BAM 223Principles of EconomicsUnit 1 ExaminationMultiple Choice Questions (Enter your answers on the enclosed answer sheet)1) The study of economics arises due toa. greed.b. scarcity.c. resources.d. money.2) Economists assume that individualsa. are rational and respond to incentives.b. prefer to live in a society that values fairness above all else.c. will never take actions to help others.d. behave in unpredictable ways.3) Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Is Serafina’s criticism accurate?a. No. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions.b. Yes. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.c. No. Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits of these decisions.d. Yes. Economic theory should allow for irrational behavior so that we can have more reliable predictions.4) In Austria a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth. Further, the Austrian government gives monthly payouts ranging from $132 to $547, depending on the age of offspring and offers generous tax benefits for families with children. How will these benefits affect a woman’s decision to have children?a. These incentives will encourage women to have children and increase the birth rate.b. These incentives will encourage only less educated women to have more children.c. These incentives will encourage only women with high opportunity costs to have more children.d. These incentives will have no effect on having children; the decision to have children is a social and psychological decision, not an economic decision.5) Making “marginal” decisions involvesa. calculating the total benefits of an activity and determining if you are satisfied with that amount.b. calculating the total costs of an activity and determining if you can afford to incur that expenditure.c. comparing the additional benefits and the additional costs of an activity.d. calculating the average benefit and the average cost of an activity to determine if it is worthwhile to undertake that activity.Scenario 1-1Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of cell phones.”6) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?a. gross profitb. marginal revenuec. gross earningsd. sales revenue7) Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?a. How to produce goods that consumers want?b. What goods and services will be produced?c. Who to produce automobiles for?d. Why produce a variety of automobiles?8) Which of the following contributes to the efficiency of markets?a. Markets promote equal standards of living.b. Markets promote competition and voluntary exchange.c. Governments play an active role in the day-to-day operations of markets.d. Markets are able to bring about an equitable distribution of goods and services.Figure 1-49) Refer to Figure 1-4. Which of the following statements is true?a. The slope of the tangent at E is positive and the slope of the tangent at F is negative.b. The slope of the tangent at E and the slope of the tangent at F are negative.c. The slope of the tangent at E is negative and the slope of the tangent at F is positive.d. The slope of the tangent at E and the slope of the tangent at F are positive.10) The production possibilities frontier model assumes all of the following excepta. the economy produces only two products.b. the level of technology is fixed and unchanging.c. labor, capital, land and natural resources are fixed in quantity.d. production of goods requires full employment of all resources.Figure 2-2Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables.11) Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates thata. the tradeoff between meat and vegetables is constant.b. Mendonca has a comparative advantage in the production of vegetables.c. it is progressively more expensive to produce meat.d. Mendonca has a comparative disadvantage in the production of meat.Table 2-3Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.12) Refer to Table 2-3. What is South Korea’s opportunity cost of producing one pound of wheat?a. 20 digital camerasb. 0.05 units of a digital camerac. 60 digital camerasd. 5 digital cameras13) Which of the following are flows in the circular flow model?a. the flow of income earned by factors of production and the flow of expenditures on goods and servicesb. the flow of goods and the flow of servicesc. the flow of costs and the flow of revenued. the flow of income received by households and the flow of tax revenues paid by households14. Which of the following statements about a simple circular flow model is true?a. Producers are neither buyers nor sellers in the product market.b. Households are sellers in the product market.c. Producers are buyers in the factor market.d. Households are neither buyers nor sellers in the factor market.One Digital CameraWheat (per pound)China100 hours4 hoursSouth Korea60 hours3 hours15) The term “property rights” refers toa. the ability to exercise control over one’s own resources within the confines of the law.b. the government’s right to appropriate land from wealthy individuals to redistribute to low income families.c. the physical possession of a house or any other property which the owner legally purchased.d. the right of a