1. In the United States and in most European countries, aging populations and declining birthrates threaten public finances. As the population ages, there are fewer workers paying taxes relative to the number of retired people receiving government benefits. Which of the following government policies would NOT help reduce the pressure on public finances? (Points : 1)
 offer financial incentives to increase the birthrate
 reduce taxes paid by current workers so that they an save for their future
 reduce retiree benefit payments
 raise the retirement age

2. In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called “bandit barriers.” The police were surprised the bank did not take their advice. According to a deputy commissioner of police, “Commerce does very little of what we recommend. They’ve told our detectives they have no interest in ever putting in the barriers.”

It would seem that Commerce bank would have a strong incentive to install “bandit barriers” to deter robberies. Why wouldn’t they do it? (Points : 1)
 The banks would rather delay installation of any theft deterring equipment in anticipation of new lower cost innovations in the security devices market.
 The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have “no interest in ever putting in the barriers”.
 The banks are concerned that “bandit barriers” would send the wrong message to customers — that the bank is unsafe.
 The banks probably resent any interference from the police department.

3. Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt “as is” now for $900. What is the marginal cost of completing the task? (Points : 1)
 $200
 $500
 $1,000
 $1,000 plus the value of her time

4. The term “market” in economics refers to (Points : 1)
 a place where money changes hands.
 a legal institution where exchange can take place.
 a group of buyers and sellers of a product and the arrangement by which they come together to trade.
 an organization which sells goods and services.

5. The revenue received from the sale of an additional unit of a product (Points : 1)
 is a marginal benefit to the firm.
 is called profit.
 is called gross sales.
 is called a net gain.

6.
Table 2-3
 
Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.

Refer to Table 2-3. China has a comparative advantage in (Points : 1)
 both products.
 wheat production.
 digital camera production.
 neither product.

7. The production possibilities frontier model shows that (Points : 1)
 if consumers decide to buy more of a product its price will increase.
 a market economy is more efficient in producing goods and services than is a centrally planned economy.
 economic growth can only be achieved by free market economies.
 if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

8. Which of the following countries does not come close to the free market benchmark? (Points : 1)
 The United States
 Japan
 Cuba
 France

9. In 2002, BMW made a tactical decision to use a robot to attach the gearbox to the engines of its vehicles instead of using two workers as it had done previously. The robot method had a higher cost but installed the gearbox in exactly the right position. In making this decision, BMW (Points : 1)
 faced no tradeoffs because the robot method increased efficiency.
 faced a tradeoff between higher cost and lower precision (in installing the gearbox in exactly the right position).
 adopted a negative technological change because it replaced workers with robots.
 eroded some of its competitiveness in the luxury car market because of its increased cost of production.

10. A successful market economy requires well defined property rights and (Points : 1)
 balanced supplies of all factors of production.
 an independent court system to adjudicate disputes based on the law.
 detailed government regulations.
 a safety net to ensure that those who cannot participate in the market economy can earn an income.

11. A major factor contributing to the slow growth rate of less developed economies is (Points : 1)
 the lack of well-defined and enforceable property rights.
 the lack of natural resources.
 the lack of workers.
 the high rate of illiteracy.

12. Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase? (Points : 1)
 An increase in consumer income.
 A drought that sharply reduces barley output.
 A decrease in consumer income.
 Unusually good weather that results in a bumper crop of barley.

13.
Table 3-1
 
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-tea raises from $3 to $4 the market quantity demanded would (Points : 1)
 decrease by 32 pounds.

 increase by 64 pounds.
 increase by 32 pounds.
 decrease by 64 pounds.

