Final Exam

Questions from Previous Versions of Final Examinations

1.      The largest component of Aggregate Spending is (a) consumption. (b) wage income. (c) investment. (d) net exports. (e) government transfer payments.

2.      Fiscal policies likely to shift the Aggregate Demand curve from AD0 to AD1 would include an increase in the: (a) level of government spending on national defense. (b) sale of U.S. Treasury bonds by the Federal Reserve System. (c) marginal tax rates on corporate and personal incomes. (d) reserves that banks are required to hold as percentages of their deposits. 3.      Monetary policies likely to shift the Aggregate Demand curve from AD0 to AD1 would include an increase in: (a) government spending on schools, roads, and interstate highways. (b) purchases of U.S. Treasury bonds by the Federal Reserve System. (c) marginal tax rates on corporate and personal incomes. (d) reserves that banks are required to hold as percentages of their deposits.

4.      Rising per capita income in the United States would probably result in a decrease in: (a) the number of yachts sold. (b) the demand for used tires. (c) the supply of unskilled labor. (d) federal budget surpluses. (e) autonomous net imports.

5.      Firms are most likely to adopt an “efficiency wages” policy in attempts to: (a) offset workers’ desires to unionize. (b) increase the losses workers experience if they shirk and lose their jobs. (c) maximize the difference between the value of the marginal product of an individual worker and that worker’s marginal factor cost. (d) augment the human capital their workers possess.

6.      If the national government requires banks to keep reserves equal to 20% of deposits, and if the banking system was “fully loaned up” before Kermit deposited $1,000 cash into his checking account, then the excess reserves in Miss Piggy’s Bank would now equal: (a) $1,000. (b) $800. (c) $500. (d) $200. (e) zero.

7.      Suppose the government requires banks to keep reserves equal to 20% of deposits and that the banking system was “fully loaned up” before Kermit deposited $1,000 cash into his checking account. Now suppose Miss Piggy’s Bank loans $500 to Oscar in the form of a demand deposit. Oscar then writes a $500 check to a different bank to pay off an earlier loan. After all these transactions have transpired, Miss Piggy’s Bank’s excess reserves will have grown by a net total of: (a) $900. (b) $500. (c) $300. (d) $100. (e) zero.

8.      Economists increasingly apply the term “churn” to the process in which new technologies and products or freer international trade stimulate rapid increases in real national income, but some entrepreneurs and investors lose their incomes and occasionally, vast fortunes, while some workers lose their jobs. “Churn” is actually a synonym for: (a)  dialectical materialism, which led Karl Marx to predict that capitalism would be replaced by socialism. (b) creative destruction, as described by Joseph Schumpeter. (c) animal spirits, which John Maynard Keynes referenced to explain swings in the stock market. (d) the invisible hand described by Adam Smith in his Wealth of Nations. (e) economic democracy, as described by Paul Wolfowitz.

9.      If equilibrium moves from point a to point b, the only market in this figure experiencing an increase in quantity supplied is shown in: (a) Panel A. (b) Panel B. (c) Panel C. (d) Panel D. 10.  If equilibrium moves from point a to point b, the only market experiencing a decrease in demand is shown in: (a) Panel A. (b) Panel B. (c) Panel C. (d) Panel D. 11.  If equilibrium moves from point a to point b, the only market experiencing a decrease in supply is shown in: (a) Panel A. (b) Panel B. (c) Panel C. (d) Panel D.

12.  For any given firm to maximize profit in the long run does not necessarily require: (a) production in accord with the law of equal advantage. (b) MPP_L/w = MPP_K/r. (c) minimized cost for any given output. (d) P=MR=MC=MSB=MSC. (e) maximized output for any given cost.

13.  If this economy is operating on AD0, then in a figure depicting a Keynesian Aggregate Expenditures curve this economy would also be experiencing: (a) an inflationary gap. (b) classical full employment. (c) a GDP gap and a recessionary gap. (d) severe stagflation. 14.  Keynesian theorists and classical macroeconomists would be most likely to agree about how this economy will adjust if: (a) Aggregate Demand declines from AD1 to AD0. (b) classical full employment requires output Q1. (c) the recessionary gap equals the GDP gap. (d) severe stagflation occurs at point a. (e) Aggregate Demand increases from AD1 to AD2.

15.  Factoid: According to government estimates, the rate of private saving in the United States [a flow variable] has been negative in recent years. Theory: Saving is most reasonably defined as the change in wealth during a period. The truth is that: (a) personal money spent on education is primarily investment in human capital, and is currently misclassified as consumption spending. (b) the net worth of most families has increased in real [inflation-adjusted] terms, so the GDP accountants are probably measuring the wrong stuff. (c) Answers (a) and (b) are both correct.

16.  Enactment by the US Congress of a significantly higher legal minimum wage would be most likely to benefit almost all: (a) college professors. (b) American high-school dropouts in their teens. (c) relatively unskilled foreign workers whose production is exported to the United States. (d) experienced and highly skilled construction workers. (e) philosophy majors.

17.  The public choice theory of regulation is most consistent with behavior in which: (a) bureaucrats impose unnecessarily costly and complex regulations in attempts to increase their power and budgets. (b) the public welfare is maximized when private market forces fail to yield efficiency. (c) the private interests of the industry being regulated are ignored. (d) private firms bid to provide public goods and public services at the lowest possible costs.

18.  The availability of imported goods at lower costs than would be incurred domestically is most directly generated by: (a) uniqueness gains from trade. (b) dynamic gains from trade. (c) political spin‑off gains from trade. (d) specialization gains from trade. (e) unilateral benefits from trade.

19.  A recessionary gap measures the amount by which: (a) Aggregate Supply exceeds Aggregate Demand. (b) excess Aggregate Supply imposes deflationary pressures to reduce the price level. (c) autonomous expenditures are below the level needed for full employment. (d) inventory is unexpectedly being accumulated relative to the potential level of national output. (e) induced spending needs to grow to yield an unemployment rate of zero.

20.  This curve depicts the: (a) revenue the poker chip company will receive from hiring various possible quantities of labor. (b) marginal physical product of labor [MPPL] in a market period. (c) short run total physical product of labor [TPPL]. (d) average physical product of labor [APPL] in the long run. 21.  This firm’s marginal cost is minimized at a labor input of: (a) La. (b) Lb. (c) Lc. (d) zero. 22.  This profit-maximizing poker chip producer would never hire labor beyond the amount of labor in this figure corresponding to point: (a) La. (b) Lb. (c) Lc. (d) Qa. (d) Qb.

23.  Dividing the level of national income by the money supply yields the: (a) transactions costs of exchange. (b) price level. (c) income velocity of money. (d) rate of inflationary pressure.

24.  Technological advances increased agricultural productivity enormously and the relative incomes of farmers declined dramatically between 1800 and today. Hardships endured by American farm families during this period were most directly attributable to: (a) the unionization of migrant agricultural workers. (b) free trade policies that stimulated outsourcing of agricultural work to low wage countries. (c) demands for farm products being relatively price and income inelastic. (d) giant trading firms acquiring significant monopoly power in international agricultural markets. (e) policies that subsidized the exchange rate of the dollar and reduced farm exports.

25.  Uncle Sam offers to pay you [or your heirs or assigns] $1000 each year forever starting one year from today if you loan him some money today. The current interest rate on relatively risk-free government bonds is 4%. The maximum amount you would willingly loan Uncle Sam is: (a) $2,500. (b) $4,000. (c) $10,000. (d) $25,000. (e) $40,000.

26.  Diseconomies of scale exist when: (a) prices to consumers decrease as more units are sold. (b) output increases when more resources are employed. (c) average costs increase as a firm invests and expands its productive capacity. (d) production imposes external costs on nearby third-party consumers and producers. (e) employment and the price level both rise as national output rises.

27.  Failures to include estimates of the value of do-it-yourself projects and homemakers’ services in official measures of national income and gross domestic product have almost certainly caused overstatements of official measures of: (a) unemployment rates. (b) average rates of economic growth. (c) aggregate national wealth. (d) realized inflation. (e) relative poverty.

28.  Total fixed costs for this profit-maximizing firm equal: (a) 0bcq1. (b) 0adq2. (c) 0Peq2. (d) aPed. (e) Cannot be measured in this figure. 29.  Total revenue can be measured as area: (a) 0bcq1. (b) 0adq2. (c) 0Peq2. (d) aPed. (e) None of the above. 30.  If this firm is a typical pure competitor in this industry, then the firm is: (a) making normal accounting profit. (b) making zero economic profit. (c) breaking even. (d) in an industry in long run equilibrium. (e) All of the above.

31.  In the past century or so, people have most frequently shifted to a barter system and quit using currency as a medium of exchange, unit of account, and store of value, when the economy in which they live has experienced the negative effects of: (a) hyperinflation. (b) tax rates being raised to the right hand side of the Laffer curve. (c) trade wars between nations that adopt protectionist policies. (d) deep and extended recessions or depressions.

32.  Price cuts for new cars are likely to cause the demand for used cars to: (a) shift to the right. (b) pivot vertically. (c) become more horizontal. (d) shift to the left.

33.  The nature and origins of the hardships faced by the families of American workers whose jobs are being “outsourced” to foreign countries where wage rates are significantly lower than in the U.S. is most akin to the hardships faced by American families that: (a) immigrated into the U.S. as political refugees after military coups in their home countries. (b) experienced job losses by family breadwinners during the Great Depression because average monetary wages fell by 25% while output prices fell by one-third. (c) were forced to leave family farms between 1800 and today when technological advances increased agricultural productivity enormously and the relative incomes of farmers declined dramatically. (d) had family breadwinners drafted into the military and paid roughly $20 per month during World War II. (e) had owned huge plantations before the Civil War, and then were dispossessed by greedy Yankee “carpetbaggers.”

34.  When a country that previously followed protectionist policies lowers its trade barriers, domestic oligopolies frequently evolve into: (a) pure monopolies. (b) pure competitors. (c) monopolistic competitors. (d) international cartels.

35.  Automatic stabilizers are at work when: (a) Congress enacts new anti‑pollution controls. (b) the IRS closes tax loopholes for the wealthy. (c) tax revenue rises as personal income grows. (d) fiscal drag moderates the Laffer curve.

36.  The case for a monetary growth rule or a laissez faire approach to macroeconomic policy is significantly weakened by: (a) “sticky” prices and wages. (b) the validity of the equation of exchange. (c) the power of Say’s law. (d) Adam Smith’s concept of “the invisible hand.” (e) the Laffer curve.

37.  In Poor Richard’s Almanac, Benjamin Franklin asserted, “Fish and visitors stink in three days,” which is less a comment on how fast food spoils and more an illustration of the: (a) principle of equal marginal utilities per dollar. (b) law of equal marginal advantage. (c) law of diminishing marginal utility. (d) pervasiveness of rational ignorance.

38.  The principle of equal marginal utilities per dollar suggests that: (a) added satisfaction from consuming a good eventually declines. (b) every good on which you spend identical amounts is equally useful. (c) $1,000 worth of water and a $1,000 diamond are identically satisfying. (d) the last cent spent on anything yields the same satisfaction as the last cent spent on anything else. (e) All of these.

39.  Prohibition Corporation’s popular St. Valentine’s Day software is going into version 6. The first point Prohibition needs to identify in its quest to maximize profit is: (a) point e. (b) point f. (c) point g. (d) point h. (e) point i. 40.  At the point where the price elasticity of demand for this software is unitary, the price is roughly: (a) $20, resulting in sales of roughly 16 million copies. (b) $27, resulting in roughly 13 million copies being sold. (c) $32, resulting in roughly 10 million copies being sold. (d) $40, resulting in roughly 6 million copies being sold. (e) $47, resulting in roughly 2million copies being sold.

41.  Major tools the Federal Reserve System uses to control the money supply and to control broad financial conditions do not include: (a) reserve requirements. (b) excess reserves ratios. (c) open-market operations. (d) discounting operations.

42.  When a country experiences economic growth because trade allows imports of new technologies, these gains are a form of: (a) specialization gains. (b) political spin-off gains. (c) dynamic gains. (d) uniqueness gains. (e) scale gains.

43.  Widespread political opposition to free trade would be likely to almost completely evaporate if: (a) violent anti-globalist demonstrators were subjected to harsh prison terms. (b) twice as many people became educated about the specialization gains from trade. (c) politicians did not pander to people’s chauvinistic impulses. (d) trade adjustment Helpance programs paid for by gainers from freer trade fully compensate any people who lose when trade barriers are lowered.

44.  If no externalities exist in production and if all markets in a nation are initially in purely competitive long run equilibria, pre-trade relative prices and the opportunity costs of production are given by the absolute value of the slope at various points along the: (a) production possibilities frontier. (b) production function. (c) community indifference curve. (d) total product curve. (e) demand curve for exports.

45.  In the past fifteen years or so, macroeconomic policy makers in the United States have tended to rely relatively most on: (a) a monetary growth rule to keep the price level stable. (b) relatively passive fiscal policy, and relatively active open market operations to accomplish short-run stabilization. (c) balancing the federal budget to minimize the crowding-out problem. (d) activist fiscal policies to ensure that the economy stabilizes in the right-hand portion of  the Laffer curve.

46.  Immigration “reforms” that forced illegal aliens from Mexico to leave the United States would be most likely to: (a) increase Aggregate Demand in the United States. (b) cause the US price level to fall. (c) improve the terms of trade between the United States and Mexico. (d) reduce Aggregate Supply in the United States. (e) increase the real incomes of average American citizens.

47.  The Aggregate Supply curve in the figure below most consistent with classical theory goes through: (a) points a, c, and b. (b) points b, c, and d. (c) points c, a, and d. (d) points d, c, and a.

48.  If this economy starts at point c and then Aggregate Demand shifts to AD2, according to: (a) Keynesian theory, the economy will quickly move to point a. (b) classical theory, the economy will rapidly adjust to point b. (c) Keynesian theory, the economy will immediately move to point d. (d) classical theory, the economy will instantly shift to point a. 49.  If this economy starts at point c and then Aggregate Demand shifts to AD1, according to: (a) both classical and Keynesian theory, the economy will experience inflation. (b) classical theory, real economic growth will accelerate. (c) classical theory, excessive unemployment will be reduced. (d) Keynesian theory, the unemployment rate will increase.

50.  Items that might reasonably serve as stores of value do not include: (a) stocks. (b) cash. (c) Treasury bonds. (d) newly-issued credit cards. (e) antique Barbie dolls.

51.  The Black Plague that killed millions of medieval Europeans probably most directly and immediately resulted in: (a) greater reliance on mercantilist economic theory. (b) higher standards of living for the survivors. (c) more favorable attitudes of early Christian theologians toward capitalism. (d) faster rates of technological advance. (e) the emergence of the enclosure movement and the industrial revolution.

52.  With a constant price level, Aggregate Demand is positively related to the: (a) purchases of government bonds by the Federal Reserve System. (b) federal government’s structural budget deficit. (c) reserve requirements ratio. (d) Federal Reserve System’s discount rate. (e) unemployment rate.

53.  According to classical economic theory, if everyone attempts to save more, falling: (a) interest rates will stimulate investment and economic growth. (b) sales revenue will cause unemployment to rise and output to fall. (c) tax collections will increase federal budget surpluses. (d) military spending will stimulate aggression by foreign enemies.

54.  Completing your degree is most likely to be an important signal that will help you secure a well-paid job with a bright future if potential employers: (a) want to ensure that job applicants have already acquired significant amounts of specific human capital. (b) use attainment of a degree as an important screening device. (c) intend to invest heavily in general human capital through on-the-job training (d) expect to reduce labor costs through aggressive policies of automation. (e) are under court orders to hire employees without regard to race, creed, religion, ethnicity, sex, or professional qualifications.

55.  This figure depicts an economic model known as a: (a) market model. (b) model of demand and supply. (c) roundabout model. (d) circular flow model. (e) rollover model. 56.  The exterior flows in this highly simplified model of a market economy are monetary. In the broadest terms, the flow identified as a is: (a) entrepreneurial profit. (b) wages and salaries. (c) rent and interest. (d) national income. (e) consumption.

57.  A programmer who plays computer games all day instead of working is guilty of: (a) managerial slack. (b) inefficiency wages. (c) shirking. (d) economic sloth. (e) duplicity costs to the employer.

58.  The Phillips curve hypothesis posits a trade-off between: (a) economic stability and growth. (b) consumption today vs. consumption tomorrow. (c) unemployment and inflation. (d) low interest rates and low taxes. (e) interest rates and the money supply.

59.  If Aggregate Supply is perfectly flat, changes in Aggregate Demand will change: (a) aggregate output, but the price level will not change. (b) the price level, but aggregate output will not change. (c) both aggregate output and the price level. (d) neither aggregate output nor the price level.

60.  A formula for new autonomous spending (∆A) that would exactly eliminate an existing GDP gap would be: (a) ∆A = (recessionary gap)/(deflation rate). (b) GDP gap = ∆A / recessionary gap. (c) ∆A = (GDP gap) x (autonomous spending multiplier). (d) GDP gap = ∆A / (autonomous spending multiplier). (e) ∆A = (GDP gap) / (autonomous spending multiplier).

61.  Even if your real income were held constant by adjusting for price changes, your spending pattern would respond to changes in relative prices because of the: (a) substitution effect. (b) marginal utility equality effect. (c) income effect. (d) utility‑maximizing effect. (e) wealth effect.

62.  The events of September 11, 2001, caused the Federal Reserve System to almost immediately: (a) raise margin requirements to squelch excessive stock market speculation. (b) expand discount lending and aggressively purchase U.S. Treasury bonds through open market operations. (c) put caps on transfers of funds across international borders to reduce money laundering by suspected terrorist groups. (d) seek loans from foreign central banks to stabilize the exchange rate of the dollar. (e) facilitate funding of the federal budget deficit by selling newly-issued U.S. Treasury bonds.

63.  The long run for production theory is a time period across which: (a) all production takes place. (b) firms can adjust all their resources and costs. (c) larger firms absorb smaller firms. (d) marginal costs become decreasingly important. (e) implicit costs become explicit costs.

64.  According to natural rate theory, overly expansionary monetary and fiscal policies: (a) may reduce unemployment temporarily. (b) eventually generate inflationary expectations. (c) cause nominal interest rates to rise in the long run. (d) lack long‑term effects on unemployment. (e) All of the above.