business not to have its assets confiscated by the government in the event that the business is accused of committing fraud.Table 3-116) Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tee of two individuals (Sunil and Mia) and the rest of the market. If the price of loose-leaf tea rises from $3 to $4 the market quantity demanded woulda. decrease by 32 pounds.b. decrease by 64 pounds.c. increase by 64 pounds.d. increase by 32 pounds.17) If a firm expects that the price of its product to be higher in the future than it is todaya. the firm has an incentive to decrease supply now and increase supply in the future.b. the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future.c. the firm will go out of business.d. the firm has an incentive to increase supply now and decrease supply in the future.Loose leaf TeaPrice per lb.(dollars) Sunil’sQuantity De-manded (lbs) Mia’sQuantity De-manded (lbs) Rest of MarketQuantityDemanded (lbs) MarketQuantity de-manded (lbs)$8 4 0 306 7 2 405 9 3 514 12 5 643 15 8 9018) Which of the following is the correct way to describe equilibrium in a market?a. At equilibrium, demand equals supply.b. At equilibrium, quantity demanded equals quantity supplied.c. At equilibrium, scarcity is eliminated.d. At equilibrium, market forces no longer apply.Figure 3-419) Refer to Figure 3-4. The figure represents the market for canvas tote bags. Assume that the price of tote bags is $15. At this price:a. the quantity demanded exceeds the quantity supplied of tote bags by 75. The price will eventually rise to $25 where quantity demanded will equal quantity supplied.b. there is a shortage, equal to 55 tote bags; the price of tote bags will rise until demand is equal to supply.c. the demand exceeds the supply of tote bags by 55. Some consumers will have an incentive to offer to buy tote bags at a higher price.d. there is a shortage, equal to 55 tote bags, that will be eliminated when the price rises to $25.20) Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?a. a decrease in the price of flourb. an increase in the price of butter, a complement for white breadc. an increase in the price of rye bread, a substitute for white breadd. an increase in the price of flourFigure 4-6Figure 4-6 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0.21) Refer to Figure 4-6. What is the area that represents the producer surplus after the imposition of the ceiling?a. F + Gb. Fc. A + B + D + F + Gd. D + F + G22) Which term refers to a legally determined minimum price that sellers may receive?a. A subsidy.b. A tariff.c. A price floor.d. A price ceiling.23) A positive externality causesa. the marginal social benefit to be equal to the marginal private cost of the last unit produced.b. the marginal social benefit to exceed the marginal private cost of the last unit produced.c. the marginal social benefit to be less than the marginal private cost of the last unit produced.d. the marginal private benefit to exceed the marginal social cost of the last unit produced.Figure 4-15Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 4-15 illustrates this situation in the toilet paper market.24) Refer to Figure 4-15. An efficient way to get the firm to produce the socially optimal output level isa. to assign property rights to the firms in the industry.b. to impose a tax to make the industry bear the external costs it creates.c. to grant a subsidy to enable the industry to internalize the external costs of production.d. for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce.25) What is the rationale behind a tradable emissions allowance scheme?a. to create a market for externalities: the scheme brings together buyers and sellers of marketable permitsb. to raise revenue for the government through the sale of emission permits and at the same time set an emissions targetc. to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowanced. to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowanceUnit 2 ExaminationMultiple Choice Questions (Enter your answers on the enclosed answer sheet)1) What type of business is the easiest to set up?a. a partnershipb. a sole proprietorshipc. a corporationd. all types of business require the same amount of effort and expense.2) Which type of business has the most government rules and regulations affecting it?a. a corporationb. a partnershipc. a sole proprietorshipd. All types of business have the same set of rules and regulations.3) Who controls a sole proprietorship?a. bondholdersb. the sole proprietorc. stockholdersd. All of above4) Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one advantage to Jeremy of setting up his business as a sole proprietorship?a. As a sole proprietor, Jeremy would face limited liability.b. As a sole proprietor, Jeremy would have both ownership and control over the business.c. As a sole proprietor, Jeremy would have the ability to share risk with shareholders.d. All of the above would be advantages of setting up his business as a sole proprietorship.5) Which of the following is not an advantage of starting a new business as a corporation?a. separation of ownership and business liabilityb. ability to share risksc. possibility of double taxationd. enhanced ability to raise