14. If the quantity demanded for a product exceeds the quantity supplied the market price will rise until (Points : 1)
 the quantity demanded equals the quantity supplied. The product will then no longer be scarce.
 quantity demanded equals quantity supplied. The equilibrium price will then be greater than the market price.
 only wealthy consumers will be able to afford the product.
 quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

15. What is the difference between an “increase in supply” and an “increase in quantity supplied”? (Points : 1)
 There is no difference between the two terms; they both refer to a shift of the supply curve.
 There is no difference between the two terms; they both refer to a movement along a given supply curve
 An “increase in supply” means the supply curve has shifted to the right while an “increase in quantity supplied” means at any given price supply has increased.
 An “increase in supply” means the supply curve has shifted to the right while an “increase in quantity supplied” refers to a movement along a given supply curve in response to an increase in price.

16. Figure 3-4
 
Refer to Figure 3-4. The figure above represents the market for canvas tote bags. Compare the conditions in the market when the price is $50 and when the price is $35. Which of the following describes how the market differs at these prices? (Points : 1)
 At each price there is a surplus; the surplus is greater at $35 than at $50.
 The difference between quantity supplied and quantity demanded is greater at $50 than at $35.
 At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus.
 At each price the supply of tote bags exceeds that demand for tote bags.

17. Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone? (Points : 1)
 $180
 $100
 $80
 $20

18. The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called (Points : 1)
 producer surplus.
 the substitution effect.
 the income effect.
 consumer surplus.

19.
Figure 4-5

 
Refer to Figure 4-5. The figure above represents the market for iced tea. Assume that this is a competitive market. If 20,000 units of iced tea are sold (Points : 1)
 the deadweight loss is equal to economic surplus.
 producer surplus equals consumer surplus.
 the marginal benefit of each of the 20,000 units of iced tea equals $3.
 marginal benefit is equal to marginal cost.

20. Economic surplus (Points : 1)
 does not exist when a competitive market is in equilibrium.
 is equal to the sum of consumer surplus and producer surplus.
 is the difference between quantity demanded and quantity supplied when the market price for a product is greater than the equilibrium price.
 is equal to the difference between consumer surplus and producer surplus.

21.
Figure 4-9
 
Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market.

Refer to Figure 4-9. What is the size of the unit tax? (Points : 1)
 $8
 $5
 $3
 Cannot be determined from the figure.

22. Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, (Points : 1)
 sellers bear the entire burden of the tax.
 the tax burden will be shared among the government, buyers and sellers.
 buyers bear the entire burden of the tax.
 the tax burden will be shared by buyers and sellers.

23. Which of the following would result in a lower absolute value of the price elasticity of demand for a product? (Points : 1)
 wide variety of substitutes available for the good
 short time period considered
 the good is a luxury item
 the expenditure on the good large relative to one’s budget

24. If the percentage change in price is 20 percent and the value of the price elasticity of demand is -5, then quantity demanded (Points : 1)
 will increase by 100 percent.
 will increase by 5 percent.
 will decrease by 100 percent.
 impossible to determine without additional information.

25. When demand is unit price elastic, a change in price causes total revenue to stay the same because (Points : 1)
 the percentage change in quantity demanded exactly offsets the percentage change in price.
 buyers are buying the same quantity.
 total revenue never changes with price changes.
 the change in profit is offset by the change in production cost.

26. Which of the following statements about the price elasticity of demand is correct? (Points : 1)
 The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.
 The absolute value of the elasticity of demand ranges from zero to one.
 Demand is more elastic in the long run than it is in the short run.
 Demand is more elastic the smaller percentage of the consumer’s budget the item takes up.

27. The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $6.60 per hour to $7.00. Using the midpoint formula, calculate the approximately change in the will the quantity supplied of teenage labor. (Points : 1)
 5.9 percent
 13.6 percent
 8 percent
 There is insufficient information to answer the question.

28. A firm has successfully adopted a positive technological change when (Points : 1)
 it can produce more output using the same inputs.
 it produces less pollution in its production process.
 can pay its workers less yet increase its output.
 it sees an increase in worker productivity.