65.  If the tax structure is T0 and potential GDP = $14 trillion but current GDP = $8 trillion, then the current budget: (a) and the cyclical and structural budgets are all running deficits. (b) balances, with the structural budget showing a surplus while the cyclical budget is in deficit. (c) is in surplus and the structural and cyclical budgets are both in deficit. (d) and cyclical budget are in deficit, but the structural budget is in surplus. (e) and cyclical and structural budgets all balance. 66.  When full employment GDP is $12 trillion and current GDP is $8 trillion, if the tax structure is T1, there would be a cyclical budget: (a) surplus and a structural budget deficit. (b) deficit and a balanced structural budget. (c) deficit and a structural budget deficit. (d) surplus and a structural budget surplus.

67.  Suppose El Salvador produces coffee at lower opportunity costs than Spain, while Spain can produce olive oil at lower opportunity costs than El Salvador. Citizens of both countries can definitely gain from international trade because of the efficiencies associated with: (a) the international circular flow model. (b) comparative advantage. (c) positive externalities. (d) economies of scale.

68.  The negative slope of the Aggregate Demand curve is not in part a consequence of the: (a) foreign-sector substitution effect. (b) wealth effect. (c) interest rate effect. (d) liquidity effect.

69.  The menu costs of inflation include the: (a) political disruption and social unrest. (b) purely nominal costs of inflation. (c) resources absorbed to reset rate and price schedules. (d) social costs, but not the real costs, of inflation. (e) transaction costs associated with looking for new jobs after layoffs.

70.  A purely competitive firm faces a demand curve that is: (a) perfectly inelastic. (b) upward sloping. (c) perfectly elastic. (d) a vertical line. (e) downward sloping.

71.  If the expected rate of return you calculate on an asset exceeds the interest rate: (a) its present value exceeds its price. (b) the market is in long term equilibrium. (c) you should avoid buying the asset. (d) the price should fall quickly.

72.  The K-Mart Corporation operates K-mart and Sears retail stores, provides financial services such as insurance and the Discover card, and has a real estate division. These characteristics identify K-Mart as a: (a) vertically integrated firm. (b) conglomerate firm. (c) monopoly. (d) multinational firm.

73.  Jamie refused a minimum-wage job offer. The greater likelihood of finding a better job by remaining unemployed is an example of: (a) allocative benefits from frictional unemployment. (b) unemployment induced by structural misfit. (c) laziness caused by poor parental guidance. (d) unrealistic expectations.

74.  If the import car market was in equilibrium before the US government limited car imports to Q1, the price that American buyers will pay for an import: (a) falls from P0 to P1. (b) is stable, but dealer profits fall by Q0 ‑ Q1. (c) rises from P0 to P2. (d) shows a subsidy wedge of P2 ‑ P1. 75.  If the import market in the United States was in equilibrium before the Japanese government began subsidizing each auto exported by the amount dg, then U.S. car buyers would: (a) pay P2 for a car previously priced at P0. (b) suffer Q0 ‑Q1 unemployment, and they will buy fewer imports. (c) gain profit equal to the irregular area bcdge. (d) wind up paying P1 each for Q2 imported cars.

76.  Starting from a free trade equilibrium, if our government now tried to boost U.S.-made auto sales by imposing a price ceiling of P₁ on imported cars: (a) the quantity of cars imported will fall from Q₀ to Q₁. (b) American car prices would settle at P₂. (c) foreign car exporters would ship more luxury cars to the United States. (d) American-made car sales would rise by Q₂ ‑ Q₀.

77.  The potential money multiplier is to the reserve requirement ratio as the Keynesian “full strength” spending multiplier is to the: (a) rate of return on investment. (b) marginal propensity to save. (c) natural rate of interest. (d) recessionary gap. (e) structural budget deficit.

78.  Lynde signed up for a monster overload of 21 hours this semester. The table below reflects how daily hours of study affect Lynde’s GPA. The marginal product (improvement in GPA) from an extra hour of study per day is: (a) highest during the fifth hour Lynde studies. (b) minimized at 10 hours of study daily. (c) consistently diminishing. (d) increasing steadily as Lynde boosts study from six to ten hours. (e) subject to the law of diminishing marginal utility immediately after two hours of study.

79.  Suppose Lynde’s daily “utils” from studying are quantifiable as precisely equal to 10 × GPA. Lynde’s combinations for total utils (jollies) generated by studying and hours of leisure (L = no studying = sleeping) fit the formula U = 50 + 3.1L +10GPA. Combined utility from studying and leisure is maximized when Lynde studies roughly: (a) 3 hours per day. (b) 4 hours per day. (c) 5 hours per day. (d) 6 hours per day. (e) 7 hours per day.

80.  When calculating Gross Domestic Product by summing all forms of expenditures, government outlays (checks written by the government) that are excluded include: (a) Social Security benefit checks. (b) funding for the President, the Cabinet, and members of Congress and the Supreme Court. (c) research funding to universities. (d) spending on such economic capital as roads or schools that can be used for decades. (e) any payments by state or local government agencies but not federal agencies.

81.  Allowing the US President to exercise a “line item veto” that would eliminate certain budgetary outlays passed by Congress is widely supported as a method that may help prevent inefficiencies associated with: (a) bureaucracy. (b) pork barrel legislation. (c) point voting. (d) democracy. (e) plurality.

82.  In a production possibility frontier model, a society that currently chooses higher levels of consumer goods and fewer capital goods experiences: (a) more future economic goods. (b) improved economic efficiency. (c) slower rates of economic growth. (d) higher rates of unemployment in the future.

83.  The Gross Domestic Product of the United States would not be increased as a consequence of: (a) a professor from Moscow teaching at Harvard and sending her pay to her family in Russia. (b) Thailand exporting more and more Nike running shoes to Florida. (c) Toyota building a new Camry assembly plant in California. (d) increased imports by Sweden of corn grown in South Dakota.

84.  One form of the social costs of unemployment during a recession is illustrated when: (a) Joe, a 62-year old machinist, is laid-off and produces nothing while looking for another job. (b) Amy, Joe’s wife, no longer has a job because she has been replaced by automated robots. (c) Amy files for a divorce because Joe is so discouraged he no longer even applies for jobs. (d) Unemployed workers compete to fill the limited job openings in their community. (e) Joe files for early retirement Social Security even though he planned to work until age 65.

85.  Sticky wages and prices are least consistent with: (a) markets characterized by kinked demand curves. (b) efficiency wages. (c) wage and price floors and ceilings. (d) classical macroeconomic theory. (e) Keynesian theory.

86.  Buying low in one market and simultaneously selling high in another market is called: (a) speculation. (b) gambling. (c) arbitrage. (d) hedging. (e) optioning.

87.  The budget equation for the federal government can be summarized as [a] ability-to-pay taxes + benefit taxes = total tax revenue. [b] government purchases = government outlays + transfer payments. [c] G = T + change in national debt + change in monetary base. [d] G-T = [S-I] + [M-X]. [e] C + I + G + [X-M] = GDP.

88.  Major problems associated with massive and rising federal budget deficits potentially include: (a) more rapid inflation and slower economic growth. (b) lower rates of private investment. (c) higher rates of money growth. (d) higher interest rates. (e) All of the above.

89.  If Dana’s income were zero, her spending of $400 each month would be completely devoted to rent, hot dogs, foreign films, and yoga classes. Fortunately, her disposable income is $2000 per month, and she currently spends a total of $1800 each month. Dana’s: (a) marginal propensity to consume is 0.90. (b) autonomous consumption is $1400 per month. (c) marginal propensity to save is 0.2. (d) induced consumption is $1400 per month.

90.  Broad categories of inflation do not include: (a) sneaking inflation. (b) hyperinflation. (c) creeping inflation. (d) expectational inflation (e) galloping inflation.

91.  A shift of Aggregate Demand from AD0 to AD1 would be most likely to follow increases in: (a) pessimism on the parts of American consumers and investors. (b) government spending or welfare payments. (c) net exports and visits to America by foreign tourists. (d) investments in the United States by foreign corporations. 92.  The period in American history most accurately characterized by the shift in this figure was the: (a) American Civil War [1861-1865]. (b) Great Depression during 1929-1933. (c) dot-com tech boom of 1993-1999. (d) administration of President Ronal Reagan from 1981-1989. (e) prosperity experienced from September 11, 2001 to the present.

93.  In a simple linear Keynesian-cross model, if the mpc = 3/5, closing a $60 billion GDP gap could be accomplished through new government spending of: (a) $15 billion. (b) $24 billion. (c) $36 billion. (d) $40 billion. (e) $60 billion.

94.  During a recession or depression, demand creates its own supply according to: (a) Say’s law. (b) Keynesian theory. (c) supply‑side economics. (d) the invisible hand. (e) classical macroeconomic theory.

95.  The federal budget deficit or surplus: (a) is unaffected by national income. (b) depends only on discretionary fiscal policy. (c) is as often a symptom as it is a cause of the state of the economy. (d) must balance at all times to prevent business cycles.

96.  Reasonably consistent increases in standards of living for most Americans across the past two centuries are probably least attributable to: (a) population growth. (b) technological advances. (c) declines in transaction costs as systems of communication and transportation networks have improved. (d) relatively free international trade in accord with comparative advantage. (e) specialization and the division of labor.

97.  The statement that, “in the long run, we are all dead,” is central to: (a) John Maynard Keynes’s critique of classical macroeconomic theory. (b) Thomas Robert Malthus’ theory of the long run states of human populations. (c) Karl Marx’s perception that “capitalism will be swept into the dustbin of history. (d) St. Thomas Aquinas’s view that charging interest for loans is contrary to the will of God. (e) Joseph Schumpeter’s characterization that the dynamics of capitalism is a process of creative destruction.

98.        Which of the following would expand Aggregate Demand according to Keynesians, while stimulating Aggregate Supply according to supply‑siders? (a) Increasing government purchases of goods and resources. (b) Increasing transfer payments. (c) Open market purchases of Treasury bonds by the FED. (d) Cutting personal and corporate marginal income tax rates. (e) Licensing oil companies to drill in national forests.

99.        Demand‑pull inflation is caused by: (a) human wants exceeding available economic resources. (b) wage increases exceeding increases in productivity. (c) Aggregate Demand exceeding Aggregate Supply at full employment. (d) greedy unions and profiteers. (e) an increase in the discount rate.

100.    Cyclical unemployment in this figure would be most severe at the time corresponding to: (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 101.    Official measures of the business cycle would identify a complete business cycle as occurring between point: (a) a and point e. (b) b and point f. (c) c and point g. (d) d and point f.

102.    Airlines that overbooked their flights used to “bump” the ticketed passengers who checked in latest. The Federal Aviation Administration now requires compensation of volunteers willing to wait for a later flight. This “payment” system is more efficient than “bumping” to determine who loses a seat because now: (a) the airline’s profits are maximized. (b) everyone has an equal chance to get money they had not counted on. (c) passengers who value the timely flight least are the ones who miss the flight. (d) the flight is far more likely to remain on schedule. (e) the distribution of seats is fairer than it would be under random selection.

103.    At an interest rate of 5% per year the present value of a bond paying $100 per year forever is: (a) infinite. (b) $500. (c) $909.10. (d) $2000.

104.    International trade tends to be MOST important to: (a) small specialized countries. (b) large diversified countries. (c) primitive economies. (d) industrialized countries. (e) socialist countries.

105.    When 200,000 gallons of water are applied per acre, 4 tons are harvested from each acre of linguini trees annually, but cutting back to 160,000 gallons causes the crop per acre to fall to 2 tons annually. The water elasticity of linguini production is: (a) 3.0. (b) 1.5. (c) -1.5. (d) -3.0.

106.    The value of the marginal product of a variable resource is its marginal product multiplied by: (a) the marginal revenue from the sale of its addition to output. (b) its cost. (c) the price of the product. (d) one. (e) the marginal factor cost of the resource.

107.    Market failures seldom arise when: (a) noncompetitive industries dominate economic activity. (b) external production economies are common. (c) external production diseconomies are ignored by decision makers. (d) all prices are flexible, resources are equitably distributed, externalities are absent, information is symmetric, and markets are both vigorously competitive and relatively stable. (e) decreasing production costs characterize most industries.

108.    Macroeconomic problems are clearly identified only after: (a) a deliberation lag. (b) an administrative lag. (c) an impact lag. (d) an inefficiency lag. (e) a recognition lag.

109.    FED purchases of government securities on the open market most directly and immediately increase the: (a) discount rate. (b) monetary base. (c) demand for money. (d) market interest rate. (e) unemployment rate.

110.    D0 and S0 are the initial demand and supply for labor. Classical theory suggests that employers cannot exploit workers by paying wage W0 because: (a) workers would join a union, and this would drive wages up to W2. (b) any wage less than W1 creates shortages of workers, forcing employers to compete by bidding up the wage rate until it rises to W1. (c) only L2 unskilled workers are available at wage W0. (d) surplus workers between L3 and L1 will be competing for these jobs.

111.    Suppose a prosperous period yielded equilibrium at point e before a recession reduced demand for labor to D0. Classical theory would conclude that: (a) roughly L0 workers will be involuntarily unemployed during the recession. (b) L3 – L1 workers will remain unemployed for a significant period only if the wage rate is rigid at W1 because of minimum wage laws, union contracts, or other frictions that hinder wage flexibility. (c) L2 workers will soon be fully employed at a wage rate of W2. (d) equilibrium moves from point e to point b.

112.    According to the natural real rate of interest hypothesis: (a) contractionary monetary policies permanently reduce real interest rates. (b) the real rate of interest is the percentage of purchasing power paid by a borrower to a lender. (c) monetary growth lowers nominal interest rates in the long run. (d) the natural unemployment rate equals the nominal interest rate.

113.    When Federal Reserve District Banks lower the discount rate, it is untrue that: (a) member banks borrow more from the Fed. (b) the monetary base grows. (c) the actual money multiplier grows. (d) banks reduce their holdings of excess reserves. (e) the potential money multiplier increases.

114.    Keynesian Aggregate Expenditures are the sum of: (a) Aggregate Demand + Aggregate Supply. (b) income + borrowing. (c) C + S + T and depend primarily on expectations. (d) C + I + G + (X‑M) as these planned spendings relate to income. (e) consumer purchases + household saving + imports.

115.    Monetary policy tools do NOT include changes in the: (a) discount rate. (b) reserve requirements ratio. (c) marginal income tax rate. (d) total value of bonds the Federal Reserve System buys or sells. (e) open market operations.

116.    A foundation for both President Reagan’s and President Bush’s tax cuts is the notion that excessively high tax rates reduce taxed behavior (via, e.g., tax evasion and avoidance, and less investment and production) so much that tax revenue may fall. This idea is expressed as the: (a) Phillips curve. (b) Laffer curve. (c) efficient markets theory. (d) liquidity preference theorem. (e) Fisher effect.

117.    If passed in an election, these ballot proposals will be funded by extra property taxes. Under majority rule voting: (a) excessively costly bike paths are built, but cost-efficient flood control is defeated. (b) cost-efficient bike paths are defeated, but the inefficient flood control program passes. (c) excessively costly bike paths and inefficient flood control program both pass. (d) cost-efficient bike paths and the inefficient flood control program both pass. (e) excessively costly bike paths and cost-efficient flood control program are both defeated.

118.    The normative macroeconomic goals of: (1) stabilizing the price level by limiting the growth of Aggregate Demand, and (2) maximizing productive capacity and Aggregate Supply through laissez faire policies, are most consistent with: (a) Federal Reserve System policies. (b) Keynesian theory. (c) Internal Revenue Service regulations. (d) classical macroeconomic theory. (e) central planning in a socialist economy.

119.    Classical macroeconomics predicts a long run Aggregate Supply curve, with aggregate Q and P on the axes, that is: (a) upward sloping from left to right. (b) vertical at full‑employment. (c) actually a production possibilities curve. (d) horizontal at the current price level.

120.    The volatility across time of commodity prices and asset prices tends to be dampened by the actions of successful: (a) labor union arbitrageurs. (b) corporate CEOs who exploit the opportunities embedded in asymmetric information. (c) speculators. (d) monopolistic competitors.

121.    A list of oligopolies that comprised firms with significant market power in the United States half a century ago, but which can now more reasonably be categorized as monopolistically competitive because of intense competition from foreign firms would not include the: (a) breakfast cereals industry. (b) automobile industry. (c) consumer electronics industry [e.g., stereos, TVs, and small appliances]. (d) steel industry.

122.    The process of transforming predictable income streams into wealth is known as: (a) asset conversion. (b) monopolization. (c) financial optimization. (d) capitalization. (e) financial alchemy.

123.    The added cost from producing an extra unit of output is: (a) average variable cost. (b) average fixed cost. (c) short-run average cost. (d) marginal cost.

124.    A bank robber who gets away with a lot of cash has most immediately and directly increased the: (a) riskiness of financial investments. (b) expectations of inflation. (c) money supply. (d) liquidity effect. (e) monetary base.

125.    In the extreme Keynesian case of depression, the Aggregate Supply curve is: (a) horizontal until full-employment output is reached. (b) vertical at the current levels of prices and output. (c) a Bell-shaped curve. (d) negatively sloped.

126.    Early classical economists such as Adam Smith and Thomas Robert Malthus theorized that business cycles are primarily caused by changes in: (a) population in response to resource availability. (b) capitalists’ ability to exploit labor. (c) socio-psychological mass movements. (d) unexpected business inventories. (e) public confidence or pessimism.

127.    The processes by which individuals attempt to ascertain what other people are likely to do in a specific situation in order to maximize their personal gains, or to minimize harm, are called: (a) rational decision making. (b) profit maximization. (c) collusion. (d) strategic behavior. (e) limit pricing.

128.    If this DVD firm’s fixed resources had cost more than we used to calculate these curves, there would be an upward shift in curve(s): (a) x. (b) B. (c) C. (d) A and C. (e) A, B, and C.

129.    Curve B in this figure illustrates this DVD maker’s: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. (e) total sunk costs. 130.    If labor is the only variable input for this DVD player producer, at point x in this figure this firm would minimize its: (a) average variable costs and operate most efficiently. (b) marginal costs and maximize its workers’ marginal productivity. (c) average fixed costs. (d) total cost and maximize its profits. 131.    Curve D depicts this DVD firm’s: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. (e) average implicit costs.

