1) Consider a good whose consumption takes place publicly. On what factors would your decision to buy that good depend?;A. only on how many other people buy the good, and not on the good itself.;B. both on the characteristics of the product and on how many other people are buying it.;C. only on the price of the good, and not on other factors, such as other people?s actions.;D. only on the characteristics of the good itself and not on other people/s actions.;2) Why do consumers have to make tradeoffs in deciding what to consume?;A. they are limited by a budget constraint.;B. not all goods give them the same amount of satisfaction.;C. there are not enough of all goods produced.;D. the prices of goods vary.;3) Economics does not study correct or incorrect behaviors, but rather it assumes that economic agents make the best decisions given their knowledge of the costs and benefits. What term best describes this behavior?;A. emotionally;B. equitably;C. selfishly;D. rationally;4) If a commercial dairy farm wants to raise funds to purchase feeding troughs, in which market does it do so?;A. factor market.;B. output market.;C. dairy products market.;D. product market.;5) Which of the following is an example of spending on goods and services in the circular flow model?;A. Celeste buys fresh herbs at the farmers' market to use in her restaurant.;B. Belinda purchases a new computer for her tax-preparation business.;C. Timmy purchases a new examination table for use in his veterinary clinic.;D. Javier buys 800 square feet of wood flooring for his vacation home.;6) Which of the following is not a critical function of the government in facilitating the operation of a market economy?;A. ensuring an equal distribution of income to all citizens.;B. protecting private property.;C. enforcing contracts.;D. enforcing property rights.;7) Suppose the value of the price elasticity of demand is -3. What does this mean?;A. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.;B. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.;C. A $1 increase in price causes quantity demanded to fall by 3 units.;D. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.;8) Price elasticity of demand measures;A. how responsive quantity demanded is to a change in price.;B. how responsive suppliers are to price changes.;C. how responsive sales are to a change in buyers' incomes.;D. how responsive sales are to changes in the price of a related good.;9) If demand is inelastic, the absolute value of the price elasticity of demand is;A. greater than one.;B. one.;C. greater than the absolute value of the slope of the demand curve.;D. less than one.;10) A decrease in the price of GPS systems will result in;A. a decrease in the demand for GPS systems.;B. a larger quantity of GPS systems supplied.;C. a smaller quantity of GPS systems supplied.;D. an increase in the supply of GPS systems.;11) Which of the following is evidence of a surplus of bananas?;A. The equilibrium price of bananas rises due to an increase in demand.;B. The price of bananas is lowered in order to increase sales.;C. Firms raise the price of bananas.;D. The quantity demanded of bananas is greater than the quantity supplied.;12) If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until;A. all consumers will be able to afford the product.;B. quantity demanded equals quantity supplied. The equilibrium price will then be lower than the market price.;C. the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium.;D. quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.;13) Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is;A. P ? MP > W.;B. P ? MP MP.;14) Marginal revenue product for a perfectly competitive seller is equal to;A. the change in total revenue that results from hiring another worker.;B. the output price multiplied by the number workers hired.;C. the output price multiplied by the total product of labor.;D. the marginal cost of production.;15) Which of the following best explains why unemployment rates are higher in the European economies than in the United States?;A. Workers in Europe are less productive than workers in the United States.;B. Unemployment benefits are more generous in Europe than in the United States.;C. More Europeans go to school fulltime and are therefore not able to participate in the labor market.;D. European industries pay a lower wage rate than industries in the United States.;16) A firm's demand for labor curve is also called its;A. marginal valuation curve.;B. marginal factor cost of labor curve.;C. marginal revenue product of labor curve.;D. marginal benefit of labor curve.;17) A decrease in the wage rate causes;A. a leftward shift of the firm's labor demand curve.;B. a decrease in labor's productivity.;C. an increase in the quantity of labor demanded.;D. a rightward shift of the firm's labor demand curve.;18) Which of the following will not cause the labor demand curve to shift to the right?;A. an increase in human capital in the labor force;B. an increase in the market wage rate;C. an increase in the price of the firm's product;D. a technological improvement that increases labor productivity;19) Which of the following is an example of a quasi-public good?;A. stock of knowledge in the public domain;B. crime prevention;C. cable television;D. organic