29. Refer to Figure 10-5. Identify the minimum efficient scale of production. (Points : 1)
 Qa
 Qb
 Qc
 Qd

30.
Figure 10-7

 
Refer to Figure 10-7. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the firm’s total cost budget while the price of labor and capital remain unchanged? (Points : 1)
 the movement from CE to BF
 the movement from CE to AF
 the movement from BD to AF
 the movement from BD to CE

31.
Table 10-2
 

Table 10-2 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 10-2. What is the average variable cost per unit of production when the firm produces 90 lanterns? (Points : 1)
 $490
 $33.67
 $7.67
 $5.40

[AVC =ATC-AFC = 7.67 – (200/90)]

32. What is the difference between “diminishing marginal returns” and “diseconomies of scale”? (Points : 1)
 Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
 Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
 Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average cost increases.
 Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why average variable cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average total cost increases.

33. The president of Toyota’s Georgetown plant was quoted as saying, “Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years.” This quote suggests that (Points : 1)
 Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with.
 as Toyota expanded its capacity, it experienced diseconomies of scale.
 Toyota was focused on “churning” out cars that it did not invest sufficiently in training its workers.
 high demand for Toyota’s cars prevented the company from focusing on its strength: auto design.

34.
Figure 11-1

Refer to Figure 11-1. If the firm is producing 200 units, (Points : 1)
 it breaks even.
 it is making a loss.
 it should cut back its output to maximize profit.
 it should increase its output to maximize profit.

35. The demand for each seller’s product in perfect competition is horizontal at the market price because (Points : 1)
 each seller is too small to affect market price.
 the price is set by the government.
 all the sellers get together and set the price.
 all the demanders get together and set the price.

36. Market supply is found by (Points : 1)
 vertically summing the relevant part of each individual producer’s marginal cost curve.
 horizontally summing the relevant part of each individual producer’s marginal cost curve.
 vertically summing each individual producer’s average total cost curve.
 horizontally summing each individual producer’s average total cost curve.

37. Which of the following describes a situation in which a good or service is produced at the lowest possible cost? (Points : 1)
 productive efficiency
 allocative efficiency
 marginal efficiency
 profit maximization

38.
Figure 11-5
 

Figure 11-5 shows cost and demand curves facing a typical firm in a constant-cost perfectly competitive industry.

Refer to Figure 11-5. What is the minimum price the firm requires to produce output? (Points : 1)
 $20
 $14
 $5
[The minimum of the AVC curve]
 It cannot be determined

39. A possible advantage of a horizontal merger for the economy is that (Points : 1)
 the merging firms could avoid losses.
 the merged firm might reap economies of scale which could translate into lower prices.
 the degree of competition in the industry will be intensified.
 the government stands to collect more corporate income tax revenue.

40. A merger between the Ford Motor Company and General Motors would be an example of a (Points : 1)
 vertical merger.
 horizontal merger.
 conglomerate merger.
 trust.

41.
Figure 14-8

 
In 2006 the California government changed its regulatory policy to allow competition into the cable television market. Figure 14-8 shows the cable television market in California.

Refer to Figure 14-8. Following the policy change, the subscription price falls from PM to Pc. What is the increase in consumer surplus as a result of this change? (Points : 1)
 the area A+B+C
 the area B+C
 the area D+F
 the area B+C+D

42. The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because (Points : 1)
 it was a public enterprise.
 it had a patent on the manufacture of aluminum.
 the company had a secret technique for making aluminum from bauxite.
 it had control of almost all available supply of bauxite.

43. If a theatre company expects $250,000 in ticket revenue from five performances and 288,000 in ticket revenue if it adds a sixth performance, the (Points : 1)
 marginal revenue of the sixth performance is $48,000.
 marginal revenue of the sixth performance is $38,000.
 cost of staging the sixth performance is probably higher than the cost of staging the previous five.
 company will be making a loss on the sixth performance because its ticket sales will be less than average received from the previous five.

44.
Figure 14-7
 
Figure 14-7 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 14-7. Why won’t regulators require that Erickson Power produce the economically efficient output level? (Points : 1)
 because there is insufficient demand at that output level
 because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers’ marginal value for that last unit
 because Erickson Power will earn zero profit
 because Erickson Power will sustain persistent losses and will not continue in business in the long run.