132.    Supply shocks that cause rightward shifts of short‑run Phillips curves: (a) cause long-term deflationary growth. (b) worsen the short-run trade‑off between unemployment and inflation. (c) cause short-run leftward shifts in Aggregate Demand. (d) do not change policymakers’ options.

133.    Changes in Aggregate Demand are most easily traced to changes in: (a) the labor market. (b) monetary or fiscal policies. (c) raw materials costs. (d) Aggregate Supply. (e) the work ethic of young Americans.

134.    The traditional Keynesian remedies for a recession or depression are: (a) laissez faire government policies. (b) increases in government spending or reductions in tax rates. (c) balancing the federal budget and paying off the national debt. (d) higher tariffs on imports or reduced import quotas to slow the outsourcing of domestic jobs. (e) aggressive foreign policies that will ensure jobs in the military for many young people.

135.    According to classical macroeconomic theory, full employment is ensured in the long run because: (a) planned investment depends on volatile saving. (b) demand creates its own supply. (c) prices, wages, and interest rates are flexible, and Say’s law ensures that supply creates its own demand. (d) rich capitalists will consume conspicuously. (e) aggregate output adjusts to shifts in Aggregate Demand.

136.    The financial investment with the lowest expected rate of return for an investor would be: (a) municipal bonds. (b) US Treasury bonds. (c) lottery tickets. (d) “blue chip” stocks. (e) mutual funds.

137.    A member of a cartel would be most likely to increase its profits by: (a) undercutting the prices of other cartel members if it did not get caught. (b) setting its price above that of other cartel members. (c) aggressive nonprice marketing promotions. (d) producing less than the cartel set production quotas to drive the price up. (e) pressuring the cartel to raise its price if demand is price elastic.

138.    Production entails using knowledge or technology to apply energy to increase the: (a) the amounts of resources available. (b) income generated for corporations. (c) production possibilities frontier. (d) value of materials to consumers in form, place, possession, or the time they will be used. (e) physical quantities of goods and services available.

139.    If the tax structure is T0 and potential GDP = $10 trillion but current GDP = $6 trillion, the current budget: (a) and the cyclical and structural budgets are all running deficits. (b) balances, with the structural budget showing a surplus. (c) is in surplus and the structural and cyclical budgets are both in deficit. (d) and cyclical budgets are in deficit, but the structural budget is in surplus. (e) and cyclical and structural budgets all balance.

140.    In the short run, the labor supply in an economy depends least on: (a) population size and labor force participation rate. (b) individuals’ preferences between leisure and income from work. (c) the demand for labor. (d) rates and structures of wages. (e) human capital.

141.    The kinked demand curve model of oligopoly predicts that rival firms will: (a) produce less than if they were monopolies, but more than if they were in pure competition. (b) try to outmaneuver each other through unpredictable strategies. (c) compete primarily by adopting increasingly efficient technology. (d) invariably follow tit-for-tat pricing strategies. (e) keep outputs and prices reasonably constant even if marginal costs fluctuate slightly.

142.    If a deep recession occurs when there is a huge surplus in the structural budget [also known as the full‑employment budget], this may indicate that: (a) fiscal drag is a problem. (b) tax rates are too low. (c) G exceeds T at full employment. (d) inflation has been cured by the invisible hand. (e) the Laffer curve hypothesis is totally invalid.

143.    Advocates of setting monetary policy so that the money supply would grow at a low fixed percentage rate forever believe that such a policy would prevent the economy from experiencing: (a) cyclical unemployment. (b) demand‑pull inflation. (c) recessions or stagnant growth. (d) high unemployment or inflation caused by erratic macroeconomic policies. (e) Aggregate Supply shocks.

144.    The “simple” version of the Equation of Exchange: (a) relates increases in the money supply to decreases in velocity. (b) equals Y = C + I + G. (c) was first formulated by Milton Friedman. (d) contradicts Keynesian monetary theory. (e) is MV = PQ.

145.          To start up her Dehydrated Water business, Lynn invested $10,000 from her savings account, which was earning $1,000 per year in interest and quit her salaried job as a financial consultant. She also uses an apartment she owns as her office, which she previously had rented out for $6,500 per year. Which of the following is NOT an implicit cost of Lynn’s new business? (a) The $6,500 in rent. (b) The full $10,000 in savings she invested. (c) The $1,000 in interest. (d) Her previous salary. (e) All of the above are implicit costs.

146.    Gross private domestic investment in the GDP accounts would NOT include: (a) growth of manufacturers’ inventories. (b) purchases of new shares of Google stock. (c) new machinery bought by firms. (d) new residential housing and production facilities. (e) a new Toyota factory built in Georgia.

147.    These Aggregate Supply and Demand curves reflect an economy in which the: (a) full employment output is Q0. (b) movement from point b to point c entails pure price inflation. (c) vertical distance bc is the inflationary recessionary gap. (d) horizontal distance ab is the recessionary gap. 148.    In the depression range of this Keynesian model, the Aggregate Supply curve is: (a) horizontal. (b) vertical. (c) sloped upward to the right. (d) negatively related to unemployment and inflation.

149.          New forms of credit that made it easier to buy things without paying for them immediately with currency or a check would increase the: (a) efficiency of money as a medium of exchange. (b) return on money as a financial asset. (c) rates of deflation and unemployment. (d) tendency towards secular stagnation.

150.          George Stigler was the first major modern economist to: (a) support the theories of John Maynard Keynes. (b) argue persuasively that regulation is often instigated by the regulated. (c) perceive that businesses spend millions of dollars a year lobbying against regulation. (d) recommend block pricing for natural monopolists. (e) serve as Vice President of the United States.

151.          Adverse selection and moral hazard tend to be most significant in markets that: (a) are oligopolistic. (b) are dominated by one-time transactions. (c) deal in homogeneous goods. (d) deal with consumer goods instead of resources. (e) are purely competitive.

152.          If variable cost is exactly proportional to output, the: (a) total fixed cost curve is a rectangular hyperbola. (b) firm’s profits are proportional to its sales. (c) marginal cost curve rises as output grows. (d) total cost curve is a straight line.

153.          A purely competitive industry’s demand for labor is: (a) less elastic than the horizontal summation of the individual firms’ demands. (b) perfectly elastic. (c) upward sloping because of diminishing marginal returns to labor. (d) equal to the horizontal summation of the demand curves of the individual firms. (e) not affected by changes in demand for the product of the industry.

154.          A vertical short run Aggregate Supply curve (a) is central to Keynesian theory. (b) translates changes in Aggregate Demand into growth of GDP. (c) conforms to Marxist macroeconomic assumptions. (d) quickly converts changes in Aggregate Demand into changes in the price level.

155.          If transaction costs exist, then taxes on what appear to be pure economic rents: (a) pose especially severe problems for economic efficiency. (b) reduce incentives to put resources to their best uses. (c) could easily be used as a “single tax” to replace all current taxes. (d) are rapidly forward shifted to final users of products. (e) are justified on the grounds of equity.

156.          All of the following may cause labor markets to be less than purely competitive EXCEPT: (a) unions and employer trade associations. (b) backward‑bending labor supply curves. (c) monopolistic power exercised by a firm. (d) monopsonistic power exercised by a firm.

157.          Josh will spend $24 of his weekly food budget on tuna fish milk shakes and chorizo tacos, each of which cost $4 per unit. Josh maximizes his satisfaction by buying: (a) one shake, 5 tacos. (b) 2 shakes, 4 tacos. (c) 6 shakes, zero tacos. (d) zero shakes, 6 tacos. (e) 3 shakes, 3 tacos. 158.          The combination of tuna fish milk shakes and chorizo tacos that maximizes Josh’s daily total satisfaction from these delicacies yields: (a) 106 utils. (b) 110 utils. (c) 114 utils. (d) 118 utils.

159.          If labor is the only short run variable input, AVC equals: (a) wL/Q. (b) APPL/w. (c) Q/MPPL. (d) the wage rate.

160.          Which of the following increases both national output and the price level? (a) A strong dollar reduces U.S. exports. (b) A new round of World Trade Organization [WTO] talks significantly reduces trade barriers. (c) Interest rates drop a full percentage point. (d) New government regulations foster monopolization of large industries.

161.          All else constant, decreases in Aggregate Demand tend to cause increases in: (a) employment. (b) nominal interest rates. (c) GDP and National Income. (d) unemployment rates. (e) rates of inflation.

162.          Economists tend to differ most drastically with publicly expressed views of most elected politicians about the inevitability and long-term desirability of: (a) economic growth. (b) outsourcing of jobs to less-developed low-wage countries. (c) generous welfare programs. (d) maintaining macroeconomic stability. (e) defense spending.

163.          A world‑wide drought would tend to reduce: (a) Aggregate Supply. (b) the price level. (c) Aggregate Demand. (d) federal budget deficits. (e) government spending.

164.          If the rate of inflation most people expect increases, this will: (a) encourage firms to liquidate their inventories. (b) shift labor supply curves to the right. (c) shift the Aggregate Supply curve leftward. (d) cause policymakers to run bigger deficits. (e) shift the Aggregate Demand curve leftward.

165.          Classically-oriented critics of Keynesian theories argue that discretionary macroeconomic policies: (a) are likely to be erratic, and may be major forces that exacerbate or even trigger business cycles. (b) tend to make business cycles less volatile. (c) can reduce unemployment but not inflation. (d) include automatic stabilizers.

166.          Keynesian explanations of the Phillips curve are most consistent with the idea that: (a) wages, prices, and interest rates are perfectly flexible. (b) attempts to reduce unemployment rates are the basic cause of inflation. (c) wage-and-price ceilings can control inflation and facilitate lower unemployment rates. (d) the inflationary costs of reduced unemployment exceed the benefits. (e) as unemployment rates fall and potential GDP is approached, it becomes increasingly costly to produce extra output.

167.          When Aggregate Demand equals Aggregate Supply: (a) full employment must exist. (b) relative prices must be stable. (c) consumption equals disposable income. (d) S + T + M = I + G + X.

168.          If the percentage growth rate of the US money supply were permanently increased, nominal interest rates would ultimately be permanently higher if the (a) Keynes effect were larger than the Fisher effect. (b) Friedman effect exceeded the Keynes effect. (c) adjustments in markets for financial capital to expectations about inflation were incomplete. (d) Fisher effect were larger than the Keynes effect. (e) international capital market completely absorbed all of the extra dollars.

169.          Time lags that hinder stabilization policy occur in which order over time? (a) Impact, recognition, administrative. (b) Administrative, recognition, impact. (c) Impact, administrative, recognition. (d) Recognition, administrative, impact.

170.          The type of macroeconomic policy that, after implementation, probably has the longest and most variable lag before its effects are completely realized is: (a) changes in tax rates. (b) industrial policy. (c) monetary policy. (d) incomes policy. (e) a change in the definition of M1.

171.          Advocates of a constant rate of growth of the money supply believe that discretionary monetary policy is: (a) irrelevant and does not matter. (b) less effective than fiscal policy. (c) a Bolshevik plot. (d) likely to be destabilizing.

172.          The theory of political business cycles relies on the idea that: (a) since markets are stable over the long run, cyclical fluctuations must be due to political manipulations. (b) fiscal policy must cause political business cycles since the FED is independent of the executive branch. (c) politicians recognize that voters tend to reward incumbents when disposable income is rising and penalize them when income is falling. (d) politicians generally make policy mistakes that move the economy off its steady growth path.

173.          The case for macro-policy fine-tuning as a strategy is weakened by: (a) “sticky” prices and wages. (b) deficiencies in economic forecasting. (c) Keynesian theory. (d) regularities in cyclic swings.

174.          In the past half-century or so, relatively impoverished countries that have experienced the most rapid economic growth and development have tended to rely more heavily on (a) loans and other forms of aid from advanced nations to. (b) policies that promote involuntary saving. (c) transfers of cutting-edge technologies from advanced nations. (d) expanded international trade. (e) policies of self-sufficiency.

175.          A lag that is longer for fiscal policy than for monetary policy is the: (a) discretionary lag. (b) recognition lag. (c) administrative lag. (d) dosage lag. (e) impact lag.

176.          Policymakers’ tools to force involuntary saving in attempts to facilitate economic growth would NOT include: (a) “land reform.” (b) low wage-high price strategies. (c) high rates for sales taxes. (d) confiscatory tax rates for inheritance. (e) artificially high interest rates being paid to savers, or tax breaks on interest payments by investors.

177.          Programs that guarantee farmers a minimum price above equilibrium will yield: (a) cheaper food for consumers. (b) excess demand in food markets. (c) excess supply at the minimum price. (d) higher equilibrium prices.

178.          Maximum employment, purchasing power, and economic growth were legally established as national priorities by the: (a) FED’s Board of Governors in 1932. (b) Employment Act of 1946. (c) U.S. Constitution in 1781. (d) Kennedy‑Johnson Act of 1958. (e) Humphrey‑Hawkins Act in 1978.

179.          The maximum weekly profit Sally can realize if she perfectly price discriminates is: (a) $300. (b) $400. (c) $600. (d) $800. (e) $1200. 180.          If Sally practices perfect price discrimination for coconuts: (a) consumer surplus will be zero. (b) she maximizes profit at 400 coconuts sold per week. (c) each coconut will sell for $1. (d) her total costs will exceed revenues. 181.          Suppose some of Sally’s coconut customers begin to arbitrage so that she is forced to charge a single uniform price. Sally’s maximum profit now equals: (a) $300. (b) $400. (c) $600. (d) $800. (e) $1200.

182.          Expansion and refinement of a country’s infrastructure is an example of: (a) financial intermediation. (b) capitalist networking. (c) economic development. (d) population growth. (e) capital depreciation.

183.          A contractionary monetary policy initiated by the Federal Reserve System affects private spending primarily by reducing the: (a) supply of loanable funds and increasing interest rates. (b) supply of economic capital. (c) demand for financial capital and increasing the prices of bonds. (d) supply of corporate bonds available to private investors.

184.          A recently laid-off worker is most likely to find another job quickly if the worker has substantial amounts of: (a) unemployment compensation and a strong union. (b) specific human capital gained at the previous job. (c) screening, signaling, and credentialing. (d) general human capital from previous education and work experience. (e) savings accumulated from past income.

185.          Robert Thomas Malthus’s conclusions about long run equilibrium for the mass of humankind echo the words of: (a) Thomas Hobbes that “life … [will be] … ‘nasty, brutish, and short’.” (b) John Locke that “labor is the ultimate source of all value.” (c) an anonymous Frenchman who responded with “laissez nous faire” when asked a question by King Louis XIV. (d) Charles Darwin about “survival of the fittest.” (e) medieval theologians that our fate is ultimately in the hands of God.

186.          The process in which unions and employers agree to labor contracts that govern work arrangements is called: (a) arbitration. (b) collective bargaining. (c) bilateral monopoly. (d) joint profit maximization. (e) codependency.

187.          Classical macroeconomics concludes that the price level is roughly proportional to: (a) the level of government spending. (b) Aggregate Demand, which is determined by the money supply in the long run. (c) Aggregate Supply, which is determined by technology and the availability of resources. (d) the sum of consumption, investment, government spending, and net exports. (e) the production possibilities frontier.

188.          Events that prominent economic thinkers have suggested as causes of business cycles do NOT include how humans adjust to variations across time in: (a) rates of technological progress implemented by entrepreneurs. (b) sunspot activity. (c) environmental and technological constraints on population growth. (d) comparative advantages between trading nations. (e) international relations and wars.

189.          If a firm’s long-run average cost rises as plant size and output grow, the firm confronts: (a) diseconomies of scale. (b) externalities that exceed marginal costs. (c) improvements in marginal physical product. (d) excessive overhead costs.

190.          After a cold day on the slopes at the Gemutlich ski resort, if hot cocoa is $2 per cup, your spending on cocoa would be: (a) $2.00. (b) $4.00. (c) $6.00. (d) $8.00. (e) $10.00. 191.          Your consumer surplus at the Gemutlich ski lodge from hot cocoa if the price is $2 per cup would be: (a) $2.00. (b) $4.00. (c) $6.00. (d) $8.00. (e) $10.00. 192.          Major components of Aggregate Expenditures do not include: (a) consumption. (b) federal tax revenues. (c) private investment. (d) government purchases. (e) net exports.

193.          The usual effect of increased expectations of inflation is: (a) a reduction in the willingness of firms to invest. (b) higher rates of saving. (c) reduced inflationary pressure. (d) increased momentum for existing inflationary pressure. (e) a severe recession.

194.          A list of characteristics that most strongly differentiate most successful entrepreneurs from most career corporate employees would not usually include: (a) vision and timing. (b) workaholism. (c) conviction and action. (d) bearing of risk and uncertainty. (e) credit-worthiness and honesty.

195.          One advantage of open market operations over other tools available to the Fed is that: (a) open market operations can be reversed rather simply, thereby allowing mistakes to be corrected without major problems occurring. (b) open market operations deal with private securities, not Treasury and government agency securities. (c) a change in the amount of discount loans is difficult to predict, and this prevents economic actors from predicting changes and thus dampening the desired economic effect. (d) open market operations do not require the approval of the U.S. Congress.

196.          The only firm in the figure below that has any market power as a price maker is: (a) Firm A. (b) Firm B. (c) Firm C. (d) Firm D.

197.          In the figure below, the only purely competitive firm currently able to generate economic profit is: (a) Firm A. (b) Firm B. (c) Firm C. (d) Firm D.

198.          In the figure above, the firm most likely to go out of business the soonest would be: (a) Firm A. (b) Firm B. (c) Firm C. (d) Firm D.

199.          In the figure above, the firm most likely to generate economic profits in the long run would be: (a) Firm A. (b) Firm B. (c) Firm C. (d) Firm D.

200.          Annual Gross Domestic Product is the sum of: (a) consumption [C] plus investment [I] plus government spending [G] plus net exports [X-M]. (b) wages plus rent plus interest plus undistributed corporate profit. (c) all retail sales in an economy during a year. (d) consumption plus saving plus investment minus depreciation:

201.          Most of the workers unemployed during the Great Depression of the 1930s were suffering from: (a) structural unemployment. (b) frictional unemployment. (c) cyclical unemployment. (d) induced unemployment. (e) variable unemployment.

