2/15/2017

1. Let D = demand, S = supply, P = equilibrium price, Q 2. When the price of heart shaped candy, a normal
= equilibrium quantity. What happens in the market for good, falls, causing your purchasing power to rise,
roses if the government offers tax breaks to you buy more of them due to
encourage manufacturers to produce more roses?
A) D no change, S increases, P decreases, Q decreases. A) the income effect.

B) D increases, S no change, P and Q increase. B) the elasticity effect.

C) D and S increase, P and Q decrease. C) the deadweight loss effect.

D) S increases, D no change, P decreases, Q increases D) the substitution effect.

3. If average total cost is $50 and average fixed 4. Which of the following goods would have the
cost is $15 when output is 20 units, then the firm's most inelastic demand?
total variable cost at that level of output is
A) bread
A) $1,000.
B) ski vacations
B) $700.
C) luxury cars
C) $300.
D) big screen TVs
D) impossible to determine without additional information.

5. If the marginal cost curve is below the average 6. To maximize profit, a perfectly competitive firm
variable cost curve, then A) should produce the quantity of output that results in the
greatest difference between total revenue and total cost.
A) average variable cost is increasing.
B) should sell the quantity of output determined by the
interaction between industry demand and supply.
B) marginal cost must be decreasing.
C) should sell the quantity of output that results in a value for
C) average variable cost is decreasing. total revenue that is equal to total cost.

D) should produce the quantity of output that results in the

D) average variable cost could either be increasing or greatest difference between marginal revenue and marginal
decreasing. cost.

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 2/22/2017

1. If Dawson prefers pizza to hamburgers and 2. A monopolist is currently producing output that
hamburgers to hot dogs, then if preferences are maximizes its profits. In addition, if P > ATC > MC,
transitive then it is
A) she could prefer hamburgers to pizza on some
occasions but not hot dogs to pizza. A) covering total fixed costs but not total variable costs.

B) at times she could be indifferent among the three items. B) covering total variable costs but not total fixed costs.

C) she could prefer hot dogs to pizza on some occasions C) breaking even.
but not hamburgers to hot dogs.
D) earning positive economic profits.
D) she must prefer pizza to hot dogs.

3. If the cross-price elasticity of demand between 4. Suppose Sam produces 100 lemon pies. What is the
Breeze Detergent and Faber Detergent is a marginal rate of technical substitution of labor for capital
relatively large positive number, then it indicates when labor is increased from 10 to 20 hours?
that:
A) the two brands are probably made by the same
company.

B) detergents are necessities.

C) consumers have a distinct preference for one brand

versus the other.
A) 1 unit of capital
B) 10 units of capital
D) the two brands of detergent are close substitutes.
C) 14 units of capital
D) 24 units of capital

5. To determine the optimal method of production for a 6. Economists have estimated that the cross-price
good or service, a firm needs to know elasticity of demand between beer and spirits is -0.50, the
income elasticity for spirits is 1.21 and the income
elasticity for wine is 5.03. These elasticities mean that
A) the technologies of production that are available to the
firm. A) beer and spirits are complements, spirits and wine are
luxuries.

B) the prices of inputs.

B) beer and spirits are complements, spirits are substitutes.

C) the market price of output.

C) beer and spirits are normal goods, spirits and wine are
luxuries.
D) All of the above are correct.

D) beer and spirits are substitutes, spirits and wine are

luxuries.

1
1) Because knowledge capital is 2. Who of the following is not the head of
nonexcludable and nonrival, firms their country’s government/state:
have an incentive to ________ the
research and development of other
firms. A) Theresa May, Great Britain
B) Geert Wilders, Netherlands
A) free ride on C) Paolo Gentile, Italy
B) make bids on D) Mauricio Macri, Argentina
C) ignore E) Shinzo Abe, Japan
D) not use

3) Which of the following leads to a 4) IF THE GDP DEFLATOR IS 157, BY HOW

decrease in real GDP? MUCH HAVE PRICES CHANGED SINCE THE
BASE YEAR?

A) an increase in the inflation rate in other

countries, relative to the inflation in the United A) PRICES HAVE INCREASED BY 43%.
States

B) PRICES HAVE INCREASED BY 57%.