funds6) Who operates and controls a corporation in its day-to-day activities?a. the employeesb. the board of directorsc. the corporation’s managementd. the stockholdersUnit 2 Examination 102 Principles of Economics7) What do economists call a situation where a hired manager does not have the sameinterests as the owners of a business?a. a financial intermediary problemb. the financial problemc. conquest and controld. a principal-agent problem8) Which of the following does not take place in the direct finance market?a. Corporate bonds are sold to savers.b. Deposits from savers are accumulated and loans made to borrowers.c. Ownership in corporations is sold in the form of common stock.d. Ownership in corporations is sold in the form of preferred stock.9) If a corporation earns a profit, how do owners of the firm share in the profit?a. by raising the interest rate on bondsb. dividend payments on shares of that firm’s stockc. coupon payments on that firm’s bondsd. by selling any bonds or stocks owned and realizing a capital gain10) If a corporation retains all its profits and distributes none of the profit to owners, howcan owners benefit?a. If the retained earnings are expected to create future profits, the market price of the firm’s stock will increase and create a capital gain for stockholders if the stock is sold.b. Owners will only benefit if some profits are paid out in the form of dividends.c. Shares of stock can be converted into bonds so stockholders will be able to earn coupon payments.d. The owners’ federal income tax liability is reduced by their share of the corporation’s retained earnings.11) David Myers, former controller for WorldCom, pleaded guilty to falsely reported costs for WorldCom that were ________ than they actually were, resulting in reported accounting profits for WorldCom that were ________ than their actual level.a. higher; higherb. higher; lowerc. lower; lowerd. lower; higher12) Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car becausea. car buyers are irrational.b. the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.c. the total utility of less expensive cars is greater than that of luxury cars.d. luxury cars cost a lot more than non-luxury cars.Table 6-2Table 6-2 shows Keira’s utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.13) Refer to Table 6-2. What is Keira’s marginal utility per dollar spent on the third cup of soup?a. 72 units of utilityb. 36 units of utilityc. 6 units of utilityd. 12 units of utility14) Firms pay famous individuals to endorse their products becausea. the firms are irrational and are wasting advertising expenditures.b. famous people obviously know what are the best goods and services.c. famous people only consume high quality products.d. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.15) If 20 units of a good are sold at a price of $50 and 30 units are sold at a price of $40, what is the absolute value of the price elasticity of demand? Use the midpointformula.a. 1.b. 0.56.c. 2.5d. 1.8.Quantity of Soup (cups) Total Utility Quantity of Sand-wiches Total Utility1 40 1 452 60 2 753 72 3 1024 82 4 1205 88 5 1356 90 6 14516) At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.a. 0.75b. 0.9c. 2d. 1.2517) A demand curve that is horizontal indicates that the commoditya. is a necessity.b. must be very cheap.c. has a large number of substitutes.d. has few substitutes.18) With the increased usage of cell-phone services, what has happened to the price elasticity of demand for land-line telephone services?a. It has become more elastic.b. It has become more a luxury.c. It has become unit-elastic.d. It has become more inelastic.19) Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?a. Sales revenue falls by less than 5 percent.b. Sales revenue remains unchanged.c. Sales revenue cannot be determined without information on prices.d. Sales revenue falls to zero.20) A characteristic of the long run isa. plant capacity cannot be increased or decreased.b. all inputs can be varied.c. there are both fixed and variable inputsd. there are fixed inputs.Unit 2 Examination 105 Principles of EconomicsFigure 7-121) Refer to Figure 7-1. The average product of the 4th workera. is 68.b. is 11.c. is 17.d. cannot be determined.22) Average total cost is equal toa. total cost divided by the number of workers.b. marginal cost plus variable cost.c. average fixed cost minus average variable cost.d. total cost divided by the quantity of output produced.23) Adam spent $10,000 on new equipment for his small business, “Adam’s Fitness Studio.” Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?a. The variable cost of running the studio is $22,000.b. The fixed cost of running the studio is $22,000.c. The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he’ll need to continue operations is a marginal cost.d. The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he’ll need to continue operations is a variable cost.24) Long run average cost curves are U-shaped becausea. of the law of diminishing returns.b. of the law of demand.c. of economies and diseconomies of scale.d. of the law of supply.25) Manufacturers of flat-panel televisions expect continued rapid increases in the demand for their products. In response to this forecast, manufacturers are building increasingly larger plants. At the same time, they expect to sell flat-panel televisions at lower prices. Which of the following must be true if manufacturers plan to lower prices and yet expect to cover the average cost of production in their larger plants?a. They expect that the demand for flat-panels televisions is relatively elastic and therefore lowering prices will lead to an increase in total revenue which will comfortably cover the cost of production.b. The cost of building a larger plant must be lower than the cost of building smaller plants.c. Larger plants are more efficient than smaller plants because the bulk of the cost of production is fixed costs.d. They expect that economies of scale will make the cost of production in the larger plants lower than the cost of production in the smaller plants.Unit 3 ExaminationMultiple Choice Questions (Enter your answers on the enclosed answer sheet)1) “Between 1997 and 2001, many apple farmers switched from traditional to organicgrowing methods, increasing production of organically grown apples from 1.2 millionboxes per year to more than 3 million boxes.” If the market for organic apples is per-fectly competitive, which of the following statements is inconsistent with the state-ment above?a. Organic apple farmers earned short-run economic profits between 1997 and 2001.b. The price of organic apples is likely to rise over time as more and more farmers switchto organic methods of farming.c. The additional supply of organic apples resulted in a lower price for organic apples.d. It is relatively easy to enter the organic apples market.Table 8-1Table 8-1 shows the short-run cost data of a perfectly competitive firm that produces plas¬tic camera cases. Assume that output can only be increased in batches of 100 units.2) Refer to Table 8-1. If the market price of each camera case is $8 what is the firm’stotal revenue?a. $2,400b. $3,200c. $4000d. $4,800Quantity Total Cost(Dollars) Variable Cost(Dollars)0 $1,000 $0100 1,360 360200 1,560 560300 1,960 960400 2,760 1,760500 4,000 3,000600 5,800 4,800Table 8-1 shows the short-run cost data of a perfectly competitive firm that produces plas¬tic camera cases. Assume that output can only be increased in batches of 100 units.2) Refer to Table 8-1. If the market price of each camera case is $8 what is the firm’stotal revenue?a. $2,400b. $3,200c. $4000d. $4,8003) Refer to Figure 8-2. Suppose the firm is currently producing Q2 units. What happensif it expands output to Q3 units?a. It will be moving toward its profit-maximizing output.b. It makes less profit.c. It incurs a loss.d. Its profit increases by the size of the vertical distance df.4) For a perfectly competitive firm, which of the following is not true at profit maximiza-tion?a. Total revenue minus total cost is maximized.b. Marginal revenue equals marginal cost.c. Price equals marginal cost.d. Market price is greater than marginal cost.5) A firm’s total profit can be calculated as all of the following excepta. marginal profit times quantity sold.b. average profit per unit times quantity sold.c. total revenue minus total cost.d. (price minus average total cost) times quantity sold. Unit 3 Examination 173 Principles of EconomicsFigure 8-4Figure 8-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.6) Refer to Figure 8-4. If the market price is $30, should the firm represented in thediagram continue to stay in business?a. Yes, because it is covering part of its fixed cost.b. No, it should shut down because it cannot cover its variable cost.c. Yes, because it is making a profit.d. No, it should shut down because it is making a loss.7) If, for a given output level, a perfectly competitive firm’s price is less than its averagevariable cost, the firma. should increase output.b. should shut down.c. should increase price.d. is earning a profit.Unit 3 Examination 174 Principles of EconomicsFigure 9-7Figure 9-7 shows the cost and demand curves for the Erickson Power Company.8) Refer to Figure 9-7. The firm would maximize profit by producinga. Q1 units.b. Q2 units.c. Q3 units.d. Q4 units.Figure 9-1 Unit 3 Examination 175 Principles of EconomicsFigure 9-1 above shows the demand and cost curves facing a monopolist.9) Refer to Figure 9-1. If the firm’s average total cost curve is ATC3 the firm willa. break even.b. make a profit.c. suffer a loss.d. face competition.Table 9-1Price per unit Quantity demanded (Units) Total cost of production$200 1 $200180 2 300160 3 350140 4 360120 5 375100 6 39580 7 425A monopoly producer of a foreign language translation software package faces the demand and cost structure given in Table 9-1.10) Refer to Table 9-1. What is the marginal revenue from the sale of the third unit?a. -$5b. $160c. $120d. $80Figure 9-3 shows the demand and cost curves for a monopolist.11) Refer to Figure 9-3. What is the monopoly’s profit?a. $2,700b. $12,600c. $10,400d. $4,20012) A market economy benefits from market powera. under no circumstances.b. if the majority of the population are entrepreneurs.c. if firms with market power do research and development with the profits earned.d. if market power gets so bad the