202.          Adverse selection and moral hazard are results of: (a) economies of scale in transactions. (b) unintended consequences. (c) asymmetric information. (d) the Fisher effect. (e) rational ignorance.

203.          Pancakes and French toast are close substitutes. Suppose good weather yields a bumper crop of pancakes and reduces the price of pancakes. In the market for French toast: (a) equilibrium price and quantity both increase. (b) competition increases the supply of French toast. (c) equilibrium price increases and equilibrium quantity decreases. (d) the quantities of butter and syrup used will increase. (e) equilibrium price and quantity decrease.

204.          Aggregate saving in the U.S. economy is likely to decrease when: (a) the durable goods owned by average households increase in reliability. (b) average families have fewer children. (c) baby boomers begin retiring from the work force en masse. (d) prosperity enables many families to begin paying off their mortgages.

205.          If the real wage rate rises, an additional unit of: (a) labor supplied will buy fewer goods. (b) leisure becomes more expensive. (c) output requires more labor time. (d) capital becomes more highly utilized.

206.          A shift in the American economy from point b to point a could result from: (a) foreign boycotts against U.S. exports caused by eruptions of anti-American sentiment. (b) trees beginning to sprout dollar bills. (c) aggressive reductions in U.S. income tax rates. (d) increases in the rate of population growth. (d) technological advances. 207.          Incumbent presidents are most likely to lose reelection bids if, during their term of office, there is a shift from: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0. (e) point c to pint b. 208.          Increased government spending on the War against Terrorism would shift: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0.

209.          A shift of Aggregate Demand in the economy from AD₁ to AD₀ will tend to increase: (a) the price level. (b) national income. (c) unemployment rates. (d) national output.

210.          The functional finance approach to federal budgets suggests that the: (a) budget should be balanced annually. (b) budget should be balanced over the business cycle. (c) economy should be balanced and budget deficits are irrelevant. (d) growth of government causes “crowding out.” (e) tax structure alone can cure a budget deficit.

211.          Paying a premium wage rate above the market clearing wage [an “efficiency wage”] may be a profit-maximizing strategy for a firm because: (a) it reduces shirking because the higher wage makes losing a job more costly to the worker. (b) retraining is very costly to the firm. (c) paying premium wages may offset the moral hazards problem. (d) All of the above.

212.          Shirking by employees tends to increase when: (a) the transaction costs of monitoring employee performance increase. (b) employers adopt harsh rules that reward productivity and punish laziness. (c) the level of national economic activity declines. (d) employers adopt efficiency wage policies. (e) corporations institute profit sharing plans to reward conscientious employees.

213.          According to classical macroeconomics, widespread unemployment would be an indication of: (a) inadequate Aggregate Demand. (b) underemployment equilibrium. (c) excessively high wages rates. (d) long run disequilibrium.

214.          If labor force participation rates and unemployment rates in the US economy moved to the same levels today as were experienced during the prosperity of 1998-2000: (a) our balance of payments deficit would be eliminated automatically. (b) the federal budget would probably still run a record deficit for 2006 because of lower tax rates and increased government spending. (c) corporate taxes would replace personal income taxes as the major source of federal revenue. (d) the price of gasoline would probably be significantly lower than it is right now.

215.          International trade is likely to be more important to people in small countries than to citizens of large countries because, relative to large countries, small countries usually have: (a) less diverse resources. (b) lower labor productivity and less per capita GDP. (c) infant industries that require imported raw materials. (d) more primitive types of technology. (e) less well-developed infrastructure.

216.          Cyclical unemployment exists when: (a) Aggregate Demand exceeds Aggregate Supply. (b) potential output exceeds Aggregate Spending. (c) planned investment exceeds planned saving. (d) government spending exceeds tax revenue.

217.          Autonomous spending in this linear Keynesian model is equal to: (a) zero. (b) $2 trillion. (c) $3 trillion. (d) $6 trillion. (e) $12 trillion. 218.          If current equilibrium nominal GDP was $12 trillion while potential real GDP was $16 trillion, an income [GDP] gap would exist equaling: (a) $1 trillion. (b) $2 trillion. (c) $3 trillion. (d) $4 trillion. (e) $5 trillion. 219.          The “full-strength” spending multiplier in this figure is: (a) one. (b) two. (c) three. (d) four. (e) five. 220.          If current equilibrium nominal GDP was $16 trillion but an inflationary gap of $1 trillion existed, then potential real GDP equals: (a) $8 trillion. (b) $10 trillion. (c) $12 trillion. (d) $14 trillion. (e) $16 trillion.

221.          One advantage of storing your wealth in the form of money, as opposed to investing it in other financial assets, is that money is: (a) relatively free of inflation risk. (b) acceptable for every type of transaction. (c) replaced by the government if it is lost or stolen. (d) likely to increase in purchasing power. (e) perfectly liquid and other financial assets are not.

222.          Not reading the fine-print in a contract when you rent a car because it is too much bother while you are on vacation is an example of: (a) adverse selection. (b) rational ignorance. (c) economic dishonesty. (d) market power. (e) moral hazard.

223.          A nondiscriminating monopolist cannot maximize profits by producing where demand is: (a) above marginal cost. (b) price inelastic. (c) above marginal revenue. (d). price elastic. (e) greater than average fixed costs.

224.          Keynesian theory suggests that, especially during a recession or depression, the: (a) interest rate is largely determined by saving and investment. (b) demand for money is positively related to permanent income. (c) interest rate is payment for postponing consumption. (d) market economy is inherently stable. (e) level of investment depends primarily on investors’ expectations.

225.          Highly-publicized recent changes of “the interest rate” by the Federal Reserve System primarily and most importantly entail changes to the (a) legal reserve requirement ratio. (b) Fed’s target for the federal funds rate that members charge each other for very short-term loans. (c) discount rate. (d) open market interest rate.

226.          Boosting defense spending without raising taxes in a high employment economy will tend to cause: (a) no crowding out of private spending. (b) demand‑pull hyperinflation. (c) private spending to grow faster than government outlays. (d) crowding‑out of private spending, and especially private investment.

227.          Individuals who expect the marginal costs of acquiring more information about some decision to exceed the marginal benefits from the extra information will choose to be: (a) victims of adverse selection. (b) rationally ignorant. (c) empire builders. (d) free riders.

228.          If the income effect of a wage increase is more powerful than the substitution effect, the: (a) labor supply curve will be “backward bending.” (b) unemployment rate will rise because more people will be available for work. (c) labor force participation rate will rise. (d) firm will hire more workers at higher wages.

229.          This curved consumption function [C] suggests that families with disposable income of roughly $120,000 annually will save approximately: (a) $70,000 per year. (b) $60,000 per year. (c) $50,000 per year. (d) $40,000 per year. (e) $30,000 per year. 230.          This curved consumption function [C] becomes flatter as family income increases. Thus, this figure suggests that as family income rises: (a) “keeping up with the Joneses” becomes harder and harder. (b) the marginal propensity to consume decreases. (c) families tend to reduce the total amounts they buy on credit. (d) wealthy families tend to engage in status competition by buying extravagant luxuries. (e) their autonomous spending decreases.

231.          “Natural rate” theory, modern monetarism, and classical macroeconomic theory are in agreement in concluding that in the long run, the supply of money affects only: (a) a country’s production possibilities frontier. (b) real interest rates. (c) unemployment rates. (d) the rate of economic growth. (e) the price level.

232.          The English historian Thomas Carlyle [1795-1881] characterized economics as “the dismal science” in response to: (a) John Stuart Mill’s essay, On Liberty [1869], which advocated the abolition of slavery. (b) Adam Smith’s advocacy of free trade in Wealth of Nations [1776]. (c) John Maynard Keynes’ General Theory [1936], which suggested reasons why business cycles emerge in capitalist economies. (d) Thomas Robert Malthus’ Essay on Population [1798], which predicted bare subsistence levels for humanity in the long run. (e) David Ricardo’s Principles of Political Economy and Taxation [1817], which asserted that ever-increasing land rent would prevent real wage rates from rising across time.

233.          Employers would have the greatest monopsony power in dealing with: (a) professional athletes. (b) unionized workers. (c) white‑collar labor in a metropolitan area. (d) blue‑collar labor in a metropolitan area.

234.          Barriers to entry that may protect monopolistic firms from losing market power across time do not include: (a) legal or regulatory barriers. (b) artificial barriers. (c) collusive barriers. (d) strategic barriers. (e) natural barriers based on economies of scale.

235.          Production costs that require the firm to make a cash outlay are called: (a) explicit costs. (b) implicit costs. (c) fixed costs. (d) variable costs.

236.          The difference between the dollar amounts people would willingly pay for a specific quantity of a good and the amounts that they do pay at a given market price is known as: (a) buffer zone. (b) offsetting variation. (c) consumer surplus. (d) compensation necessity. (e) exploitation factor.

237.          As longer time periods are considered and a greater range of adjustments (substitutions) becomes available, demand curves tend to become: (a) flatter, while supply curves become steeper. (b) less price elastic and more income elastic. (c) flatter, and so do supply curves. (d) steeper, and so do supply curves. (e) steeper while supply curves become flatter.

238.          Suppose half of our world’s people, randomly selected, were vaporized by space aliens [or teleported to a parallel universe], but no other aspect of life on our Earth was affected. Ignoring any disruptions to families or psychological trauma this calamity might wreak, the average economic well-being of survivors would: (a) increase because of improved efficiencies associated with divisions of labor in productive processes. (b) decrease because of decreased specialization and exchange according to comparative advantage. (c) increase because of increases in the amounts of land and economic capital available per capita. (d) be unaffected because the total value of world production would not be affected in a predictable direction. (e) decrease because of reductions in the total human capital on this Earth.

239.          The relationship in this figure is most consistent with the theory of: (a) population dynamics described by Thomas Robert Malthus. (b) creative destruction described by Joseph Schumpeter. (c) class conflict described by Karl Marx. (d) classical macroeconomics that developed in England in the late Nineteenth Century. (e) cataclysm theory. 240.          In considering alternative locations along this population S-curve, this populace would probably feel most prosperous at: (a) point a. (b) point b. (c)point c. (d)point d. (e) point e. 241.          On average, life would be most miserable at point: (a) a. (b) b. (c) c. (d) d. (e) e.

242.          Price hikes for new cars are likely to cause the demand for used cars to: (a) shift to the right. (b) pivot vertically. (c) become more horizontal. (d) shift to the left.

243.          Public goods not efficiently provided through private market forces include goods that are: (a) rival and exclusive. (b) horizontally and vertically inequitable. (c) nonrival and nonexclusive. (d) basic survival needs. (e) produced under conditions of consistently increasing marginal costs.

244.          A renowned concert pianist who is also the world’s fastest short order cook would probably gain the most financially by devoting: (a) half-time to cooking, and half-time to playing the piano. (b) full-time to piano practice and concerts. (c) full-time to frying burgers. (d) more time and income to charity.

245.          Aggregate Demand for the United States would be least likely to increase in response to: (a) increased security for American workers about their jobs and income. (b) lower interest rates. (c) increases in demand by foreigners for American-made goods. (d) reductions in the birth rate in the United States. (e) expectations of inflation or widespread and severe shortages.

246.          If a fixed level of national income becomes significantly less evenly distributed because the numbers of relatively poor people and relatively rich people both increase dramatically, a likely result is an increase in the: (a) demands for both luxury goods and inferior goods. (b) supplies of both labor and capital. (c) demands for inferior goods and a decrease in the demands for normal goods. (d) supplies of imported goods and a decrease in the demand for exported goods.

247.          According to John Maynard Keynes, Aggregate Demand will increase when: (a) imports increase and exports decrease. (b) consumers begin receiving more income. (c) baby boomer households desire to increase their rates of saving as they prepare for retirement. (d) investors become increasingly pessimistic. (e) tax rates are increased.

248.          The effect of setting a price ceiling for peanuts at P0 would be: (a) a shortage of Q2‑Q0. (b) a shortage of Q2‑Q1. (c) a surplus of Q2‑Q0. (d) a surplus of Q2‑Q1. (e) improved nutrition for peanut butter and jelly addicts. 249.          If a price floor is set at P2, then: (a) any price below the floor could legally be charged. (b) a surplus of peanuts is generated. (c) the market would move towards equilibrium. (d) the quantity supplied of peanuts will be less than the quantity demanded.

250.          The amount by which autonomous spending falls short of that needed to lift a depressed economy to a full employment level of Aggregate Expenditures is the: (a) disinflationary gap. (b) recessionary gap. (c) GDP gap. (d) fiscal deficiency gap. (e) inflationary gap.

251.          The major normative macroeconomic goals specified in the Employment Act of 1946 do not include “… maximum: (a) employment.” (b) purchasing power.” (c) environmental quality.” (d) growth.”

252.          Double-digit rates of both unemployment and inflation would signal a problem of: (a) inadequate and falling Aggregate Demand. (b) unbalanced economic growth. (c) uncontrollable federal government budget deficits. (d) stagflation. (e) enormous deficits in the U.S. balance of payments.

253.          Innovations cited by Joseph Schumpeter as forces that create long-wave business cycles would not have included major new: (a) increases in military spending by government. (b) development of important products. (c) discoveries of raw materials (d) technological advances. (e) communication and transportation networks to connect markets.

254.          Talented Morse code senders and transcribers and skilled typewriter technicians who are eager to work are now all likely to experience: (a) seasonal unemployment. (b) induced unemployment. (c) structural unemployment. (d) peace-time transitional unemployment. (e) obsolescence unemployment.

255.          During the stagflation of the 1970s, the United States briefly experienced peak rates of average price increases that fit the definition of: (a) severe hyper-disinflation. (b) double-digit or galloping inflation. (c) moderate disinflation. (d) creeping inflation. (e) moderate hyperinflation.

256.          Hyperinflation becomes a major problem when: (a) governments shift from commodity money to fiat monetary systems. (b) the average level of prices increases at a rate exceeding 50 percent annually. (c) relative price changes begin accelerating. (d) people shift to barter because they have lost faith in the purchasing power of money.

257.          The enormous absorption of resources for the arms race between the United States and the USSR from 1945 to 1990 is an example of inefficiencies associated with the allocative mechanism of: (a) queuing. (b) capitalism. (c) random selection. (d) brute force. (e) socialism.

258.          Profit is maximized if this lumber mill produces an output level of: (a) 600 generic 2×4s per day. (b) 700 generic 2×4s per day. (c) 1500 generic 2×4s per day. (d) 1700 generic 2×4s per day. (e) 1800 generic 2×4s per day. 259.          On the average, this profit-maximizing lumber mill is: (a) generating economic profit of about $0.27 (27¢) per 2×4. (b) incurring variable costs of $0.90 (90¢) per 2×4. (c) experiencing fixed cost of $1 per 2×4. (d) suffering an accounting loss of $0.90 (90¢) per 2×4. (e) operating in a monopolistically competitive market.

260.          Sticky wages are not in part a consequence of: (a) minimum wages laws. (b) long-term labor union contracts. (c) efficiency wage policies by firms. (d) involuntary unemployment.

261.          Achieving a macroeconomic goal of economic growth can be most directly facilitated by government policies that encourage: (a) maximum employment. (b) price level stability. (c) consumers to save and firms to invest. (d) perpetually balancing the federal budget. (e) maximization of corporate profits.

262.          Events encountered early in the Great Depression [1929-1933] would not have included: (a) stock prices declining on average to roughly 10 percent of their 1929 levels. (b) widespread bank failures. (c) the aggregate price level declining by roughly 1/3. (d) nominal wages falling by roughly 25%. (e) employed workers having increasing difficulties in “making ends meet.”

263.          Some analysts now endorse “Schumpeter’s Law of Taxes,” based on Joseph Schumpeter’s observation that: (a) tax rates and rates of inflation are positively related. (b) governments lose political support and are consequently often replaced if they spend more than 20% or so of national income. (c) excessively high tax rates may actually reduce government tax revenues. (d) the power to tax is the power to destroy. (e) high tax rates on wage incomes frequently precipitate socialist revolutions.

264.          When floods of illegal aliens find work in the United States, there is most noticeably and predictably an increase in the: (a) level of Aggregate Supply. (b) measured rate of unemployment compensation. (c) rate of involuntary employment. (d) net U.S. exports. (e) measured rate of unemployment.

265.          The category of induced unemployment would fit least well for: (a) Kate, who decides not to look hard for work until she stops being eligible for unemployment compensation. (b) Gwen, who rejects a position as fast-food fry cook because it pays less than the welfare payments she would lose by taking the job. (c) Kenji, who leaves a starting center position with the Chicago Bulls to accept a Rhodes scholarship at Oxford. (d) Strom, a 19-year-old high school dropout, who desperately wants to work but who lacks the skills necessary for any $7 minimum-legal-wage job.

266.          If a recession causes many workers to increasingly worry about the possibility of losing their jobs, they may attempt to save increasing proportions of their income. This decrease in consumption may, through a multiplier effect, cause national income to fall so much that total saving actually falls, a problem known as: (a) the money trap. (b) stagflation. (c) the paradox of thrift. (d) the liquidity trap. (e) the miser effect.

267.          “Fee-simple” private property rights allow you to: (a) shoot hikers who trespass on your land without permission. (b) refuse to lend your car to a neighbor. (c) commit “victimless crimes” without penalty. (d) burn your home to collect insurance. (e) abuse your kids.

268.          An advance in the technology for clothing but not for food could be a reason for the PPF to shift from: (a) F1C1 to F2C2. (b) F2C2 to F3C2. (c) F2C2 to F1C1. (d) F1C1 to F1C2. 269.          A simultaneous severe earthquake and hurricane that disrupted all forms of production would be a likely explanation for a temporary shift of the PPF from: (a) F1C1 to F2C2. (b) F2C2 to F3C3. (c) F2C2 to F1C1. (d) F3C2 to F2C2.

270.          Supply‑side economists believe that: (a) excessive welfare payments and excessively high income tax rates decrease both work incentives and the incentives to save and invest. (b) taxes reduce Aggregate Supply and increase Aggregate Demand, but government outlays affect only Aggregate Demand. (c) each tax rate can generate two different revenue levels. (d) crowding out is most severe during economic recessions.