45. In the long run, if price is less than average cost, (Points : 1)
 there is an incentive for firms to exit the market.
 there is profit incentive for firms to enter the market.
 the market must be in long-run equilibrium.
 there is no incentive for the number of firms in the market to change.

46.
Table 12-2
 
Q P TR MR TC MC
1 75 75 75 60 60
2 70 140 65 85 25
3 65 195 55 105 20
4 60 240 45 115 10
5 55 275 35 130 15
6 50 300 25 155 25
7 45 315 15 190 35
8 40 320 5 230 40
9 35 315 -5 280 50

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 12-2 shows the firm’s demand and cost schedules.

Refer to Table 12-2. What is the maximum output (Q) that maximizes profit and what is the price (P) charged? (Points : 1)
 P=$55; Q=5 cases
 P=$50; Q=6 cases
 P=$45; Q=7 cases
 P=$40; Q=8 cases

47. If a monopolistically competitive firm breaks even, the firm (Points : 1)
 is earning an accounting profit and will have to pay taxes on that profit.
 is earning zero accounting and zero economic profit.
 should advertise its product to stimulate demand.
 expand production.

48. Long run equilibrium under monopolistic competition is similar to that under perfect competition in that (Points : 1)
 firms produce at the minimum point of their average cost curves.
 price equals marginal cost.
 firms earn normal profits.
 price equals marginal revenue.

49. You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run? (Points : 1)
 Your competitors are likely to change their menus to make their products more similar to yours.
 Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
 If your success continues, you will be likely to establish a franchise and expand your market size.
 If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

50. OPEC periodically meets to agree to restrict the cartel’s oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has a (Points : 1)
 cooperative equilibrium.
 noncooperative equilibrium.
 new potential entrants.
 threat of substitute goods.

51. What is a prisoners’ dilemma? (Points : 1)
 a game that involves no dominant strategies
 a game in which prisoners are stumped because they cannot communicate with each other
 a game in which players act in rational, self-interested ways that leave everyone worse off
 a game in which players collude to outfox authorities

52. Consider two oligopolistic industries selling the same product in different locations. In the first industry, firms always match price changes by any other firm in the industry. In the second industry, firms always ignore price changes by any other firm. which of the following statements is true about these two industries, holding everything else constant? (Points : 1)
 Market prices are likely to be higher in the first industry in which firms always match price changes by rival firms than in the second where firms ignore their rivals’ price changes.
 Market prices are likely to be lower in the first industry where firms always match price changes by rival firms than in the second where firms ignore their rivals’ price changes.
 Market prices are likely to be the same in both markets because they are both oligopolistic markets.
 No conclusions can be drawn about the pricing behavior under these very different firm behavior.

53. Why does a prisoners’ dilemma lead to a noncooperative equilibrium? (Points : 1)
 because each player had agreed before the game started to minimize the harm that he can inflict on the other players
 because each player is uncertain how other players will play the game
 because players must choose from have a limited number of non-dominant strategies
 because each rational player has a dominant strategy to play a certain way regardless of what other players do

54. The DeBeers Company of South Africa was able to block competition through (Points : 1)
 economies of scale.
 ownership of an essential input.
 government-imposed barriers.
 differentiating its product.

55. Until the late 1990s, airlines would post proposed changes in ticket prices on computer reservations systems several days before the new ticket prices went into effect. Then the federal government took action to end the practice. Now airlines can only post prices on their reservations systems for tickets that are immediately available for sale.
Source: Scott McCartney, “Airfare Wars Show Why Deals Arrive and Depart,” Wall Street Journal, March 19, 2002.