government creates public enterprises.13) Economic efficiency requires that a natural monopoly’s price bea. equal to the lowest price the firm can charge and still make a normal profit.b. equal to average variable cost (AVC) where the AVC curve intersects the demandcurve.c. equal to average total cost (ATC) where the ATC curve intersects the demand curve.d. equal to marginal cost (MC) where the MC curve intersects the demand curve.14) If a firm faces a downward-sloping demand curvea. it will always make a profit.b. it can control both price and quantity sold.c. it must reduce its price to sell more output.d. the demand for its product must be inelastic.15) A monopolistically competitive firm willa. have some control over its price because its product is differentiated.b. always produce at the minimum efficient scale of production.c. charge the same price as its competitors do.d. produce an output level that is productively and allocatively efficient.Table 10-116) Refer to Table 10-1. The table showsa. an inelastic segment of the demand curve.b. a demand curve with an elastic segment of the demand curve from $7.50 to $6.50followed by an inelastic segment.c. an elastic segment of the demand curve.d. a demand curve with an inelastic segment of the demand curve from $7.50 to$6.50 followed by an elastic segment.Quantity Price (Dollars) Total Revenue (Dollars)1 $7.50 $7.502 7.00 14.003 6.50 19.504 6.00 24.005 5.50 27.506 5.00 30.0016) Refer to Table 10-1. The table showsa. an inelastic segment of the demand curve.b. a demand curve with an elastic segment of the demand curve from $7.50 to $6.50followed by an inelastic segment.c. an elastic segment of the demand curve.d. a demand curve with an inelastic segment of the demand curve from $7.50 to$6.50 followed by an elastic segment.Figure 10-3 shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches.17) Refer to Figure 10-3. What area represents the total variable cost of production?a. 0P0aQab. P0abP1c. P1bdP3d. 0P1bQaFigure 10-7Figure 10-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.18) Refer to Figure 10-7. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?a. Some firms will exit the market causing demand to increase for firms remaining in the market.b. Inefficient firms will exit the market and new cost efficient firms will enter the market.c. The firms that are making losses will be purchased by their more successful rivals.d. Firms will have to raise their prices to cover costs of production.19) Suppose in 2006 you purchased a house built in 2000. Which of the following would be included in gross domestic product for 2006?a. The value of the house in 2006 minus depreciationb. The value of the house in 2000c. The value of the services of the real estate agentd. The value of the house in 2006Scenario 11-1CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.20) Refer to Scenario 11-1. The value of each canoe in gross domestic product equalsa. $400.b. $800.c. $1,200.d. $500.21) Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?a. GDP will not change.b. GDP will decrease.c. GDP will increase.d. GDP may increase or may decrease depending on inflation.22) Disposable personal income equals personal incomea. minus government transfer payments plus personal tax payments.b. plus government transfer payments.c. minus personal tax payments plus government transfer payments.d. minus personal tax payments.23) The Bureau of Labor Statistics would categorize a retiree who is not working as ________.a. a discouraged workerb. unemployedc. employedd. out of the labor forceTable 12-1ConsiderTotal Population 20,000Working-Age Population 15,000Employment 1,000Unemployment 100Consider the data above for a simple economy.24) Refer to Table 12-1. The labor force participation rate for this simple economy equalsa. (1,000/1,100) x 100.b. (1,100/15,000) x 100.c. (1,100/20,000) x 100.d. (1,000/15,000) x 100.25) Suppose that at the beginning of a loan contract the real interest rate is 4% and expected inflation is 6%. If actual inflation turns out to be 7% over the loan contract period, thena. lenders gain 3%.b. borrowers lose 3%.c. borrowers gain 1%.d. lenders gain 1%.Unit 4 ExaminationMultiple Choice Questions (Enter your answers on the enclosed answer sheet)Year Real GDP (Billion of 2000 dollars)2002 $8,7002003 8,8752004 9,0002005 9,2801) Refer to Table 13-1. Calculate the average annual growth rate from 2002 to 2005.a. 3%b. 1%c. 2%d. 1.5%2) What two factors are the keys to determining labor productivity?a. the average level of education of the workforce and the price levelb. the business cycle and the growth rate of real GDPc. technology and the quantity of capital per hour workedd. the growth rate of real GDP and the interest rate3) Long-run economic growth requires all of the following excepta. technological change.b. government provision of secure property rights.c. increases in capital per hour worked.d. political instability.4) Which of the following is most liquid?a. a dollar billb. a government bondc. a corporate bondd. a mutual fund share5) Financial securities that represent promises to repay a fixed amount of funds are known asa. stocks.b. insurance premiums.c. pension