B) an increase in government spending

C) PRICES HAVE INCREASED BY 157%.

C) an increase in interest rates

D) PRICES HAVE DECREASED BY 15.7%.

D) Households have increasingly optimistic
expectations about future income.

5) Consumption spending refers

to ________ spending on goods
and services.

A) business 6) BASED ON THE "CATCH-UP LINE" DRAWN ABOVE, POORER

COUNTRIES ARE MORE LIKELY TO BE AT A POINT LIKE ________,

B) government WHERE GROWTH IN GDP IS RELATIVELY ________, WHILE RICHER

COUNTRIES ARE MORE LIKELY TO BE AT A POINT LIKE ________,

C) foreign WHERE GROWTH IN GDP IS RELATIVELY ________.

A) A; LOW; B; HIGH
B) A; HIGH; B; LOW
D) household C) B; HIGH; A; LOW
D) B; LOW; A; HIGH
8

1
 4/12/2017

2. If a person withdraws $500 from his/her savings 
1) The major shortcoming of a barter economy is  account and puts it in his/her checking account, then 
M1 will ________ and M2 will ________.    
A) that goods and services are not traded.
A) increase; decrease
B) that money loses value from inflation.
B) not change; increase
C) the requirement of a double coincidence of wants.
C) not change; decrease
D) the requirement of specialization and exchange.
D) increase; not change

E) not change; not change

4. An unplanned decrease in inventories results in

3. Banks can continue to make loans until their
A) excess reserves equal their required reserves. A) actual investment that is greater than planned
investment.
B) actual reserves equal their required reserves.
B) a decrease in planned investment.
C) actual reserves equal their checking account balances.
C) an increase in planned investment.
D) actual reserves equal their excess reserves.
D) actual investment that is less than planned investment.

5. The tax multiplier is smaller in absolute value

6. A bank will consider a car loan to a customer ________
than the government purchases multiplier because and a customer's checking account to be ________.
some portion of the
A)increase in government purchases will be saved by A) a liability; a liability
households and not spent, and some portion will be spent on
imported goods.
B) an asset; an asset
B) decrease in taxes will be saved by households and not spent,
and some portion will be spent on consumer durable goods. C) an asset; net worth

C) increase in government purchases will be saved by

households and not spent, and some portion will be spent on
D) a liability; an asset
consumer durable goods.
E) an asset; a liability
D) decrease in taxes will be saved by households and not spent,
and some portion will be spent on imported goods.

1
1. Suppose a bank has $100 million in checking 2) If banks do not loan out all their
account deposits with no excess reserves and the excess reserves, then the real world
required reserve ratio is 10 percent. If the multiplier is
Federal Reserve reduces the required reserve
ratio to 4 percent, then the bank can make a • A) equal to 1/RR.
maximum loan of
• A) $0.
• B) smaller than 1/RR.
• B) $4 million.
• C) $6 million.
• C) not related to 1/RR.
• D) $10 million.
• D) larger than 1/RR.

3. If GDP grows at a rate of 3% per year,

4. Liquidity is defined as
approximately how long will it take for
GDP to double in size? • A) the ease with which a given asset can be converted to a
standard of deferred payment.
• A) 12 years
• B) the ease with which a given asset can be converted to a
medium of exchange.
• B) 21 years
• C) the ease with which a given asset can be converted to a
store of value.
• C) 23 years
• D) the ease with which a given asset can be converted to a
unit of account.
• D) 35 years

6) If a borrower and lender agree to an interest rate on a

5) If the Fed sell U.S. Treasury securities, loan when inflation is expected to be 10% and inflation
turns out to be 7% over the life of the loan, then the
then this borrower _____ and the lender ______.
A gains; gains
• A) increases reserves, encourages banks to
make more loans, and increases the money
supply.
B gains; loses