271.          An individual’s marginal propensity to consume is most likely to increase as a consequence of: (a) marrying and starting a family at age 23, shortly after graduating from college. (b) reaching middle age and worrying that the Social Security system may fail. (c) winning $75,000,000 in a multi-state lottery. (d) getting a clean bill of health after a complete physical by the family doctor. (e) sharp increases in the market rate of interest on U.S. Treasury bonds.

272.          Cost-of-living “escalator” clauses in financial contracts and wage contracts: (a) keep workers from earning higher money incomes. (b) prevent money wages from rising as rapidly as prices. (c) adjust real income for cyclical unemployment. (d) adjust money payments for price level changes. (e) cause cuts in real wages.

273.          The demand for money as an asset would be negatively affected by increases in: (a) uncertainty about future income. (b) expected hikes in interest rates. (c) wealth. (d) . income. (e) expected inflation.

274.          Although excluded from official measures of Gross Domestic Product, a more purely economic approach to total domestic production would include the values of: (a) imports of illegal drugs. (b) homemakers’ services and do-it-yourself projects. (c) government transfer payments. (d) food grown in family gardens. (e) tuition paid to private schools.

275.          Suppose John and Jay, the two fastest runners in a marathon, agree to run at the same pace so they will finish in a tie. If John suddenly decides to speed up and Jay then runs even faster to pass John, Jay is following a/an: (a) grim strategy. (b) prisoner strategy. (c) tit-for-tat strategy. (d) asymmetric payoff. (e) cartelized equilibrium.

276.          Curve A in the figure below depicts this DVD manufacturer’s: (a) marginal cost. (b) average variable cost. (c) average total cost. (d) average fixed cost.

277.          Curve C in this figure depicts this DVD maker’s: (a) marginal cost. (b) average total cost. (c) average variable cost. (d) average fixed cost. (e) average implicit cost. 278.          The vertical distance between curves C and D shrinks as output rises in the figure above because: (a) profit falls. (b) overhead is spread. (c) returns diminish. (d) of economies of scale. 279.          DVD production is at its maximum in the short run at an output level of: (a) x. (b) y. (c) z. (d) Indeterminable from this diagram.

280.          Labor supply curves would “bend backward” if, as a consequence of higher wages the: (a) wealth effect exceeded the income effect. (b) income effect on the price of leisure exceeded the substitution effect. (c) substitution effect exceeded the wealth effect. (d) derived demand curve were positively sloped. (e) marginal factor cost curve exceeded the wage rate.

281.          Suppose melons sell for $1 in Brazil while moose pelts sell for $100, but in Canada moose pelts and melons both sell for $10 each. A person who buys moose pelts in Canada to sell in Brazil would be performing: (a) the invisible hand trick. (b) arbitrage (c) economies of scale (d) transaction costing. (e) speculation.

282.          A Nike factory now produces 20,000 Carolina Baseball T-Shirts using 1,000 units of labor and 10 units of capital. The marginal physical product of labor is 100 T-Shirts per hour and the marginal physical product of capital is 120 T-Shirts per hour. Labor costs Nike $10 per hour and capital costs Nike $20 per hour. Nike can minimize the cost of producing 20,000 Carolina Baseball T-Shirts by: (a) doing nothing because costs are already minimized. (b) hiring more labor and reducing the amount of capital. (c) laying off some workers and getting more machines. (d) exploiting economies of scale by increasing total production.

283.          The immediate effect of specializing and trading on the basis of comparative advantage is to: (a) expand a country’s production possibilities. (b) expand a country’s consumption possibilities. (c) increase inequality in the distribution of income. (d) lower the overall unemployment rate. (e) reduce the value of the country’s natural resources.

284.          Classical macroeconomic theories rely most heavily on (a) Say’s law and flexible wages, interest rates, and prices. (b) Occam’s razor and the Keep It Simple Stupid [KISS] rule. (c) Keynesian cross models and sticky wages and prices. (d) fiscal policy and the visible hand of government spending. (d) private investment and the paradox of thrift. (e) creative responses within the financial system.

285.          The Federal Deposit Insurance Corporation [FDIC] guarantees the security of the funds deposited by the customers of commercial banks. The Federal Reserve Board sets a legal minimum on the percentage of deposits that banks must keep in reserve [rr]. This reserve requirement ratio is intended to: (a) limit growth of money supply by limiting the amounts that banks can lend. (b) prevent bank “panics” like those that were common before the FED was established in 1914. (c) ensure that banks hold sufficient liquid assets to permit depositors to withdraw cash when they demand it. (d) stabilize the exchange rate of the dollar for foreign currencies. (e) prevent “runs” on banks that might necessitate the FED acting as a “lender of last resort.”

286.          Countries may trade to mutual advantage as long as their production possibilities curves: (a) are straight lines. (b) are convex to the origin. (c) have the same slope. (d) have different shapes and slopes.

287.          A shift from AD1 to AD2 will result in: (a) full employment, but not equilibrium. (b) full-employment equilibrium. (c) rising aggregate output without inflation. (d) increases in both output and inflation. (e) pure inflation with no increase in output. 288.          If Aggregate Demand decreases from AD4 to AD3: (a) output and prices will decrease. (b) prices alone will decrease. (c) output will decrease an unemployment will increase. (d) output and prices will increase. (e) only output will increase.

289.          Implementation of efficiency wage policies by more firms would probably reduce: (a) shirking by employees. (b) wage and price stickiness. (c) structural unemployment. (c) inflationary pressure. (d) the percentages of national income devoted to imports. (e) the volatility of business cycles.

290.          The major reason for the federal government to finance its outlays by collecting taxes instead of merely printing money is to: (a) facilitate increases in the size and scope of government. (b) control inflation by limiting spending by private individuals and firms. (c) provide liquidity to the Federal Reserve System and financial institutions. (d) hold down the rate of unemployment. (e) protect American firms that compete with low-cost imports and to firms that export goods to foreigners.

291.          The marginal propensity to consume (mpc) plus the marginal propensity to save (mps) is equal to: (a) induced spending minus autonomous spending (b) zero. (c) one. (d) the marginal expected interest rate.

292.          A minimum legal price is a price: (a) foundation. (b) umbrella. (c) ceiling. (d) cut. (e) floor.

293.          Reasons why many if not most Americans now handle much less cash relative to their incomes than was typical in earlier times do not include reduced transaction costs associated with: (a) the availability of automatic teller machines (ATMs). (b) the ability to make electronic deposits of paychecks. (c) involuntary private sector transfer payments. (d) using credit cards. (e) on-line banking.

294.          These Aggregate Demand and Aggregate Supply curves are most consistent with a period of: (a) growing Aggregate Supply. (b) increasing Aggregate Demand. (c) rising unemployment rates and increased inflation. (d) the influx of baby-boomers into labor markets that began in the 1960s. 295.          This shift of the Aggregate Supply curve is most compatible with the U.S. experience of: (a) stagflation during the 1970s. (b) deflationary growth from the 1870s into the 1890s. (c) high unemployment during the Great Depression. (d) sustained prosperity during the 1960s. (e) hyperinflation during the 1930s.

296.          Phaqery is a pretentious start-up firm in the monopolistically-competitive costume jewelry industry. Phaqery is most likely to try to gain control over pricing while limiting its production through a strategy of: (a) lobbying Congress for passage of “fair-pricing” laws. (b) outsourcing its production to a low-wage country. (c) extensive advertising and marketing to differentiate its products. (d) charging less for generic cubic zirconia than any of its competitors. (e) predatory shopping.

297.          Natural rate theorists would be least likely to view the long run “natural rate” of unemployment as influenced by: (a) cyclical unemployment. (b) frictional unemployment. (c) structural unemployment. (d) induced unemployment. (e) seasonal unemployment.

298.          Two thousand four hundred [2,400] students subscribed to cable TV services when they enrolled as freshmen. Eight hundred [800] students dropped the service when the price of cable rose from $25 to $35 per month. The absolute value of the price elasticity of demand for cable TV among college freshman is: (a) 2.0. (b) 1.5. (c) 1.2. (d) 1.0. (e) 0.8.

299.          The elimination of exploitation of labor [wage payments below the value to society of each individual worker’s productive contribution] is automatic if business decision makers: (a) must set wages through collective bargaining agreements with labor unions. (b) conscientiously maximize their profits while operating in purely competitive markets for all outputs and all resources. (c) use extensive screening techniques when they interview prospective employees. (d) wholeheartedly comply with affirmative action laws. (e) hire workers with strong letters of recommendation from respected current employees.

300.          A curve that is irrelevant for short-run profit-maximizing decisions is the: (a) average variable cost curve. (b) demand curve facing the firm. (c) total variable cost curve. (d) average fixed cost curve. (e) marginal cost curve.

301.          The classical macroeconomic model concludes that: (a) production costs determine the price level. (b) monetary [absolute] prices are proportional to the money supply. (c) interest rate changes cause velocity changes. (d) inflation and cyclical unemployment are unavoidable.

302.          The implicit production costs of resources that owners provide for their firms tend to be: (a) fixed costs in the short run. (b) greater than variable costs. (c) opportunity costs only in the short run. (d) crucial accounting costs but not economic costs. (e) marginal resource costs in the long run.

303.          Total autonomous spending [A] in this Keynesian-model equals: (a) $1000 billion. (b) $2000 billion. (c) $3000 billion. (d) $4000 billion. (e) $12000 billion. 304.          Annual autonomous consumption [Ca] in this Keynesian-cross model equals: (a) $1000 billion. (b) $2000 billion. (c) $3000 billion. (d) $4000 billion. (e) $12000 billion. 305.          Macroeconomic equilibrium in this figure occurs at a net domestic product [NDP] level of (a) $4000 billion. (b) $8000 billion. (c) $12000 billion. (d) $16000 billion. 306.          The marginal propensity to consume in this Keynesian model is: (a) one. (b) 0.8. (c) 0.75. (d) 0.6. (e) 0.5.

NOTE: This linear Keynesian cross model assumes a strictly private economy with no foreign sector.

307.          The full-strength autonomous spending multiplier in this model is: (a) one. (b) two. (c) three. (d) four. (e) five.

308.          If the economy is less than prosperous, a structural surplus in the full-employment budget may indicate that: (a) fiscal drag is a problem. (b) tax rates are too low. (c) G exceeds T at full employment. (d) inflation is cured by the invisible hand. (e) margin requirements are excessive.

309.          The all-time record for total federal deficits during a four-year term of office was set during the administration of President: (a) Herbert Hoover [Great Depression, 1929-33]. (b) Franklin Roosevelt [World War II, 1941-45]. (c) Ronald Reagan [Supply-side Economics, 1981-89]. (d) Bill Clinton [Rubinomics, 1997-2001] (e) George W. Bush [War on Terrorism, 2001-05].

310.          A firm that cannot price discriminate but which faces a negatively-sloped demand curve for its output: (a) has a marginal revenue curve that is always below that demand curve. (b) will never knowingly produce at a level of output where the price elasticity of demand is less than one. (c) has market power and is not a pure quantity adjuster. (d) will experience decreased average revenue per unit sold as it increases its production and sales. (e) All of the above.

311.          Institutional feeding is a highly competitive industry. The most likely long-run result if ARA-Mark is unionized, with employees in Lenoir and other dining halls at UNC getting higher wages is: (a) lower salaries for ARA-Mark executives. (b) reduced incomes for UNC graduates. (c) higher prices for student meal plans at UNC. (d) reduced incomes for the corporate suppliers of food to ARA-Mark.

312.          If there were no barriers to international trade, patterns of trade among nations would probably depend least on: (a) institutional and cultural factors. (b) the sets of skills and education possessed by the work force. (c) climate, location, fertility, and other environmental factors. (d) government policies. (e) the market power that would be possessed by domestic companies if trade were not free.

313.          Suppose soybean farming is a purely competitive industry. A dreaded soybean mold carried on kangaroo rat fur spreads across America, decreasing this year’s crop. This blight is ultimately least likely to cause the: (a) market supply curve of soy to shift to the left. (b) market demand curve for soy to shift to the right. (c) market demand curve for corn to the right. (d) the price of corn to increase.

314.          When a large country and a small country that have very different production costs begin trading, the: (a) costs of imports fall most in the large country. (b) prices of exports fall most in the large country. (c) prices of imports rise most in the small country. (d) gains from trade will be most significant for the small country. (e) capitalists in the large country exploit workers in the small country.

315.          Nostalgia Corporation has secured the rights to every black-and-white film ever made, and response to its infomercials has been astounding. The first point Nostalgia needs to identify to maximize profit in the figure below is: (a) point e. (b) point f. (c) point g. (d) point h. (e) point i.

316.          If Nostalgia maximizes profit in its production of Silver Screen DVDs, its annual total costs will be approximately: (a) $45 million. (b) $65 million. (c) $85 million. (d) $105 million. (e) $125 million. 317.          If Nostalgia maximizes profit when producing Silver Screen DVDs, its annual total revenue will be approximately: (a) $40 million. (b) $60 million. (c) $80 million. (d) $100 million. (e) $120 million.

318.          If cuts in the price of cowboy hats drive down total revenues to hat makers, then demand is: (a) relatively price elastic. (b) relatively price inelastic. (c) unitarily price elastic. (d) infinitely price elastic. (e) zero price elastic.

319.          If Canadian ranchers fear that the world-wide demand for beef will plummet next year due to an expected epidemic of mad cow disease, they would be most likely to: (a) reduce cattle breeding now and increase the current supply of beef. (b) increase the production and storage of meat products. (c) plant banana trees. (d) buy more prized bulls. (e) buy ranches in Brazil.

320.          Widely recognized gains from trade do not include: (a) uniqueness gains. (b) gains from specialization according to comparative advantage. (c) dynamic gains from higher rates of saving and capital accumulation. (d) dynamic gains from technology transfers. (e) imperialism gains derived from exploiting unequal resource bases.

321.          An inflationary gap measures how excessive is the amount of: (a) Aggregate Supply over Aggregate Demand. (b) Aggregate Demand over that needed for stable prices. (c) autonomous expenditures over the level needed for full employment. (d) inventory relative to national output.

322.          According to Keynesian analysis, if potential output exceeds both current and planned spending, there is a: (a) full employment surplus and an actual budget deficit. (b) GDP gap and a recessionary gap. (c) distributional disparity and an inflationary gap. (d) generation gap and a defense gap.

323.          If at the current level of national income, planned expenditure injections into the income stream exceed planned withdrawals (leakages) from the income stream, GDP: (a) will rise. (b) is at its equilibrium level. (c) will fall. (d) Any of the above is possible.

324.          NOT among examples of automatic stabilizers would be: (a) progressive income tax structures. (b) deflationary tax hikes passed by Congress. (c) corporate income taxes. (d) unemployment compensation. (e) the Social Security system.

325.          When the federal government budget runs a surplus, allowing the US Treasury to pay off some of our national debt, the _____ curve for bonds in the market for loanable funds shifts to the _____. (a) demand; right (b) demand; left (c) supply; left (d) supply; right

326.          Banks, savings and loan associations, mutual savings banks, credit unions, and the stock market: (a) link those who want to save with those who want to invest. (b) are depositories for all money in the economy. (c) have been unresponsive to federal attempts to change the regulatory environment. (d) are the primary mechanisms used for direct economic investment.

327.          The conversion of a barter economy to one that uses money increases efficiency by reducing: (a) the need to exchange goods. (b) the need to specialize. (c) the need to employ team production methods. (d) transactions costs.

328.          NOT among crucial characteristics of money is its use as a: (a) medium of exchange. (b) standard unit of account. (c) store of value. (d) standard of deferred payment. (e) means of interpersonal utility comparisons.

329.          The designers of the Federal Reserve Act of 1913 originally intended the Fed to rely primarily on: (a) open market operations. (b) discounting, so the Fed would be a “lender of last resort.” (c) setting reserve requirements. (d) setting margin requirements. (e) auditing and regulation most financial intermediaries.

330.          Americans’ widespread fear of centralized power and their common distrust of moneyed interests help explain why the U.S. did not have a central bank during most of the: (a) 17th century. (b) 18th century. (c) 19th century. (d) 20th century.

331.          According to the text, a chainsaw is to brain surgery as: (a) government spending is to monetary policy. (b) open market operations are to interest rates. (c) cuts in tax rates are to foreign exchange rates. (d) the discount rate is to bank lending. (e) the reserve requirement ratio is to monetary stability.

332.          The share of bank reserves held to accommodate depositors’ withdrawals is: (a) excess reserves (written XR). (b) free reserves (or FR). (c) speculation reserves. (d) Federal Reserves. (e) defense reserves.

333.          The law of diminishing returns predicts that the longer that Lee and Chris kiss: (a) the less invested each will be in continuing this relationship. (b) the more closely they will approach their production possibilities frontier. (c) the more utility Chris creates for Lee. (d) after some point they will both enjoy each additional kiss less and less. (e) the more likely it is that Lee and Chris will get married.

334.          Mike trades six vintage baseball cards for Jake’s original Ty Cobb card. If Mike’s six cards had equal total market value with Jake’s Ty Cobb card, this trade would reflect: (a) opportunity cost. (b) supply prices. (c) unfair incentives. (d) comparative advantages. (e) differences in their subjective preferences about the desirability of these cards.

335.          Bobby Lee’s Dairy has profitably expanded beyond fresh milk, butter, and cheese, by offering Organizmic Fertilizer, guided ATV tours for visitors, and Granny Lee’s Exfoliating Body Yogurt. The Clyde County Business News trumpets that Bobby Lee has beaten everyone to the punch by imaginatively exploiting: (a) economies of scale through product differentiation. (b) the natural monopoly position of the dairy industry. (c) the incentive to cheat on the rest of the dairy cartel. (d) economies of scope. (e) diseconomies of scale by spreading overhead.

336.          Meredith has watched a new blockbuster film twice a week for the past three weeks and can now recite most of the dialogue. She is probably beginning to experience: (a) disequilibrium. (b) diminishing marginal utility. (c) clinical depression. (d) sunk costs. (e) cyclical depreciation.