funds.d. bonds.6) In a closed economy, public saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)a. Y – C – Tb. Y – C – T + TRc. Y – G – Td. T – G – TRScenario 13-1Consider the following data for a closed economy:Y = $12 trillionC = $8 trillionI= $4 trillionTR = $2 trillionT = $3 trillion7) Refer to Scenario 13-1. Based on the information above, what is the level of public saving?a. $2 trillionb. $0c. $1 trilliond. negative $1 trillion (a deficit of $1 trillion)8) What is investment in a closed economy if you have the following economic data?Y = $10 trillionC = $5 trillionTR = $2 trillionG = $2 trilliona. $5 trillionb. $2 trillionc. $3 trilliond. cannot be determined without information on taxes (T)9) If Ebenezer Scrooge spends rather than saves his vast wealth he willa. promote economic growth because he is increasing the amount of funds available forinvestment.b. slow economic growth because he is reducing the amount of funds available for investment.c. slow economic growth because he is increasing the amount of funds available for investment.d. promote economic growth because he is decreasing the amount of funds available for investment.10) Refer to Figure 13-1. Which of the following is consistent with the graph depicted above?a. Technological change increases the profitability of new investment.b. The government runs a budget surplus.c. Households become spendthrifts and begin to save less.d. An expected recession decreases the profitability of new investment.11) Which of the following would encourage economic growth through increases in the capital stock?a. an increase in household savingsb. a change from an income tax to a consumption taxc. a decrease in the government deficitd. all of the above12) During the expansion phase of the business cycle, which of the following eventually increases?a. employmentb. incomec. productiond. all of the above13) From 1991 until 2001 the United States was in a period ofa. business cycle peaks.b. business cycle troughs.c. expansion.d. recession.14) As the economy nears the end of a recession, which of the following do we typically see?a. increased spending on capital goods by firmsb. increasing interest ratesc. further decreases in consumer spendingd. all of the above15) When the economy enters a recessionary phase of the business cycle, unemployment tends toa. increase.b. decrease.c. be unchanged.d. change in the same direction as the rate of inflation.16) Since 1950, expansions in the United States have become ________, while recessions have become ________.a. shorter; longerb. longer; shorterc. shorter; shorterd. longer; longer17) The aggregate demand curve shows the relationship between the ________ and ________.a. real interest rate: quantity of real GDP suppliedb. nominal interest rate; quantity of real GDP demandedc. inflation rate; quantity of real GDP demandedd. price level; quantity of real GDP demanded18) Which of the following best describes the “wealth effect”?a. When the price level falls, the nominal value of household wealth rises.b. When the price level falls, the real value of household wealth rises.c. When the price level falls, the real value of household wealth falls.d. When the price level falls, the nominal value of household wealth falls.19) Potential GDP is also referred to asa. politico-economic GDP.b. balanced-budget GDP.c. full-employment GDP.d. realized GDP.20) The short-run aggregate supply curve has aa. negative slope.b. slope equal to zero.c. slope equal to infinity.d. positive slope.21) If workers leave a country to seek out better opportunities in another country, then this willa. shift the short-run aggregate supply curve of the original country to the right.b. shift the short-run aggregate supply curve of the original country to the left.c. move the original economy down along a stationary short-run aggregate supply curve.d. move the original economy up along a stationary short-run aggregate supply curve.22) Workers expect inflation to rise from 3% to 5% next year. As a result this shoulda. move the economy up along a stationary short-run aggregate supply curve.b. move the economy down along a stationary short-run aggregate supply curve.c. shift the short-run aggregate supply curve to the right.d. shift the short-run aggregate supply curve to the left.23) Which of the following correctly describes the automatic mechanism through whichthe economy adjusts to long-run equilibrium?a. the leftward shift in short-run aggregate supply that occurs after a recessionb. the rightward shift in short-run aggregate supply that occurs after a recessionc. the rightward shift in aggregate demand that occurs after a recessiond. the leftward shift in aggregate demand that occurs after a recession24) Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run?a. Aggregate demand will shift to the left.b. Output will decline.c. Unemployment will decline.d. Prices will decline.25) Which of the following can explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?a. AD shifted to the right by less than SRAS.b. SRAS shifted to the right by more than LRAS.c. SRAS and AD do not shift.d. AD shifted to the right by more than SRAS.
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