• B) decreases reserves, causes banks to reduce

their loans, and increases the money supply. C is not affected; gains

• C) decreases reserves, causes banks to reduce

their loans, and decreases the money supply. D loses; gains

• D) increases reserves, causes banks to reduce

their loans, and increases the money supply. E loses; loses

1
 4/26/2017

2. WHEN HOUSING PRICES ________ AS THEY DID BEGINNING

1) WHEN HOUSING PRICES FALL, AS THEY DID BEGINNING IN 2006
IN 2006 FOLLOWING THE HOUSING MARKET BUBBLE, MOST
FOLLOWING THE HOUSING MARKET BUBBLE, CONSUMPTION
BANKS AND OTHER LENDERS TIGHTENED THE REQUIREMENT
SPENDING ON FURNITURE, APPLIANCES, AND HOME
FOR BORROWERS, MAKING IT ________ FOR POTENTIAL HOME
IMPROVEMENTS ________ AS MANY HOUSEHOLDS FOUND IT
BUYERS TO OBTAIN MORTGAGES.
________ TO BORROW AGAINST THE VALUE OF THEIR HOMES.
A) declined; harder
A) declined; harder
B) increased; easier
B) increased; easier
C) declined; easier
C) declined; easier
D) increased; harder
D) increased; harder

3) IF THE AMOUNT YOU OWE ON YOUR HOUSE

IS GREATER THAN THE PRICE OF THE HOUSE, 4. THE SMALLER THE FRACTION OF AN
YOU HAVE INVESTMENT FINANCED BY BORROWING

A) a reverse mortgage on your house. A) the greater the potential return and the
smaller the potential loss on that investment.
B) negative equity in your house.
B) the smaller the potential return and the
greater the potential loss on that investment.
C) a mortgage rate that is too high.

D) no value to your house. C) the greater the potential return and potential
loss on that investment.

D) the smaller the potential return and potential

loss on that investment.

5) Why does the short-run aggregate  6) Which of the following would 
supply curve shift to the right in the long 
run, following a decrease in aggregate  cause the dollar to appreciate?
demand?
A) an increase in the demand for imports 
from foreign countries
A) Workers and firms adjust their expectations of wages and 
prices downward and they push for higher wages and prices.
B) an increase in the supply of dollars 
B) Workers and firms adjust their expectations of wages and 
prices downward and they accept lower wages and prices.
C) an increase in the demand for dollars
C) Workers and firms adjust their expectations of wages and 
prices upward and they accept lower wages and prices. D) a decrease in the demand for dollars
D) Workers and firms adjust their expectations of wages and 
prices upward and they push for higher wages and prices.

1
 5/1/2017

1) WHICH OF THE FOLLOWING 2) WHICH OF THE FOLLOWING

SHIFTS THE AGGREGATE SUPPLY TRANSACTIONS WOULD BE INCLUDED IN
CURVE RIGHTWARD? JAPAN'S CURRENT ACCOUNT?
i. the money wage rate rises A) An American citizen purchases a new Toyota made in
Japan.
ii. potential GDP increases
iii. government expenditure on goods and services
increases B) An American citizen purchases 50 shares of Toshiba
stock.

A) i, ii, and iii

C) A Japanese citizen purchases 50 shares of Google stock.
B) ii only.
C) ii and iii.
D) A Japanese citizen purchases a new Toyota made in
D) i only.
Japan.
E) iii only.

3) ALTHOUGH THE FEDERAL RESERVE HAD 4) SUPPOSE THE FED PURCHASES TREASURY
TRADITIONALLY MADE DISCOUNT LOANS ONLY SECURITIES. INTEREST RATES IN THE UNITED
TO ________, IN RESPONSE TO THE FINANCIAL STATES WILL ________ AND THE U.S. DOLLAR WILL
CRISIS IN 2008 THE FED MADE OTHER ________ AGAINST FOREIGN CURRENCIES.
INSTITUTIONS ELIGIBLE FOR DISCOUNT LOANS
AS WELL.
A) increase; depreciate
A) government agencies
B) decrease; appreciate
B) commercial banks
C) increase; appreciate
C) investment banks
D) decrease; depreciate
D) mortgage lenders

5) HOW MANY PERSONAL INCOME TAX 6) THE DEPRECIATION OF THE

RATES ARE PROPOSED IN THE NEW PLAN DOLLAR IS REPRESENTED AS A
FROM PRESIDENT TRUMP. MOVEMENT FROM

A) One A) A to C.
B) Three B) D to C.
C) Five
C) A to B.
D) Seven
D) B to A.
E) B to C.