Why would the federal government object to the old system of posting prices before they went into effect? (Points : 1)
 because it is a form of price discrimination in that consumers who need to travel immediately are subject to different fares compared to those who will travel at a later date when the price changes go into effect
 because it is essentially a form of price signaling; airlines try to determine the reaction of competitors before committing to a price change
 because it creates chaos in the air travel market: if an airline plans to cut fares, then consumers are likely to postpone purchases but if an airline plans to increase fares, then a shortage will result.
 because it makes it more difficult for airlines to agree on ticket price changes and likely to spark an airfare war

56. Demand in factor markets differs from demand in product markets in that (Points : 1)
 the demand for a factor of production is difficult to determine.
 the demand for a factor of production is influenced by workers’ productivity and by the producers’ expected sales revenues, not by tastes and preferences of consumers.
 demand for a factor of production is based on the tastes and preferences of firms.
 demand for a factor of production is based on the tastes and preferences of resource owners.

57. Painters who paint water towers earn higher wages relative to painters who paint houses because (Points : 1)
 the demand for tower painters is greater than the demand for residential painters.
 painting water towers is more risky than painting houses.
 the tower painters’ union is probably more powerful than the wall painters’ union.
 the supply of water tower painters exceeds the supply of wall painters.

58. According to the signaling hypothesis, (Points : 1)
 signaling about job openings occur in help wanted classified ads.
 a college diploma signals to employers that a person has certain desirable characteristics.
 a slowdown in output signals to companies the need to hire more labor.
 a high unemployment rate is a signal to the government to take some policy action.

59. Customer discrimination occurs when (Points : 1)
 a firm pays workers different wages based on irrelevant factors.
 customers refuse to buy products produced by a racially diverse workforce.
 customers refuse to buy products they believe to be of poor quality.
 workers refuse to serve customers of a different race.

60. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If, hiring another worker would increase output by three units per hour, then to maximize profits the firm should (Points : 1)
 not change the number of workers it currently hires.
 not hire an additional worker.
 hire another worker.
 There is not enough information to answer the question.

61.
Table 16-2
 
Refer to Table 16-2. What is the profit-maximizing quantity of labor that the firm should hire? (Points : 1)
Q Output MPl P W TR MR
1 8 8 300 350 2400 2400
2 15 7 280 350 4200 1800
3 21 6 260 350 5460 1260
4 26 5 240 350 6240 780
5 30 4 220 350 6600 360
6 33 3 200 350 6600 0
7 35 2 180 350 6300 -300

 5 units
 4 units
 3 units
 2 units

62. A decrease in the wage rate causes (Points : 1)
 an increase in the quantity of labor demanded.
 a rightward shift of the firm’s labor demand curve.
 a leftward shift of the firm’s labor demand curve.
 a decrease in labor’s productivity.

63. Consider this quote from an article in the Wall Street Journal: “The stock of educated workers isn’t increasing fast enough to keep up with rising demand. ……. Employers are paying the typical four-year college graduate [without graduate school] 75% more than they pay high-school grads. Twenty-five years ago, they were paying 40% more. Employers insist on ever better-educated, skilled workers. “
Source: David Wessel, “Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix”, Wall Street Journal, April 19, 2007, Page A2.

Which of the following best explains the rapid increase in the wage differential between college graduates and high school graduates? (Points : 1)
 The demand for college educated workers shifted to the right while the supply of college educated workers shifted to the left.
 The supply of high-school educated workers shifted to the right faster than the demand for college educated workers shifted to the right.
 The demand for college educated workers shifted to the right faster than the supply of college educated workers shifted to the right.
 The demand for high-school educated workers shifted to the left faster than the supply of college educated workers shifted to the right.

64. Economic discrimination takes place when an employer (Points : 1)
 pays workers the lowest wage possible.
 pays workers different wages on the basis of some arbitrary characteristics of workers that are irrelevant to the job performed.
 pays lower wages to workers who are not as productive as other workers.
 pays workers compensating wage differentials.

65. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should (Points : 1)
 not change the number of workers it currently hires.
 lay off some of its workers.
 hire additional workers.
 There is not enough information to answer the question.