apples;20) Which of the following is an example of a common resource?;A. the stock of knowledge in the public domain;B. taxicab services;C. the Sumatran tiger population in the world;D. rabbit fur;21) Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?;A. quasi-public goods;B. common resources;C. public goods;D. private goods;22) Which of the following is the best example of an oligopolistic industry?;A. public education;B. the beauty products industry;C. the beef market;D. the pharmaceutical industry;23) A characteristic found only in oligopolies is;A. independence of firms.;B. products that are slightly different.;C. break even level of profits.;D. interdependence of firms.;24) One reason why the coffeehouse market is competitive is that;A. barriers to entry are low.;B. demand for specialty coffee is very high.;C. consumption takes place in public.;D. it is trendy and therefore is likely to have a customer following.;25) The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude;A. a typical person in Vietnam is less than 10 times as well off as the typical person in the Philippines.;B. a typical person in Vietnam is 10 times as well off as the typical person in the Philippines.;C. it is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information.;D. a typical person in Vietnam is more than 10 times as well off as the typical person in the Philippines.;26) Gross domestic product understates the total production of final goods and services because of the omission of;A. inflation.;B. the underground economy.;C. exports.;D. intermediate goods.;27) Which of the following goods is directly counted in GDP?;A. a 12-inch Subway sandwich purchased by a student;B. the lettuce that Subway purchases for its sandwiches;C. the plastic bags that Subway purchases to wrap its sandwiches;D. the bread that Subway purchases for its sandwiches;28) Which of the following is an objective of fiscal policy?;A. discovering a cure for AIDs;B. energy independence from Middle East oil;C. high rates of economic growth;D. health care coverage for all Americans;29) Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.;A. federal level, state and local levels;B. state and local levels, federal level;C. federal level, state level;D. local level, federal level;30) Which of the following would be classified as fiscal policy?;A. A state government cuts taxes to help the economy of the state.;B. The federal government passes tax cuts to encourage firms to reduce air pollution.;C. The federal government cuts taxes to stimulate the economy.;D. The Federal Reserve cuts interest rates to stimulate the economy.;31) If credit card balances rise in the economy, then M1 will ________ and M2 will ________.;A. decrease, increase;B. not change, increase;C. increase, decrease;D. increase, increase;E. not change, not change;32) Which of the following functions of money would be violated if inflation were high?;A. certificate of gold;B. unit of account;C. medium of exchange;D. store of value;33) Which of the following assets is most liquid?;A. savings account;B. money;C. stock;D. bond;34) Dollar bills in the modern economy serve as money because;A. they have value as a commodity independent of their use as money.;B. they are backed by the gold stored in Fort Knox.;C. people have confidence that others will accept them as money.;D. they can be redeemed for gold by the central bank.;35) Which of the following is one of the most important benefits of money in an economy?;A. Money makes exchange easier, leading to more specialization and higher productivity.;B. Money allows for the exchange of goods and services.;C. Money encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability.;D. Money allows for the accumulation of wealth.;36) Which of the following functions of money would be violated if inflation were high?;A. certificate of gold;B. unit of account;C. medium of exchange;D. store of value;37) Which of the following determines the amount of money the banking system as a whole can create?;A. the quantity of bank reserves;B. the quantity of vault cash held by banks;C. the gold reserves held by the Federal Reserve;D. the limit on profits by banks imposed by the U.S. Congress;38) If the central bank can act as a lender of last resort during a banking panic, banks can;A. borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system.;B. call in their loans to their customers and eventually restore the public's faith in the banking system.;C. encourage the public to borrow directly from the central bank, and this will worsen the banking panic.;D. satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.;39) Open market operations refer to the purchase or sale of ________ to control the money supply.;A. corporate bonds and stocks by the U.S. Treasury;B. U.S. Treasury securities by the Federal Reserve;C. corporate bonds and stocks by the Federal Reserve;D. U.S. Treasury securities by the U.S. Treasury;40) The Federal Reserve's two main ________ are the money supply and the interest rate.;A. fiscal policy targets;B. policy tools;C. monetary policy targets;D. fiscal tools;41) Toll Brothers, a residential home builder, did well during the recession in 2001 but did not do so well in 2007 after the housing bubble burst. The reason for this is;A. the Fed raised interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market.;B. the Fed lowered interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market.;C. the Fed lowered interest rates in 2001 but raised interest rates in 2007 to help fight inflation.;D. the Fed raised interest rates in 2001 but lowered interest rates in 2007 to revive the housing market.;42) Monetary policy refers to the actions the;A. President and Congress take to manage government spending and taxes to pursue their economic objectives.;B. Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.;C. President and Congress take to manage the money supply and interest rates to pursue their economic objectives.;D. Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.;43) For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it produces. Which of the following is true about the comparative advantage between the two countries?;A. France has the comparative advantage in wine and cheese.;B. Italy has the comparative advantage in wine.;C. Italy has the comparative advantage in cheese.;D. France has the comparative advantage in wine.;44) Table 2-3 Serena Haley;Bracelets 8 9;Necklaces 16 12;Refer to Table 2-3. Which of the following statements is true?;A. Haley has an absolute advantage in making bracelets and Serena in making necklaces.;B. Serena has an absolute advantage in making both products.;C. Haley has an absolute advantage in making both products.;D. Haley has an absolute advantage in making necklaces and Serena in making bracelets.;45) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except;A. consume a combination of goods that lies outside its own production possibilities frontier.;B. produce a combination of goods that lies outside its own production possibilities frontier.;C. engage in mutually beneficial trade with other nations.;D. increase the variety of products that it can consume with no increase in resources.;46) If the dollar appreciates against the Mexican peso;A. U.S. exports to Mexico become more expensive.;B. The value of Mexican imports to the United States does not change.;C. Mexican imports to the U.S. become more expensive.;D. U.S. exports to Mexico become less expensive.;47) When the market value of the dollar rises relative to other currencies around the world, we say that;A. the demand for dollars has increased.;B. the supply of dollars has increased.;C. the dollar has appreciated.;D. the dollar has depreciated.;48) How does an increase in a country's exchange rate affect its balance of trade?;A. An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade.;B. An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.;C. An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.;D. An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade.;49) Pegging a country's exchange rate to the dollar can be advantageous if;A. a country wishes to conduct independent monetary policy.;B. imports are not a significant fraction of the goods the country's consumers buy.;C. the country does not trade much with the United States.;D. investors believe the dollar to be more stable than the domestic country's currency.;50) You decide to work in Japan for the next 10 years, accumulate some savings, then move back to the United States and convert your savings from yen to dollars. At the time of your move, economists predict that consumers in the United States have reignited their love of Japanese products, especially hybrid cars, and expect that this strong preference for Japanese products will continue for the next decade. How should this influence your decision to work and save in Japan?;A. You should be encouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and raise the value of your savings when converted to dollars.;B. You should be encouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and raise the value of your savings when converted to dollars.;C. You should be discouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and decrease the value of your savings when converted to dollars.;D. You should be discouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and decrease the value of your savings when converted to dollars.;51) If the purchasing power of the dollar is greater than the purchasing power of the euro, purchasing power parity predicts that the exchange rate will;A. be equal to the relative purchasing power across the currencies in the long run.;B. not fluctuate and stay constant in the long run.;C. increase if the exchange rate is greater than 1 euro per dollar.;D. decrease if the exchange rate is less than 1 euro per dollar.;52) What two countries each accounted for more than 25% of all foreign purchases of U.S. stocks and bonds in 2008?;A. Japan and India;B. Japan and Mexico;C. Mexico and Canada;D. China and the United Kingdom;53) China has been accused of deliberately undervaluing its currency, the yuan, in order to;A. prevent deflation.;B. increase its exports.;C. maintain purchasing power parity.;D. increase its imports.;54) The three most important international financial centers today are;A. San Francisco, Paris, and Mexico City.;B. New York, Los Angeles, and London.;C. Tokyo, London, and New York.;D. London, Tokyo, and Beijing.
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