337.          The negative relationship between the price level and quantity demanded of our national output along curve AD1 is least attributable to any: (a) interest rate effect. (b) wealth effect. (c) aggregate expenditure effect. (d) foreign sector substitution effect. 338.          The monetary value of national income is most certain to fall in response to a shift from: (a) AS0 to AS1. (b) AS1 to AS0. (c) AD1 to AD0. (d) AD0 to AD1. 339.          The “real” [inflation-adjusted] level of national income will rise but nominal [monetary] national income could be stable if the economy shifts from: (a) AS0 to AS1. (b) AS1 to AS0. (c) AD1 to AD0. (d) AD0 to AD1.

340.          Compared to corporations, a major disadvantage of operating as a sole proprietor is the relatively: (a) higher costs of complying with government regulations. (b) higher barriers associated with entry and exit. (c) unlimited liability of the entrepreneur. (d) greater level of implicit costs. (e) low flexibility available to exploit diseconomies of scale.

341.          The idea that people’s desires to buy goods are far more culturally determined in a capitalist economy than merely price determined is the view of: (a) Antoine Augustin Cournot. (b) Thorstein Veblen. (c) Karl Marx. (d) Ludwig von Mises. (e) Irving Fisher.

342.          Suppose arbitrage prevents Microsoft from price discriminating because low price customers will sell to customers charged higher prices. If Microsoft currently generates the maximum positive profit, then it is certain that for production of its Windows operating system: (a) MC > ATC. (b) MC > AVC. (c) MC > AR > D. (d) P = ATC. (e) P > MC.

343.          The following good for which demand is likely to be least price elastic is: (a) electricity used to light downtown streets. (b) airline tickets in October. (c) Bic pens. (d) chocolate milk. (e) Merit cigarettes.

344.          Juan, Cassie, Celia, and Gupta set up rival gas stations at four corners of an intersection. All originally charged the same prices for their gasoline but after Gupta lowered his prices drastically, Juan, Cassie, and Celia all shut down their stations. Gupta then raised his prices sharply. Gupta’s strategy is an example of: (a) monopolistic competition. (b) tit-for-tat game theory. (c) cartelization. (d) predatory behavior. (e) monopoly capitalism.

345.          A purely competitive market would NOT be characterized by: (a) many potential buyers and sellers. (b) each buyer or seller being a price taker. (c) an absence of long-run barriers to entry or exit. (d) aggressive advertising to compare brands. (e) a single homogeneous product.

346.          Minimizing the long run average cost for the tractors it sells requires John Deere to: (a) hire more workers per each period in the long run than in any feasible short run period. (b) employ an optimal combination of resources. (c) minimize fixed costs in every short run period of production. (d) invest more heavily in research and development to foster greater rates of technological advance.

347.          If potential GDP is $16 trillion, then the (a) depressionary gap is $3 trillion and the GDP gap is $2 trillion. (b) Keynesian deficit is $6 trillion and the classical surplus is $9 trillion. (c) GDP gap is $4 trillion and the recessionary gap is $2 trillion. (d) inflationary gap is $1.5 trillion and the expansionary overlap is $1 trillion. 348.          The marginal propensity to save in this economy is _______ and the “full-strength” autonomous spending multiplier is ________. (a) 0.75, 4. (b) 0.5, 2. (c) 0.2, 5. (d). 0.4, 2.5. (e) 0.25, 4. 349.          The autonomous tax multiplier in this economy would be: (a) one. (b) two. (c) four. (d) minus one. (e) minus two.

In this graph, assume that investment, net exports, taxes, government spending, and part of consumption are all autonomous, but some consumption is induced.

350.          If potential GDP is $14 trillion, then full employment: (a) cannot be achieved. (b) assumptions hold for this classical model. (c) is achieved if autonomous spending increases by $1 trillion. (d) output is unaffected by Aggregate Supply. (e) investment automatically expands by $600 billion.

351.          In a purely competitive industry, the: (a) demand curve for the output of each firm is perfectly elastic. (b) market demand is unitarily elastic. (c) firms independently set prices for each unit of their output. (d) market supply curve is based on fixed costs.

352.          Some buyers and sellers are forced to be price-takers because: (a) vigorous competition keeps individuals from noticeably influencing the market price. (b) only monopoly firms adjust quantities. (c) markets adjust slowly.(d) quantity adjustment is impossible in the market period or the short run.

353.          Yasmin owns an appliance store, and Jill is a painter with nine gallons of leftover paint. They both belong to the Swap Club, which was organized to evade income taxes. Yasmin would like a fresh coat of paint on the interior of her house and Jill wants a television. Jill agrees to paint three of Yasmin’s rooms in exchange for a wide-screen digital TV. Jill and Yasmin have experienced: (a) zero transaction costs. (b) fiscal deficiency. (c) costly disequilibrium. (d) a double coincidence of wants.(e) an underground division of labor.

354.          A monopoly may emerge naturally when: (a) increasing costs occur quickly relative to market demand. (b) disutilities of scale are encountered at low levels of output. (c) economies of scale are substantial relative to market demand. (d) variable costs are a large proportion of total costs.

355.          According to Keynesian theory, high cyclical unemployment during a depression usually originates: from a: (a) shift leftward of the Aggregate Demand curve. (b) trade war after a major trading company raises its tariff barriers significantly. (c) vertical shift upwards of the Aggregate Supply curve. (d) structural budget deficit that is excessively large. (e) rightward shift of both the Aggregate Supply curve and the Aggregate Demand curve.

356.          Jessica has set aside $12 of her weekly budget for hot dogs and hamburgers, each of which cost $2 per unit. How many of each will Jessica buy to maximize her satisfaction? (a) 1 hot dogs, 5 burgers. (b) 2 hot dogs, 4 burgers. (c) 6 hot dogs, 0 burgers. (d) 0 hot dogs, 6 burgers. (e) 3 hot dogs, 3 burgers. 357.          This combination of hot dogs and hamburgers maximizes Jessica’s weekly total satisfaction at: (a) 56 utils. (b) 59 utils. (c) 57 utils. (d) 58 utils.

358.          The effects of a change in the price level that cause the Aggregate Demand curve to have a negative slope do not include the: (a) wealth effect. (b) foreign-sector substitution effect. (c) interest rate effect. (d) inflation effect.

359.          Fear that severe inflation will erupt is likely to cause most people to: (a) buy fewer imported goods and more domestically-produced goods. (b) pay off the mortgages on their homes more quickly. (c) take a second job so that their income will keep pace with prices. (d) save more because inflation will shrink purchasing power in the future, and they will need more money to maintain a constant standard of living. (e) buy more durables sooner, which will cause inflation to be a self-fulfilling prophecy.

360.          Macroeconomic financial data not adjusted for changes in purchasing power across time are reported in: (a) exchange rate dollars. (b) cheap dollars. (c) true dollars (d) real dollars (e) nominal dollars.

361.          The idea that capitalism is dynamically unstable because the quest for profit stimulates economic concentration and the immiseration of workers is a part of: (a) classical macroeconomics. (b) Keynesian theory. (c) monetary velocity cycles. (d) Marxist theory.

362.          The North American Free Trade Agreement (NAFTA) eliminated most trade barriers between Canada, Mexico, and the United States. Many American factory workers opposed NAFTA because they anticipated the (a) interest rate effect. (b) foreign-sector substitution effect. (c) income effect. (d) wealth effect. (e) domestic substitution effect.

363.          Classifying people as voluntarily unemployed would clearly not be reasonable if: (a) their expected productivity at a potential job would yield a wage lower than commuting costs to the job. (b) they demand a wage sufficiently high to assure an average standard of living. (c) college graduates refused to work as unskilled laborers during a recession. (d) job vacancies in the want-ads exceed the number of people who claim to be unemployed.

364.          Your paycheck from a part-time summer job as a lifeguard rose from $150 per week to $200 a week, and consequently your weekly spending increased from $110 to $150. Your marginal propensity to save is: (a) 0.2. (b) 0.25. (c) 0.4. (d) 1.1. (e) 1.5.

365.          If equilibrium real interest rates in the United States rise to an all time high, people in China are more likely to: (a) buy U.S. bonds. (b) invest in economic capital in China. (c) import goods from the United States. (d) raise prices on all Chinese exports. (e) import goods from Korea instead of the United States.

366.          External shocks to the U.S. economy would not include: (a) the War against Terrorism. (b) discoveries of huge quantities of oil off the coast of Argentina. (c) worldwide crop failures. (d) the elimination of protectionist tariffs and quotas by China and India. (e) a wave of optimism that increased the marginal propensity to consume.

367.          In the U.S. economy, the era from 1865 or so to roughly 1890 would be shown as movement like: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0. 368.          From 1929 to 1933 or so, most economies throughout the world experienced a shift similar to: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0. 369.          The odds of reelection for incumbent national politicians are likely to be harmed most by a shift from: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0.

370.          The GDP gap is the difference between: (a) desired and actual Aggregate Demand. (b) potential and actual GDP. (c) the recessionary and deflationary gaps. (d) classical and Keynesian estimates of full employment.

371.          Higher rates of both inflation and unemployment would result from: (a) an increase in Aggregate Demand. (b) an increase in Aggregate Supply. (c) a decrease in Aggregate Demand. (d) a decrease in Aggregate Supply.

372.          Your paycheck from a part-time summer job as a lifeguard rose from $150 per week to $200 a week, and consequently your weekly spending increased from $110 to $150. If everyone has the same marginal propensity to consume that you do, the “full-strength” Keynesian multiplier would be: (a) 0.2. (b) 0.4 (c) 2.0. (d) 4.0 (e) 5.0.

373.          Upswings in the business cycle tends to increase the rates of: (a) price deflation. (b) divorce. (c) involuntary unemployment (d) property crime. (e) early retirement.

374.          A nation is likely to experience economic growth and development if there are increases in: (a) imports of consumer goods. (b) the marginal propensity to consume. (c) investor confidence and rates of private saving. (d) federal budget deficits. (e) the Keynesian spending multiplier.

375.          The idea that “… changes in tax rates affect the economic base being taxed,” is an assumption that underpins: (a) supply side economics and the Laffer curve. (b) Keynesian theories of recession. (c) equity theories of proportional taxation. (d) the income effect of taxation. (e) the income distribution implications of flat rate tax policies.

376.          Rising interest rates along with pessimistic forecasts about sales to consumers would cause: (a) an increase in government spending. (b) reductions in the marginal propensity to save. (c) reductions in autonomous investment. (d) increases in the rates of exports. (e) faster outsourcing of American jobs.

377.          Increased reliance on credit cards and the ready availability of currency through ATMs tend to increase the: (a) marginal propensity to consume. (b) velocity of money. (c) average costs of transactions. (d) pure economic profits of commercial banks. (e) M1 money supply.

378.          If the Federal Reserve System buys more bonds than it sells: (a) our national debt and the indebtedness of the U.S. Treasury is increased. (b) total bank reserves increase and the money supply grows when banks lend out their excess reserves. (c) the money supply grows because of increases in the actual money multiplier. (d) the proportion of stock-and-bond portfolios increases that financial investors can legally finance with credit. (e) the money supply shrinks because of reductions in the potential money multiplier.

379.          Between September 11, 2001 and December 2004, the M1 money supply grew 3% to 7% faster than measured GDP, which suggests that during this period: (a) pessimism among consumers and investors reduced the velocity of money. (b) the underground economy grew rapidly. (c) the real wage rate rose faster than prices. (d) the exchange rate of the dollar declined about 30% relative to the Euro.

380.          A new theory evolves into common sense only after it is: (a) found useful through extensive testing. (b) in conformity with Newtonian mechanics and Occam’s razor. (c) found to have only few a exceptions. (d) accepted by the Institute for Advanced Studies. (e) reshaped to conform with existing common sense.

381.          The classical remedy for the high cyclical unemployment that characterizes a deep depression is: (a) faster decreases in nominal prices than in nominal wages. (b) cuts in real wage rates. (c) reduced government spending. (d) slower rates of monetary growth. (e) a larger federal budget deficit.

382.          If goods are redistributed and some families gain without worsening other families’ well-being, then the initial distribution of goods must have been: (a) optimal. (b) inefficient. (c) superior to the new distribution. (d) inequitable.

383.          In the absence of diminishing returns, the maximum output of food from a flower pot (land) and unlimited amounts of other resources could conceivably be adequate to feed: (a) a grasshopper. (b) one mouse. (c) one skinny family. (d) all of the world.

384.          The term “economic capital” refers to: (a) money and other financial assets. (b) buildings, machinery, and equipment. (c) net investment minus depreciation. (d) corporate stocks and bonds.

385.          Reduced shirking by employees and increased labor productivity may be among the: (a) social costs of human capital accumulation. (b) menu costs of a recession. (c) disciplinary benefits of high cyclical unemployment. (d) consequences of higher minimum wage laws. (e) causes of growing inflationary pressure during an upswing in economic activity.

386.          After Chloe realized her dad desperately wanted UNC-Duke basketball tickets for his birthday, she saved all her tip money from a waitress job to buy two tickets for $400 dollars each. The $800 she spent on tickets is an example of: (a) fiat money. (b) seignorage. (c) acquired reserves. (d) commodity money. (e) monetary thrift.

387.          The nation’s M1 money supply does not include the values of: (a) coins. (b) paper currency. (c) travelers checks. (d) stocks and bonds. (e) funds in checkable accounts [demand deposits] at commercial banks, savings & loans, mutual savings banks, and credit unions.

388.          If the Federal Reserve System raises its target interest rates and through a domino effect, mortgage interest rates rise, there is likely to be a decrease in the: (a) rent charged for apartments near college campuses. (b) demand for housing. (c) rates of retirement of current middle-aged homeowners. (d) supply of housing. (e) mobility of migrant farm labor between different agricultural regions.

389.          Beginning in the 1950s the federal government spent ever increasing amounts to improve interstate highways, thus reducing the: (a) demand for and volume of highway travel. (b) demand for intercity rail travel. (c) pollution caused by faster highway speeds. (d) rates of urban‑rural turnaround.

390.          Suppose the monetary base is $1 trillion, the M1 money supply is $2.5 trillion, and the reserve requirement ratio is 1/6. It follows that: (a) the actual money multiplier is six. (b) excess reserves in the banking system and cash in the hands of the non-banking public have prevented the M1 money supply from reaching $6 trillion. (c) the potential money multiplier is 2.5. (d) reserves on deposit at the Federal Reserve System = $1.5 trillion. (e) time deposits in commercial banks = $1.5 trillion,

391.          Examples of pairs of complementary goods would include: (a) tea and coffee. (b) butter and margarine. (c) water skis and motor boats. (d) autos and bicycles. (e) swim suits and down jackets.

392.          As longer time intervals are considered, the quantities demanded of most goods become __________ to any change in price. (a) less responsive. (b) directly related. (c) more responsive. (d) indifferent. (e) less enamored.

393.          If the market price is above equilibrium: (a) a shortage exists. (b) a surplus exists. (c) quantity supplied will increase over time. (d) quantity demanded will decrease over time.

394.          Assuming that everything except the variables we are studying remains constant is called the: (a) ceteris paribus assumption. (b) ex ante assumption. (c) ex post assumption. (d) post hoc assumption.

395.          Data to measure the CPI is collected by: (a) checking prices in the Whole Earth catalog. (b) sampling prices of a typical consumer market basket and surveying households. (c) trial and error. (d) opening a store and seeing what prices people are willing to pay.

396.          Aggregate Expenditures for the United States would be decreased if: (a) civilian industries switched to defense contracts because war erupted in the Middle East. (b) most Americans began expecting escalating inflation. (c) irrational exuberance caused most financial investors to overestimate their wealth. (d) widespread shortages caused many people to begin hoarding consumer durables. (e) China began exporting millions of incredibly cheap and efficient luxury cars to the US market.

397.          Economists stress opportunity costs to assess a good’s value because people base most decisions on: (a) absolute prices. (b) social value in terms of labor. (c) how money income is distributed. (d) relative prices. (e) the average price level.

398.          Structural unemployment would apply LEAST to an individual who was a: (a) convicted murderer with a life sentence and no chance of parole. (b) thin department store Santa Claus in February. (c) deposed dictator willing to retake his old job at roughly his old income. (d) former all‑pro guard banned from the NFL because of severe drug problems.

399.          In this market for bananas: (a) shortages exist at P2. (b) bananas are a free good at P0. (c) bananas are currently a scarce good. (d) everyone loves banana splits. (e) the equilibrium price for bananas is P0. 400.          A surplus of bananas would emerge if: (a) government set a price ceiling of P1. (b) growers expected prices to soar. (b) hurricanes destroyed Central American banana plantations. (c) government imposed a price floor of P2. (d) seller’s supply prices rose to P1. (e) consumer’s demand prices rose to P1. 401.          A shortage of bananas would correspond to line (a) ab. (b) cd. (c) ac. (d) bd. (e) ae.

402.          Measurements of how the average level of nominal prices changes is accomplished by using: (a) index numbers. (b) qualitative analysis. (c) economic systems. (d) disaggregation techniques.

403.          A reasonable example of a zero‑sum game would NOT be: (a) a winner-take-all poker hand with four players. (b) uneven inflation that did not affect the real GDP. (c) a golf tournament where players compete for a prize equal to the entry fees of all entrants. (d) specialization and exchange in a free market economy.

404.          Hyperinflation refers to: (a) short inflationary episodes. (b) periods of moderately rising prices. (c) periods of extremely rapid rates of inflation. (d) the rate at which inflation slows down.

405.          National legalization of marijuana would cause the growth of measured GDP to: (a) more accurately reflect well‑being. (b) be overstated in the very short run. (c) be understated in the long run. (d) decline precipitously.

406.          Official measures of the U.S. GDP would not include values for: (a) goods exported from the United States. (b) monetary costs incurred in cleaning up pollution. (c) government items that never enter the free marketplace, such as military hardware. (d) increases in inventories during business downturns. (e) most “do‑it‑yourself” projects.

407.          According to Say’s Law: (a) demand and supply are totally independent. (b) demand creates its own supply. (c) supply creates its own demand. (d) unemployment and inflation are inversely related.

408.          Classical macroeconomics concludes that in the long run: (a) involuntary unemployment is impossible. (b) people will be increasingly prosperous. (c) capitalism will evolve to socialism. (d) the price level will be stable.

409.          Classical economists perceived inflation as a symptom of: (a) excessive monetary growth. (b) shocks to Aggregate Supply. (c) Say’s law in operation. (d) inflexible wages and prices.