66. Scenario: In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose in Unity College, assistant professors in the business school earn $Wb while assistant professors in the English department earn $We < Wb. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries.

Following the passage of comparable worth legislation, Unity College responds by placing salaries at $Wa between the two existing salaries. Which of the following is the result of the legislation? (Points : 1)
 The supply of English professors increase and the supply of business professors decrease.
 The demand for English professors decrease and the demand for business professors increase.
 There will be a surplus in the market for English professors and a shortage in the market for business professors.
 There will be a surplus in the market for English professors and the market for business professors will not be affected.

67. Gross domestic product understates the total production of final goods and services because of the omission of (Points : 1)
 exports.
 inflation.
 intermediate goods.
 nonmarket household production.

68. If prices in the economy rise, then (Points : 1)
 the purchasing power of a dollar rises.
 the purchasing power of a dollar stays constant.
 the purchasing power of a dollar declines.
 the purchasing power of a dollar cannot be determined.

69.
Table 19-5
 

Consider the table above showing three stages of production of an automobile.

Refer to Table 19-5. The value added by the automobile dealer equals (Points : 1)
 $7,000.
 $15,000.
 $18,000.
 $25,000.

70. The output of Mexican citizens who work in Texas would be included in the (Points : 1)
 gross domestic product of Mexico.
 gross national product of Mexico.
 gross national product of the United States.
 net national product of the United States.

71. Disposable personal income equals personal income (Points : 1)
 minus personal tax payments.
 plus government transfer payments.
 minus personal tax payments plus government transfer payments.
 minus government transfer payments plus personal tax payments.

72. If net taxes fall by $80 billion, we would expect (Points : 1)
 the government deficit to fall by $80 billion.
 household savings to rise by $80 billion.
 household savings to rise by less than $80 billion.
[ household savings to fall by more than $80 billion.

73.
Scenario 21-1
Consider the following data for a closed economy:

Refer to Scenario 21-1. Based on the information above, what is the level of private saving in the economy? (Points : 1)
 $3 trillion
 $4 trillion
 $5 trillion
 $8 trillion

74. Which of the following explains the causes of the changes in the unemployment rate at the end of a recession? (Points : 1)
 Firms are hesitant to rehire laid off workers as they continue to operate below capacity.
 Firms rapidly hire new workers at the first sign of on an increase in demand for their goods.
 Discouraged workers return to the labor force and this makes the unemployment rate fall.
 Discouraged workers leave the labor force and this makes the unemployment rate rise.

75. If the economy enters into a recession, the equilibrium quantity of loanable funds should ________ and the real interest rate should ________. (Points : 1)
 fall; rise
 fall; fall
 rise; fall
 rise; rise

76. Since 1990, real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the U.S. over this time. (Points : 1)
 increased; understates
 increased; overstates
 decreased; understates
 decreased; overstates

77. Purchases of which of the following goods would be dramatically reduced during a recession? (Points : 1)
 tomatoes
 ink pens
 gasoline
 refrigerators

78. Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would (Points : 1)
 increase the measured unemployment rate.
 increase the measured labor force participation rate.
 decrease the number of persons in the labor force.
 decrease the number of persons in the working-age population.

79. Which of the following would decrease the unemployment rate? (Points : 1)
 an increase in the minimum wage
 an increase in the efficiency wage
 an increase in labor union membership
 government aid to retrain unemployed workers

80. The labor force equals the number of people (Points : 1)
 employed.
 unemployed.
 employed plus unemployed.
 in the working-age population.

81. Globalization refers to (Points : 1)
 the process of establishing a common world currency.
 the willingness of individuals within a given country to share knowledge with one another.
 the process of countries becoming more open to foreign trade and investment.
 the reduction in growth rates of real GDP per capita as a result of trade with foreign countries.

