
The crowding-out effect from government borrowing is best described as
the rightward shift in AD in response to the decreasing interest rates from contractionary fiscal policy.
the leftward shift in AD in response to the rising interest rates from expansionary fiscal policy.
the effect of the President increasing the money supply, which decreases real interest rates, and increases AD.
the effect of hearing the chairperson of the central bank say that he or she believes that the economy is in recession.
the lower exports due to an appreciating dollar versus other currencies.
Which of the following fiscal policies is likely to be most effective when the economy is experiencing an inflationary gap?
The government decreases taxes and keeps spending unchanged.
The government increases spending and keeps taxes unchanged.
The government increases spending matched with an increase in taxes.
The government decreases spending and keeps taxes unchanged.
The government increases taxes and decreases spending.
Which of the following would likely slow a nation’s economic growth?
Guaranteed low-interest loans for college students
Removal of a tax on income earned on saving
Removal of the investment tax credit
More research grants given to medical schools
Conservation policies to manage the renew able harvest of timber
If the government wanted return to the long run equilibrium by closing a $50 billion inflationary gap and the MPS is 0.4, then it should:
Increase government spending by $20 billion
Increase government spending by $50 billion
decrease government spending by $20 billion
decrease government spending by $50 billion
increase taxes by $20 billion
Which fiscal policy would be the least contractionary given MPC is 0.8?
$60 million decrease in government spending
$60 million increase in government spending
$60 million decrease in taxes
$60 million increase in taxes
$100 million decrease in government spending and a $100 million decrease in taxes
According to the theory of Rationale Expectation:
When people expect a recession, they spend more money than usual.
The government collects more tax revenue during expansionary phase than they do during contractionary ones.
Deficit spending is the best way to fight a recession.
Government informs public about their fight against inflation, people's behavior dilutes the contractionary measures.
The lower the government decreases taxes the higher prices level becomes and the lower unemployment there is
The economy has a recessionary gap, and a budget deficit exists. To fix the recession, which of the following best describes the appropriate fiscal policy?
A
B
C
D
E