410.          Classical economists implied that the Aggregate Supply curve is: (a) horizontal. (b) vertical at any given level of aggregate output. (c) vertical at the full‑employment aggregate output. (d) relatively flat.

411.          The idea that Aggregate Demand alone determines output and employment in a depressed economy is central to: (a) American institutionalism. (b) supply‑side economics. (c) classical theory. (d) modern Marxism. (e) Keynesian theory.

412.          Classical economic theory views economic investment as most likely to be facilitated by: (a) low interest rates. (b) high marginal propensities to consume. (c) automation. (d) rapid rates of population growth. (e) deficits in the US balance of trade.

413.          Unexpected fluctuations in inventories are: (a) ignored by most business firms. (b) tightly controlled by central planners. (c) important signals to business firms. (d) manipulative corporate strategies. (e) stable components of consumer spending.

414.          Expected rate of return schedules tend to increase when: (a) depreciation accelerates. (b) investors become more optimistic. (c) unemployment rates rise. (d) capital costs rise. (e) interest rates increase.

415.          According to a simple linear Keynesian model, as autonomous investment rises, it is LEAST likely that there will be: (a) rising national income. (b) a drop in the rate of return. (c) declines in autonomous consumption. (d) increases in Aggregate Demand.

416.          A traditional Keynesian prescription for chronic and excessive cyclical unemployment is: (a) passage of a balanced-budget amendment to the US Constitution. (b) tax cuts and increases in government spending. (c) to allow market forces to correct the problem. (d) enactment of legislation to encourage private saving.

417.          NOT among the commonly recognized gains from trade are the: (a) political gains realized because international trade raises the costs of conflict — international relations tend to be calmer when nations depend on each other to be customers or suppliers. (b) specialization gains associated with production and exchange according to comparative advantage. (c) uniqueness gains, which allow the citizens of some countries to consume goods that simply could not be produced domestically. (d) dynamic gains that arise because trade increases income and saving, thereby facilitating investment, and because new technologies can be transferred internationally. (e) independence gains realized by former colonies because trade reduces the political advantages to imperialistic countries that attempt to gain territory through aggressive military domination.

418.          Monetary policies that reduce the money supply include: (a) FED sales of Treasury bonds to banks. (b) reducing government spending. (c) lowering the discount rate. (d) increasing margin requirements.

419.          The actual money multiplier is: (a) 1/rr. (b) equal to MS/MB. (c) larger than the potential money multiplier. (d) reduced if the public deposits its cash in banks.

420.          Economists who emphasize the aggregate supply side of the economy argue that tax breaks to savers yield: (a) proof of the paradox of thrift. (b) even larger increases in budget deficits. (c) more investment and enhanced economic growth. (d) higher rates of both unemployment and inflation. (e) greater inequity in the distribution of income.

421.          The interest rate will probably rise if: (a) households decide to delay consumption, causing the loanable funds available for business investments to increase. (b) investors become more optimistic about the profitability of investment. (c) households decide that times are secure and decrease the liquidity of their assets. (d) households decide to save more because of retirement plans. (e) the stock market falls because speculators fear a depression.

422.          When the FED sells U.S. bonds, the banking system: (a) raises the monetary base proportionately. (b) reduces the potential money multiplier. (c) gradually shrinks loan‑based demand deposits. (d) quickly boosts the level of bank reserves.

423.          The function in this figure is called a: (a) Laffer curve. (b) Gresham curve. (c) classical curve. (d) revenue neutral tax curve. (e) Ricardian equivalence curve. 424.          If taxes always create disincentive effects that adversely affect GDP, the tax rate at which GDP will be the highest in this figure is: (a) 10% (b) 20% (c) 30% (d) 40% (e) zero.

425.          All of the following are tools of the Federal Reserve EXCEPT: (a) open market operations. (b) marginal tax rates. (c) discount rates. (d) margin requirements.

426.          When the FED buys U.S. bonds, the: (a) excess reserves in banks are increased immediately. (b) money destruction process gradually follows. (c) level of total bank reserves is decreased. (d) actual money multiplier declines to a new level. (e) money supply declines because banks call in loans.

427.          Banks increase the money supply when they: (a) print currency. (b) debase the amount of precious metal in coins. (c) lend excess reserves as demand-deposit money. (d) sell Treasury bills directly to the public. (e) raise the reserve requirement ratio.

428.          The economic concept of total costs and a bookkeeper’s concept of total costs differ because economists: (a) place a lower value on psychic income. (b) include psychic income in explicit revenues. (c) sum the explicit costs bookkeepers record and the implicit costs bookkeepers ignore. (d) ignore accounting data.

429.          One way for financial investors to “spread” risk and reduce the uncertainty of their income streams is through: (a) investing only in government bonds. (b) barter. (c) diversification. (d) monetization.

430.          When international trade commences, the: (a) trading countries’ consumption possibilities expand beyond their productive capacity. (b) gains from trade are shared by everyone immediately. (c) total value of output must fall in one country if it rises in the other. (d) gains to one trading party are offset by losses to the other.

431.          Labor productivity tends to rise when: (a) the K/L ratio increases. (b) the K/L ratio decreases. (c) workers forego education. (d) capital becomes more expensive. (e) wage levels fall.

432.          Economies of scale exist when: (a) prices to consumers decrease as more units are sold. (b) output increases when more resources are employed. (c) average costs decrease as a firm expands its ability to produce. (d) government produces a good. (e) employment and the price level both rise as national output rises.

433.          A change in a derived demand is best illustrated by rising: (a) sales of roasted peanuts during baseball season. (b) new car sales during economic downturns. (c) orders for new capital during economic booms. (d) beef prices when cowboys unionize. (e) teenage unemployment rates during summer vacations.

434.          If concert promoters expect the demand for tickets in the figure below to be D₀: (a) scalpers (specialized intermediaries) will lose if they pay P₀ for tickets and demand turns out to be only D₁. (b) the supply curve of tickets will be highly responsive to the price. (c) the market clears when the ticket price is Q₀. (d) scalpers will lose if the demand for tickets turns out to be D₂.

435.          The promoter expects demand to be D0. Bad weather may reduce demand to D1 (a possibility feared by the promoter and many potential customers.) Unexpectedly, good reviews might boost demand to D2 (a possibility not foreseen when the promoter set the ticket price at P0.) These supply and demand curves for concert tickets suggest that: (a) official ticket prices will fall if rain reduces demand from D0 to D1 on the day of the concert. (b) the supply is Q0 regardless of the number of customers for tickets. (c) scalpers will profit regardless of how many people ultimately go to this concert. (d) scalpers will gain if they buy tickets before bad weather arrives.

436.          One adverse effect of imposing high tariff barriers is that this induces: (a) more total output among trading nations. (b) specialization according to comparative advantage. (c) retaliation by other nations. (d) economic efficiency.

437.          Differences between the amount of money a consumer would willingly pay for a given quantity of a commodity rather than do without and the amount the consumer actually pays are called: (a) the income effect. (b) consumer surplus. (c) profit. (d) the substitution effect. (e) gains from exchange.

438.          NCAA rules forbidding standard employment negotiations between colleges and amateur athletes tend to result in: (a) monopsonistic exploitation of many athletes. (b) incentives for collusion between individual college coaches and the owners of individual professional teams. (c) significant discrimination against female athletes. (d) investments in education by student athletes that exceed optimal investment levels.

439.          In the short run, the implicit costs of any resources provided by a firm’s owner tend to be: (a) fixed costs. (b) subtracted from revenue to calculate taxable income. (c) variable costs. (d) investments in economic capital. (e) part of economic profit.

440.          All else constant, federal budget surpluses allow decreases in the: (a) national debt. (b) pressure for recession. (c) money multiplier. (d) misery index. (e) export/import ratio.

441.          An inflationary gap occurs when autonomous: (a) spending exceeds the level necessary to ensure full employment. (b) firms operate with excess capacity. (c) government spending exceeds tax revenues. (d) GDP operates below potential GDP.

442.           “Tit-for-tat” strategies become common when: (a) children compete for dominance in school-yard pecking orders. (b) prisoners’ dilemma games are repeated a large number of times. (c) both buyers and sellers possess asymmetric information. (d) bilateral monopoly characterizes a resource market.

443.          After free trade commences, Country Alpha: (a) exports electric drills and imports shirts. (b) experiences decreasing opportunity costs of consumption. (c) has absolute advantages in producing both goods. (d) would gain by export tariffs on drills and import quotas for shirts. (e) technology advances in shirt production. 444.          After trade commences: (a) production of both goods declines in both countries. (b) producers of shirts gain in Country Alpha and lose in Beta. (c) consumption of both goods rises in both countries. (d) most of the dynamic gains from trade are realized in Alpha. (e) workers in Beta lose; those in Alpha gain. 445.          Among predictable foes of trade in Alpha would be ___ producers and ___ consumers, and ___ makers and ____ buyers in Beta. (a) shirt, shirt, drill, drill (b) shirt, drill, shirt, drill (c) drill, shirt, shirt, drill (d) shirt, drill, drill, shirt (e) drill, drill, shirt, shirt 446.          With the onset of free trade, the consumption possibilities frontiers (CPFs) for these countries expand (a) from points b to points c. (b) from points a to points b. (c) from line zz for Alpha, and line zz.zz for Beta outward to lines tt for both. (d) from the exterior boundaries of the respective shaded areas (the PPFs) to lines tt for both countries.

Points a reflect pre-trade production and consumption for Alpha and Beta; points b reflect production with free trade; and identical points c identify consumption with free trade.

447.          The supply curve of labor is negatively sloped over some regions when: (a) the demand for goods exceeds the demand for leisure. (b) leisure is an inferior good. (c) people offer more hours of labor at higher wages. (d) some people drop out of the work force at low wages. (e) the income effect on leisure from wage increases exceed the substitution effect.

448.          The economic term applied when equally productive workers are paid different wages is: (a) monopolistic exploitation. (b) racism. (c) employment subsidization. (d) sexism. (e) wage discrimination.

449.          When a firm is experiencing diseconomies of scale, its: (a) larger competitors will enjoy greater profits. (b) labor force should be expanded. (c) inputs should be increased to lower average costs. (d) average cost will decline if it shrinks its operations. (e) technology requires modernization.

450.          The price will tend to fall but the equilibrium quantity may rise, fall, or remain stable if: (a) supply grows while demand falls. (b) demand grows while supply falls. (c) supply and demand both increase. (d) supply and demand both decrease.

451.          At the point of unit elasticity along a market demand curve: (a) firms will maximize total profits. (b) total revenue is at a maximum. (c) total costs are minimized. (d) marginal cost equals marginal revenue. (e) All of the above.

452.          The figure below is most consistent with the environment confronted by a: (a) purely competitive firm that makes economic profit in the short run. (b) monopolistically-competitive firm in long run equilibrium. (c) firm with oligopoly power that pursues a kinked-demand curve strategy. (d) pure monopoly that is able to price discriminate.

453.          If this firm produces Q output, it is operating in the: (a) technological long run. (b) long run. (c) short run. (d) shut down period. (e) boom period of the business cycle. 454.          Total cost (TC) for this profit-maximizing firm equals area: (a) 0PeQ. (b) 0adQ. (c) 0bcQ. (d) aPed. (e) bPec. 455.          This profit-maximizing firm’s total variable costs (TVC) equal: (a) 0PeQ. (b) 0adQ. (c) 0bcQ. (d) aPed. (e) bPec.

456.          This profit-maximizing firm’s total fixed cost (TFC) equals: (a) 0PeQ. (b) badc. (c) 0bcQ. (d) aPed. (e) bPec.

457.          If this firm produces Q output, it is operating where: (a) losses are minimized and equal bPec. (b) total variable costs equal area badc. (c) profit is maximized and equals aPed. (d) P > MC, so the firm is operating inefficiently.

458.          According to the simple Keynesian model, as autonomous investment rises, it is LEAST likely that there will be: (a) rising national income. (b) a drop in the rate of return. (c) declines in autonomous consumption. (d) increases in Aggregate Demand.

459.          The U.S. progressive personal income tax structure yields a tendency for: (a) most state and local government budgets to be in balance. (b) federal tax revenue to grow proportionally faster than national income. (c) automatic destabilization. (d) no predictable effect on national income. (e) Presidential discretion over the size of the deficit.

460.          Monetary policy makers would combat inflation by: (a) lowering the legal reserve ratio. (b) lowering the discount rate. (c) selling government securities to banks. (d) lowering the margin requirement.

461.          Autonomous consumption and autonomous saving are LEAST influenced by: (a) expectations about future income. (b) stocks of goods held by consumers. (c) the nature of the household balance sheet. (d) the average size and age of the household. (e) changes in national income.

462.          Relative to a purely competitive seller, the demand for labor by an imperfectly competitive firm tends to be: (a) perfectly wage elastic. (b) upward‑sloping. (c) backward‑bending. (d) less wage elastic.

463.          The velocity of money is: (a) greater, the more efficient money is in exchange. (b) greater, the smaller the ratio of nominal GDP to the price level. (c) lower, the greater the ratio of the transaction demand for money to nominal GDP. (d) unaffected by inflationary expectations.

464.          Injections into an economy’s income stream would include autonomous: (a) business taxes. (b) private saving. (c) domestic investment. (d) planned imports. (e) foreign investment by U.S. firms.

465.          This graph depicts the short run situation faced by a firm when long run equilibrium has been achieved in a (a) competitive resource market. (b) monopolistically competitive market for output. (c) kinked-demand curve oligopoly. (d) regulated industry that generates an externality.

466.          This firm will set a price where: (a) P > MC = MR. (b) MR > MC = P. (c) MR = P > MC. (d) MR = P > MC. (e) P < MC < MR. 467.          This firm will operate where (a) accounting profit is positive but economic profit is zero. (b) the demand curve facing the firm is the least price elastic. (c) total revenue equals the sum of marginal fixed costs. (d) marginal revenue most greatly exceeds average revenue. (e) All of the above. 468.          Total revenue when profits are maximized equals: (a) $90,000. (b) $112,000. (c) $60,000. (d) $120,000.

Price discrimination is impossible

469.          Disequilibrium occurs in the Keynesian macroeconomic model whenever: (a) aggregate income differs from aggregate output. (b) aggregate spending is below potential GDP. (c) planned aggregate spending differs from aggregate output. (d) desired savings = actual investment.

470.          A purely competitive firm maximizes profit by producing where: (a) P = ATC. (b) P = MR = MC. (c) PQ = TC. (d) AFC = AVC.

471.          When all labor markets in a purely competitive economy are in equilibrium: (a) the marginal benefits from unemployment exceed unemployment compensation. (b) the marginal benefits and marginal costs from employment are equal in each possible occupation. (c) economic growth is inhibited by excessive automation. (d) inefficiency in the allocation of resources prevails. (e) the marginal physical product of labor equals the money wage rate.

472.          When total revenue is at a maximum: (a) marginal revenue is positive. (b) marginal revenue is negative. (c) marginal revenue is zero. (d) demand is relatively inelastic.

473.          Economic profits are NOT categorized as rewards to entrepreneurs for: (a) enduring business uncertainty. (b) providing society with economic capital. (c) innovating new goods and technologies. (d) exercising monopoly power or monopsony power. (e) bearing the risk of being in business.

474.          In the GDP accounts, personal money spent on education is classified as: (a) consumption spending. (b) personal investment spending. (c) government purchases if it is a public university. (d) net investment if worker productivity increases. (e) net personal saving in the form of human capital.

475.          Consumption is the: (a) largest component of Aggregate Spending. (b) least stable component of Aggregate Demand. (c) most stable component of Aggregate Supply. (d) major form of business spending.

476.          The process of substituting sophisticated machinery for human labor is known as: (a) automation. (b) bionic engineering. (c) scientific management. (d) robotics. (e) industrial sabotage.

477.          The marginal propensity to save for this closed and strictly private economy is: (a) 0.5. (b) 0.333. (c) 0.25. (d) 0.2. (e) 0.125. 478.          The Keynesian autonomous tax multiplier for this figure would be: (a) – 5. (b) – 4. (c) – 3. (d) 4. (e) 5. 479.          If potential GDP is $1,000, then a shift from AE1 to AE2: (a) boosts output and reduces employment. (b) increases the Aggregate Supply curve. (c) will bring the economy to full employment. (d) could be caused by a fall in investment.

480.          If potential GDP = $1000 and current output is $500, then: (a) the recessionary gap is $100. (b) the full-strength multiplier is 4. (c) the GDP gap = $900. (d) raising both taxes and government spending by $400 yields full employment. (e) all of the above.

481.          The “terms of trade” are the: (a) amounts of one currency that trade for a unit of another currency. (b) ratios of imports to exports. (c) prices of exported goods relative to prices of imported goods. (d) ratio of debits to credits in the balance of payments.

482.          Bob is an auditor at the Richmond FED. Every morning, between spoonfuls of Lucky Charms and sips of coffee, he e-mails member banks, threatening tough audits if they do not stop borrowing reserves in the federal funds market. Bob’s poor judgment entails misuse of the FED’s unpredictable tool of: (a) the discount rate. (b) moral suasion. (c) open market operations. (d) accounting coercion. (e) reserve ratio oversight.

483.          Monopolistic exploitation is exercised whenever the employment equilibrium for a firm entails: (a) VMP = MRP = MFC > w. (b) paying workers less than the national average wage. (c) VMP > MRP = MFC = w, and P > MC. (d) MRP > MFC. (e) P=MC=W > CPI.

484.          Regardless of market structures, firms maximize profit by hiring labor where the: (a) marginal revenue product = marginal resource cost. (b) wage = value of the marginal product. (c) wage = marginal revenue product. (d) wage = marginal resource cost.

485.          When the forces of demand and supply result in failure to maximize the sum of consumer surpluses and producer surpluses (e.g., rents or profits), the situation is LEAST easily characterized from an economic point of view as a(n) (a) inequity inherent in capitalism. (b) dead weight loss. (c) welfare loss triangle. (d) market failure.

486.          The principal/agent problem is most likely to be found in a firm where: (a) workers cannot monitor management’s performance. (b) customers cannot monitor product quality. (c) stockholders cannot monitor management’s performance. (d) management cannot monitor stockholder performance. (e) None of the above.