82. The industrialized group of countries has growth rates that are consistent with the findings of the economic growth model. That is, Ireland and Japan had ________ incomes in 1960 than the U.S. and Switzerland, and Ireland and Japan grew ________ than the U.S. and Switzerland between 1960 and 2004. (Points : 1)
 lower; more rapidly
 greater; less rapidly
 lower; less rapidly
 greater; more rapidly

83. Productivity gains in the United States since 1995 have been ________ productivity gains in other leading industrial nations. (Points : 1)
 the same as
 lower than
 higher than
 more variable than

84. Significant economic growth did not begin in the world until (Points : 1)
 1000 A.D.
 1750 A.D.

 1820 A.D.
 the 20th century A.D.

85. Consumption spending will ________ when disposable income ________. (Points : 1)
 increase; increases
 increase; decreases
 decrease; increases
 change unpredictably; decreases

86. Macroeconomic equilibrium occurs when (Points : 1)
 aggregate expenditure = GDP.
 aggregate expenditure = C+ I + G + net transfers.
 aggregate income = planned inventories.
 aggregate income = planned inventories.

87. An example of assets that are included in household wealth would be (Points : 1)
 stocks, bonds, and savings accounts.
 stocks, loans owed, and savings accounts.
 stocks, bonds, and mortgages.
 stocks, credit cards, and savings accounts.

88. If the consumption function is defined as C = 5,500 + .9Y, what is the marginal propensity to consume? (Points : 1)
 0.1
 0.9
 6.1
 5.5

89. The seven members of the Board of Governors of the Federal Reserve are appointed by (Points : 1)
 the Congress.
 the President.
 the Governors of the States.
 leaders in the banking industry.
 the Treasury Department.

90. The sale of Treasury securities by the Federal Reserve will, in general, (Points : 1)
 not change the money supply.
 not change the quantity of reserves held by banks.
 increase the quantity of reserves held by banks.
 decrease the quantity of reserves held by banks.

91. Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of (Points : 1)
 $0.
 $5 million.
 $15 million.
 $20 million.

92. Which of the following functions of money would be most violated if inflation were high? (Points : 1)
 unit of account
 store of value
 certificate of gold
 medium of exchange

93. Which of the following describes a similarity between the current European residential housing and mortgage market and the U.S. residential housing and mortgage market? (Points : 1)
 The housing markets in both geographic areas are slowing down after a long period of growth and rapidly rising prices.
 Both have central banks that have raised the lending rate by a factor of 2 since a few years ago.
 The majority of new mortgages issued in both markets are the long-term, fixed rate variety.
 Most banks in both geographic regions do not offer home-equity withdrawals.

94. If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time. (Points : 1)
 low; lowers
 low; raises
 high; lowers
 high; raises
 low; does not change

95. Since 2000, the Fed uses ________ to measure inflation. (Points : 1)
 the index of leading economic indicators
 the personal consumption expenditures index
 the consumer price index
 the GDP deflator
 the producer price index

96. An increase in the interest rate (Points : 1)
 decreases the opportunity cost of holding money.
 increases the opportunity cost of holding money.
 decreases the percentage yield of holding money.
 increases the percentage yield of holding money.

97. From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then the president and the Congress would most likely (Points : 1)
 increase the required reserve ratio and decrease government spending.
 decrease government spending.
 decrease oil prices.
 decrease taxes.
 lower interest rates.

98. Which of the following would be most likely to induce the president and the Congress to conduct contractionary fiscal policy? A significant (Points : 1)
 decrease in oil prices.
 decrease in real GDP.
 increase in inflation.
 increase in labor productivity.

99.
Figure 27-2

Refer to Figure 27-2. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Congress and the president would most likely (Points : 1)
 decrease government spending.
 increase government spending.
 increase oil prices.
 increase taxes.
 lower interest rates.

100. Which of the following would be classified as fiscal policy? (Points : 1)
 The federal government passes tax cuts to encourage firms to reduce air pollution.
 The Federal Reserve cuts interest rates to stimulate the economy.
 A state government cuts taxes to help the economy of the state.
 The federal government cuts taxes to stimulate the economy.
 States increase taxes to fund education