487.          If the wheat market begins in equilibrium on S0D0, and then farm machinery becomes more fuel efficient, the market shifts to: (a) S0D1. (b) S1D2. (c) S1D0. (d) S2D1. (e) S0D2. 488.          If the wheat market is initially in equilibrium on S0D0 and then severe weather ruins much of the crop, the market shifts to: (a) S1D0. (b) S1D2. (c) S2D0. (d) S2D2. (e) S1D1.

489.          If bureaucrats impose unnecessarily costly and complex regulations in attempts to increase their power and budgets, their behavior is most compatible with the: (a) Nash equilibrium theory. (b) public choice theory of regulation. (c) industry interest theory of regulation. (d) public interest theory of regulation. (e) “Iron Law of Oligarchy” as stated by Roberto Michels.

490.          As the capital‑to‑labor (K/L) ratio in a country increases: (a) capital becomes more productive. (b) interest payments to capital will increase. (c) wages to labor will probably decrease. (d) labor productivity (MPP_L) usually increases. (e) the price of capital increases.

491.          Because resources must be hired away from other uses, the resource supply curves facing a major competitive industry that is expanding are typically: (a) horizontal. (b) U‑shaped. (c) upward‑sloping. (d) downward‑sloping. (e) vertical.

492.          If a 7000 ton meteor splashes into the Caribbean, loosing a devastating tsunami from Florida to Texas, this external shock is most likely to cause a: (a) triple-witching turning point in the business cycle. (b) leftward shift of the Aggregate Supply curve. (c) leftward shift of the Phillips curve. (d) decrease in market interest rates. (e) nuclear war between the United States and Mexico.

493.          Examples of normative statements would include: (a) Earth has five moons made up of cotton candy. (b) 250,000 students have attend this school since it was established. (c) Japanese should be the world’s official language. (d) John Lennon wrote 117 Top 10 hits (e) The world’s highest golf course is in Peru.

494.          A purely competitive resource market implies that an individual firm faces a resource supply curve that is: (a) perfectly inelastic. (b) perfectly elastic. (c) downward‑sloping. (d) backward‑bending. (e) rectangularly hyperbolic.

495.          As monopoly power increases, there is a tendency for the: (a) gap between P and MC to increase. (b) barriers to entry into an industry to be weaker. (c) gap between P and ATC to increase. (d) price elasticity of demand for the product to become larger. (e) production process to become more efficient.

496.          Growing per capita income would probably increase by proportionally the most the: (a) demand for used tires. (b) supply of unskilled labor. (c) number of yachts sold. (d) federal budget deficit.

497.          Marginal revenue equals the change in total: (a) profit as output expands slightly. (b) output from hiring an additional worker. (c) revenue from selling an extra unit of output. (d) tax rates when tax revenue increases a bit.

498.          Starting at I0 and S1, a decrease in investors’ optimism would result in a movement from the initial point e to: (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 499.          Starting at I1 and S1, increased consumption (out of present income) should result in movement from: (a) point a to point b. (b) point c to point d. (c) point c to point b. (d) point d to point a. (e) point d to point b.

500.          After Lee wins a $17,000,000 lottery, Lee’s family takes an extended vacation that they could not previously have afforded, visiting the Bahamas, Brazil, and Argentina. This exotic vacation is a/an: (a) normal good. (b) inferior good. (c) complementary good. (d) preferred good. (e) choice good.

501.          The economic term for payments for the use of capital is: (a) rent. (b) interest. (c) profit. (d) royalties.

502.          A monopolist maximizes profits, or minimizes losses, by producing the output where marginal revenue: (a) equals average revenue. (b) most greatly exceeds average cost. (c) equals marginal cost. (d) most greatly exceeds marginal cost.

503.          Using high tax rates to force the rate of social saving up to secure resources for capital formation is likely to fail according to the: (a) functional finance theory. (b) Aggregate Demand model. (c) confiscation paradox. (d) Laffer curve hypothesis. (e) innovation theory.

504.          An example of a nonrival good would be: (a) FM radio broadcasts. (b) education. (c) a bicycle. (d) Lake Erie. (e) the New York Stock Exchange.

505.          If the base period value for an index of, say, housing starts in the Research Triangle area is 15,210 and the current period value is 17,843, then the value of this index for RTI housing starts would be: (a) 117. (b) 85. (c) 26. (d) 126.

506.          A firm that is the sole buyer of a particular good or resource is a: (a) monopsonist. (b) conglomerate. (c) bilateral monopolist. (d) plutocracy. (e) price discriminator.

507.          The level of investment in a country now: (a) affects future capacity to produce. (b) should reduce the infrastructure. (c) has no effect on economic growth. (d) shrinks production possibilities.

508.          Classical economics and New Classical Macroeconomics agree that government should: (a) actively promote full employment and inflation, but it has followed the wrong policies. (b) use industrial policy to promote economic growth. (c) offset external shocks that disrupt the economy. (d) allow market forces to move the economy towards a long‑run full employment equilibrium. (e) offset external shocks by influences in Aggregate Demand.

509.          If line A in this figure is the steepest ray from the origin that is tangent to total physical product of labor (TPPL, or total output) curve C, then when Lb labor is employed, the slope of line A: (a) corresponds to the level of output that minimizes marginal cost. (b) is an inflection point in the production of cat food. (c) equals total physical product of labor. (d) equals both the marginal physical product and average physical product of labor.

510.          If point c in this figure is the maximum point for the total physical product of labor (TPPL, or total output) shown as curve C, then when Lc labor is employed, the: (a) marginal physical product of labor to produce more cat food is zero. (b) average cost is minimized at the corresponding point on the LRAC curve. (c) price charged for output will be adequate to cover all fixed costs. (d) marginal physical product and average physical product of labor are equal.

511.          Land, labor, and capital are all scarce because: (a) once utilized they cannot be used again. (b) advertising largely overstimulates human wants. (c) each productive resource requires a monetary return for its use. (d) inheritance under a capitalism prevents poor people from having a fair share. (e) their limited availability yields potential production that is less than people want.

512.          Economic inefficiency is most clearly a problem when: (a) Orpheus and Eurydice fall in love and live happily ever after. (b) Lynn was too busy to turn off the water and it ran down the street. (c) Mr. & Mrs. Smurf are dismayed when their son Clyde, a soap opera addict, flunks out of school. (d) Elmer hates Alpo but eats it so he can afford a cheap daily bottle of Mad-Dog Wine. (e) Elvis sings 10 times better and drives a truck twice as well as Ralph, but both sing and drive because exchange based on specialization does not occur.

513.          Two major U.S. antitrust laws are the: (a) Sherman Act and Clayton Act. (b) Norris‑LaGuardia and McCarran Acts. (c) Humphrey‑Hawkins and Public Utilities Acts. (d) Full Employment and Balanced Growth Acts.

514.          Growth of government spending for defense since September 11 would most directly increase: (a) Aggregate Demand. (b) Aggregate Supply. (c) unemployment rates. (d) progressive income tax rates. (e) the FED’s discount rate.

515.          The closest to being a free good of the following would be a: (a) scholarship for a brilliant but impoverished student. (b) free “meals on wheels” program for the aged and infirm. (c) winning lottery ticket you found on the sidewalk. (d) hug from a friend you had not seen in weeks. (e) comfortable winter day caused when an unexpected warm front blows through your town.

516.          The group LEAST likely to be helped by a minimum wage law is: (a) high-school dropouts in their teens. (b) union members. (c) skilled industrial workers. (d) experienced construction workers.

517.          When total utility is at a maximum, marginal utility is: (a) increasing. (b) decreasing. (c) zero. (d) the same as total utility. 518.          When marginal utility (MU) is negative the item consumed has become: (a) a substitute good. (b) a bad. (c) a normal good. (d) an inferior good.

519.          The law of diminishing returns broadly refers to the increasing: (a) difficulties encountered in expanding any activity repeatedly. (b) reductions in costs from expanding large-scale production. (c) knowledge about technology that occurs as time passes. (d) rates of utilization of natural resources.

520.          At full employment inflation is likely to follow excessive increases in: (a) real interest and unemployment rates. (b) Aggregate Demand. (c) the reserve requirements ratio. (d) income tax rates. (e) the FED’s discount rate.

521.          The opportunity cost of any decision is measured by the: (a) market price of career and education opportunities. (b) average value of all alternative choices sacrificed. (c) market price of the resources used in production. (d) value of the best alternative choice sacrificed.

522.          Economic growth as reflected in a production possibilities frontier would be stimulated by improvements in: (a) unemployment rates. (b) technology. (c) people’s attitudes. (d) economic efficiency.

523.          If the price of a good or resource falls, the demands for: (a) that good or resource increase. (b) complementary goods or resources decrease. (c) substitute goods or resources decrease. (d) luxury goods and inferior resources fall.

524.          Compared to a natural monopoly that charges a uniform price, block pricing can: (a) allow P=MC for the marginal unit and still cover all costs. (b) never generate as much profit. (c) guarantee that all capacity will be used at all times. (d) not cover the normal costs of business.

525.          All profit‑maximizing firms hire labor up to the point where: (a) VMP = w. (b) VMP = MFC. (c) VMP = MRP. (d) MRP = MFC. (e) MR ‑ MC is maximized.

526.          If you lease a building for five years and quickly achieve economic profits because it is located conveniently for potential customers: (a) you could capitalize some of these pure profits if you sold your business with a sublease at the end of the second year. (b) your rent would almost certainly be raised when the lease ran out. (c) the owner evidently underestimated the building’s location rents. (d) similar firms probably would soon open for business near you. (e) All of the above.

527.          The principle of comparative advantage shows: (a) why trade with a country in which wages are low is unfair. (b) how countries try to exploit each other through trade. (c) why small countries with narrow resource bases always lose in foreign trade. (d) potential gains in efficiency available through specialization and trade.

528.          Which of the following taxes are borne almost solely by workers? (a) Sales taxes. (b) Social Security and other payroll taxes. (c) Property taxes. (d) Income taxes. (e) Excise taxes.

529.          The theory of rational expectations is a strong version of: (a) Keynesian macroeconomics. (b) Marxist polemics. (c) Schumpeterian entrepreneurship. (d) the natural rate hypothesis. (e) the Fisher Effect.

530.          Profit maximization for this firm occurs at: (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 531.          This profit-maximizing firm’s total revenue (TR) equals area: (a) 0bcQ. (b) 0adQ. (c) 0peQ. (d) bpec. 532.          For this profit-maximizing firm, area aPed represents: (a) fixed cost (TFC). (b) average fixed cost (AFC). (c) minimum economic losses. (d) maximum economic profits. (e) the rate of return on investment.

533.          Which of the following employers is LEAST likely to have monopsony power? (a) A secretarial service firm in Chicago. (b) The police force in Chugwash, Texas. (c) The U.S. Department of Defense. (d) A lumber mill in Greer, Arizona. (e) The community hospital in Pocatello, Idaho.

534.          The basic rationale for antitrust is that monopoly markets are inefficient and must be made to: (a) set marginal social benefits exceeding marginal social costs. (b) set prices and output as if they were competitive. (c) plow profits back into research and development. (d) pay taxes that shrink concentrated wealth and power.

535.          Demand-side inflation would be most likely to be triggered by: (a) increasing costs of intermediate production goods. (b) increased imports of consumption goods. (c) falling expectations of inflation. (d) decreased supplies of consumption goods. (e) rapid growth of the money supply.

536.          Least consistent with the other three answers listed would be: (a) hyperinflation. (b) the Great Depression. (c) John Maynard Keynes. (d) high unemployment.

537.          A declining stock market index due to lower share prices will be most likely to (a) create inflationary pressure, thereby increasing interest rates. (b) generate ever-larger federal government budget surpluses. (c) drive unemployment rates down. (d) make it easier for new firms to secure funding. (e) reduce people’s wealth and as a result reduce autonomous saving in the simple Keynesian model.

538.          A symptom that aggregate output exceeds planned expenditures at the current price level and level of national income would be unexpectedly: (a) rising inventories of goods. (b) widespread shortages. (c) soaring union wage rates. (d) rapid inflation.

539.          Overproduction and underpricing of goods relative to socially optimal levels tend to occur when competitively-produced output: (a) is rival and exclusive in consumption. (b) imposes costs on external parties. (c) generates positive externalities. (d) transfers income from the poor to the rich.

540.          The rise in nominal interest rates as higher inflation comes to be expected is an example of the: (a) Keynes effect. (b) real wealth effect. (c) Fisher effect. (d) Friedman effect.

541.          In this diagram, the mps equals: (a) 0.1. (b) 0.2. (c) 1/3. (d) 0.4. (e) 0.5. 542.          When disposable income equals $10 trillion, private saving equals: (a) $1 trillion. (b) $1.5 trillion. (c) $2 trillion. (d) $2.5 trillion. (e) $3 trillion.

543.          Structural unemployment occurs primarily because: (a) of seasonal weather patterns or holidays, etc. (b) many people lack skills demanded in labor markets. (c) job seekers incur transaction costs. (d) some firms fail because of poor planning. (e) our economy follows boom-bust cycles.

544.          Unexpected inflation tends to: (a) redistribute income and wealth in arbitrary ways. (b) diminish speculation and boost resource productivity. (c) yield wages that rise faster than prices. (d) be especially harmful in agricultural economies.

545.          If the rate of return you calculate on an asset exceeds the interest rate: (a) its present value exceeds its price. (b) the market is in long term equilibrium. (c) you should avoid buying the asset. (d) the price should fall quickly.

546.          The concept of induced unemployment is LEAST applicable to a: (a) teenager who could produce enough to earn $4/ hour, but not enough to cover the current minimum wage. (b) person drawing unemployment compensation to help pay the costs of looking for a perfect job. (c) machinist laid off by automation. (d) welfare recipient who would lose all benefits by accepting a minimum wage job.

547.          Hyperinflation or persistent galloping inflation: (a) pose fewer problems than nominal inflation. (b) enhance economic efficiency by increasing the velocity of money. (c) undermine people’s confidence in an economy’s monetary system. (d) are usually caused by small but chronic structural budget deficits. (e) are seldom caused by excessive growth of the money supply.

548.          In National Income accounting, government purchases of commodities and services (G) includes almost all: (a) federal transfer payments. (b) budgetary outlays of the federal government. (c) outlays of federal, state, and local governments other than transfer payments and interest payments. (d) differences between new government loans, and paybacks from existing government loans.

549.          An economic rent is earned whenever the owner of a factor of production: (a) receives income greater than the minimum needed to ensure that the quantity demanded is available. (b) exerts control over the payment for the resource. (c) sells input services in a perfectly competitive resource market. (d) confronts an upward‑sloping demand curve for input services.

550.          Banks subject to reserve requirements set by the Federal Reserve System include (a) only state chartered banks. (b) only nationally chartered banks. (c) only banks with assets less than $100 million. (d) only banks with assets less than $500 million. (e) all financial institutions that issue “checkable” deposits, whether or not they are members of the Federal Reserve System.

551.          At an interest rate of 6 percent, the present value of $100 receivable next year is: (a) $106.33. (b) $100.00. (c) $94.34. (d) $93.66.

552.          Kelly’s car breaks down on US 40, forcing Kelly to pay cash for a car tow. Kelly had the extra cash on hand, with no immediate plans to spend it. Kelly’s motive for holding this extra cash is the basis for which of the following demands for money? (a) transaction demand. (b) speculative demand. (c) asset demand. (d) reservoir demand. (e) precautionary demand.

553.          All else equal, an increase in the discount rate will cause on increase in the ratio: (a) MS/MB. (b) 1/rr. (c) ∆Y/∆A. (d) consumption/GDP. (e) XR/DD.

554.          The nominal interest rate minus the expected rate of inflation: (a) defines the desired real interest rate. (b) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. (c) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. (d) defines the discount rate.

555.          Consider a proposal to adopt policies to (1) pay off the national debt; (2) consistently set the federal budget to balance at full employment; and (3) expand the money supply by a small fixed percentage each year. This set of policies would be: (a) incompatible with the recommendations of Milton Friedman, among other modern monetarists. (b) most beneficial to financial investors who desire holdings of US bonds because of their minimal risk. (c) impossible if international trade continues to expand. (d) widely applauded by Keynesian economists (e) logically inconsistent in the long run.

556.          Leftward shifts of Aggregate Supply curves will shift: (a) Phillips curves up and out. (b) Autonomous Expenditures to the right. (c) inflationary expectations downwards. (d) Aggregate Demand to the right. (e) the Phillips curve inward.

557.          According to the theory of rational expectations, discretionary macroeconomic policies can be effective only: (a) in the long run. (b) if they do not take households and firms by surprise. (c) by shifting Aggregate Supply more than Aggregate Demand. (d) if they cannot be forecasted accurately.

558.          Maximizing a firm’s profit does not necessarily require producing output and hiring resources where: (a) MPP_L/w = MPP_K/r. (b) P=MR=MC=MSB=MSC. (c) MRP=MFC. (d) MR=MC.

559.          Competitive product and resource markets yield resource prices and incomes to resource owners that tend to be proportional to the: (a) relative prices of the goods produced. (b) values of marginal products of the resources. (c) average tax rates on income. (d) rate of technological change.

560.          When, under normal conditions, competitive free trade is expanded: (a) consumption possibilities expand to equal a country’s PPF. (b) transaction costs inevitably rise. (c) the owners of capital gain, but workers inevitably lose. (d) large countries exploit small ones. (e) people in small undiversified countries tend to gain more than the citizens of large countries with myriad types of resources.

561.          Psychological theories of the business cycle: (a) provide especially precise explanations for turning points in economic activity. (b) conclude that widespread pessimism or optimism is contagious and tend to intensify and prolong downturns or upswings in the economy. (c) focus on why more people are diagnosed with mental disorders during downturns in the business cycle. (d) support the idea that market forces automatically adjust Aggregate Demand to equal Aggregate Supply.

562.          A “scientific” tariff that exactly offset production cost differences and then allowed “free competition” would: (a) eliminate most gains from international trade that arise from comparative advantages. (b) be incompatible with “self‑sufficiency” policies. (c) be justified by the need for diversification in the United States. (d) generate exorbitant profits for arbitrageurs but protect infant industries. (e) be the best way to deal with cheaper labor costs abroad.